Macroeconomics Chapter 17

Increased Life Expectancy

What is a factor making the Social Security system more generous over time?

The Laffer Curve (caused by people either leaving work and earning less total income or tax evasion techniques)

What is the name given to the idea that tax revenues may decrease when the income tax rate increases?

Individual Income Tax

What is the single largest source of revenue for the federal government?

Marginal Tax Rate

What is the tax rate paid on an additional dollar of income?

Corporate Income Taxes

What is the third (but distant) largest source of revenue for the federal government?

Debt

What is the total amount of money owed by the federal government at a point in time?

Average Tax Rate

What is the total tax payment divided by the total income?

Unemployment Insurance (UI)

What makes payments to people who are out of work and is not restricted to the poor?

Volunteer Army

What reduced the total cost to society of providing national defense by freeing up more productive labor, even if that efficiency was not reflected in the government's budget statements?

Deductions

What reduces your taxable income, but only if you have specific expenses?

Capital Gains Tax

What tax rate is 15%?

The Individual Income Tax, The Social Security and Medicare Taxes, and The Corporate Income Tax

What three sources accounts for more than 90% of the revenue the federal government takes in?

Deficit

When government expenditures exceed government revenues?

Surplus

When government revenues exceed government expenditures?

Government Deficits

Government bonds are sold to finance?

$12200

How much is one standard deduction worth?

Spending and Benefits must fall

If we want lower taxes, what two things must occur?

"Setting the rules of the game"

The role of the government in the economy can be summarized as?

Stock Variables (The debt is the sum of all past deficits and surpluses and is a stock variable)

What are measured at a point in time and represents an existing amount or quantity?

Flow Variables (Deficit and Surplus)

What are measured over an interval of time?

(0-3 months) T-Bills (10 years) T-Notes (30 years) T-Bonds

What are three categories of government bonds?

Clear, Consistent, Understandable, Enforceable

What four elements must the "rules of the game" consist of?

Government Budget Balance

What is the difference between government revenues and government expenditures over the course of a year?

Discretionary

_______ spending is based on the discretion of Congress and the President when they set the budget.

Pay-as-you-go basis.

Social Security is run on a: - pay-as-you-go basis. - pay-for-play basis. - plug-and-play basis. - buy-and-hold basis.

Deficit

A _______ is when government expenditure exceeds government revenue.

Surplus

A _______ is when government revenue exceeds government expenditure.

Progressive

A _______ tax has higher tax rates on people with higher income.

Rising Health-Care Costs

A large part of the growth in spending is due to?

Alternative Minimum Tax

A separate income tax code, begun in 1969 to prevent the rich from not paying income taxes; not indexed to inflation and thus now an extra tax burden on many upper and middle class families, this is known as?

At least 65 years old and worked at a job paying Medicare premiums for 10 years.

All else equal, a person will be eligible for Medicare coverage if he or she is: - poor. - at least 65 years old and worked at a job paying Medicare premiums for 10 years. - poor but at one time worked at a job paying Medicare premiums for 10 years. - at least 65 years old.

More beneficial Social Security will be for him or her.

All else equal, the greater one's life expectancy, the: - more beneficial Social Security will be for him or her. - lower his or her monthly benefits will be. - later his or her full retirement age will be. - more Social Security taxes he or she will pay.

Social Security, Defense, Medicare, and Medicaid

Almost two-thirds of the U.S. federal budget is spent on just four programs in a typical year which are?

Progressive Tax (Income Taxes)

An income tax with higher tax rates on people with higher incomes is known as?

Flat Tax (Sales Tax)

An income tax with the same tax rate on all levels of income (compare with progressive and regressive tax) this is known as?

$30,243.50 ($16,750 × 0.10) + [($68,000 − $16,750) × 0.15] + [($137,300 − $68,000) × 0.25] + [($150,000 − $137,300) × 0.28] = $30,243.50.

Assuming no deductions or exemptions, what would the individual income tax liability be for a person earning $150,000 per year? - $42,000 - $30,243.50 - $28,346.50 - $58,590

Women than for men.

Because Social Security redistributes toward those with higher life expectancy, it's better for: - single men than for married women. - men than for women. - women than for men. - married men than for single women.

Overhead expenses; benefits

Because _____ for Social Security and Medicare are quite low, it is difficult to cut spending on these programs without cutting _____. - benefits; overhead expenses - overhead expenses; benefits - overhead expenses; FICA tax rates - FICA tax rates; retirement ages

Federal Budget

Because of Medicare, Medicaid, and health insurance subsidies, health-care costs will consume a larger and larger share of the ____________ ____________.

Low

Despite some fraud, the overhead costs of the Social Security program are ____________.

The elderly

Due to the redistribution that takes place under Social Security and Medicare, _____ benefit the most from these programs. - women - the elderly - the rich - married people

Spouse; Child or Dependent

Each person generally gets one tax exemption for him- or herself, one exemption for a ____________, and one exemption for each _____________ or ______________.

Most gifts cost the giver more than they are valued by the recipient.

Economist Joel Waldfogel, estimated that billions of dollars are wasted every Christmas because?

Was the first person to receive a Social Security check.

Ida May Fuller: - wrote the law that created Social Security. - was the first person to pay Social Security taxes. - received the very first Social Security number: 000-00-0001. - was the first person to receive a Social Security check.

It is regressive.

If a person making $40,000 per year pays $10,000 in federal income taxes, and a person making $72,000 per year pays $16,000 in federal income taxes, which statement best describes the tax code? - It is flat. - It is regressive. - It is progressive. - It is an AMT.

47 percent

In 2013, what share of U.S. tax receipts came from individual income tax? - Less than 1 percent - 7.2 percent - 47 percent - 16.3 percent

An individual should be 65 or older and have worked for at least 10 years in a job paying Medicare premiums.

In order to be eligible for Medicare, what two requirements must you meet?

Benefits

It's difficult to cut spending on big programs without cutting?

Workers; Employers

Much of the burden of the Federal Insurance Contributions Act tax falls on ______________, not on ______________.

Lifetime Earnings (Workers with low lifetime incomes tend to get more out of the system than if they had saved their tax payments)

Social Security is more generous the lower a worker's _________________ __________________.

There will be more elderly people collecting Social Security benefits.

The U.S. debt-to-GDP ratio is expected to soar (given current spending and tax trends), in part because: - there will be fewer poor families collecting Medicaid benefits. - recessions are expected to become more common, meaning spending on unemployment benefits will rise. - there will be more elderly people collecting Social Security benefits. - defense spending is expected to constitute a bigger and bigger portion of government spending.

70%

The United States has a debt-to-GDP ratio of over ___________.

Laffer

The _______ Curve is the name given to the idea that tax revenues may decreases when the income tax rate increases.

Earned

The _______ Income Tax Credit is a salary subsidization program.

Federal debt-to-GDP; healthcare

The ____________ ratio will rise significantly in the future because Americans are getting older and _____________ costs per person have been rising significantly.

The separate income tax code that began in 1969 to ensure that the rich pay income tax.

The alternative minimum tax is: - the separate income tax code that began in 1969 to ensure that the rich pay income tax. - a system that has lower tax rates on people with higher incomes. - the tax rate paid on an additional dollar of income. - the total tax payment divided by total income.

Health care; rising

The federal debt-to-GDP ratio will rise significantly in the future, because Americans are getting older on average and _____ costs per person have been _____ significantly. - energy; rising - energy; falling - health care; falling - health care; rising

1946; 108%

The highest debt-to-GDP ratio in U.S. history occurred in ___________ at ____________.

Amendment

The income tax was made constitutional with the 16th _________.

Additional

The marginal tax rate is the rate paid on an ___________ dollar of income.

Tax rate paid on an additional dollar of income.

The marginal tax rate is the: - tax rate paid on an additional dollar of income. - total tax payment divided by total income. - separate income tax code that began in 1969 to ensure that the rich pay income tax. - tax rate paid on the first dollar of income.

Workers who were paying Social Security taxes in 2017.

The money that was used to pay benefits to Social Security recipients in 2017 came from: - the taxes that these recipients paid when they were working. - anticipated future tax payments from approximately 2019. - foreign investors. - workers who were paying Social Security taxes in 2017.

Marginal tax rate.

The tax rate paid on an additional dollar of income is called the: - regressive tax rate. - marginal tax rate. - alternative minimum tax rate. - average tax rate.

The Age of Retirement

We have already cut some projected Social Security spending by increasing?

67 years old

What age must you be now in order to claim your full retirement benefits?

How many years a worker worked What their average earnings were over their working life Whether or not they are married What year they retire, and what age

What are four characteristics that define Social Security benefits?

Capital Gains Taxes

What are paid only when the assets are actually sold and not while the assets are simply being held?

Home Mortgage Interest, Donations to Charity, State and Local Taxes, and Interest on Student Loans

What are the four most important deductions?

Discretionary and Mandatory

What are the two categories of government spending?

Demographics and Increasing Health-Care Costs

What are the two driving forces making economists worried about the future debt-to-GDP ratio?

Medicaid

What covers the poor and the disabled?

Earned Income Tax Credit (EITC)

What enables low-income individuals to claim more in tax refunds than they initially paid?

Regressive Tax (Social Security)

What has lower tax rates on people with lower income?

Environmental Protection Agency

What has the power to regulate how business affects the environment and its mandates involve many billions of dollars of costs and benefits?

The Labor Force has been growing more slowly in recent decades because fewer people are working and because the growth rate in the population has declined

What is a reason why Social Security has become less generous over time?

Income Tax

What is a tax on your labor income and also on any income you receive from your investments, namely your interest income, your dividends, and your capital gains?

National Debt Held By The Public (Debt held by individuals, corporations, state or local governments, foreign governments, and other entities other than the federal government itself)

What is all the federal debt held outside the U.S. government?

Mandatory Spending (Social Security, Medicare, Medicaid, and Interest on the Debt)

What is based on prior promises and commitments made?

Discretionary Spending (military, education, police and fire departments)

What is based on the discretion of Congress and the President?

Ordinary Income

What is income from wages, salary, tips, interest income from savings, and short-term assets?

Ordinary Income

What is not your taxable income?

Social Security

What is run on a "pay-as-you-go basis?"

Deficit (you can think of the deficit as the annual change in the national debt)

What is the annual difference between federal spending and revenues?

Moving to a flat tax would require lowering rates on the rich and raising rates on the middle class and poor.

What is the disadvantage of a flat tax?

-10% -15% -25% -39.6%

What is the marginal tax rate for each income listed below? Earn less than $18,550? Earn between $18,550 and $75,300? Earn between $75,300 and $151,900? Earn more than $466,950?

Social Security and Medicare Taxes

What is the second largest source of revenue for the federal government?

Social Security

What is the single largest government program in the world?

Personal Welfare Payments (the largest is the Temporary Assistance for Needy Families)

What kind of payments are made to poor households with children?

Earned Income Tax Credit (EITC)

What pays poor people cash through the tax system depending on how much they earn?

Individual Income Taxes

What was made constitutional with the 16th amendment in 1909?

To make sure that it would not be possible for anyone to avoid all income tax

What was the original goal of the AMT (Alternative Minimum Tax)?

The government must borrow to make up the difference-the difference is the deficit

When spending is greater than revenues what does the government have to do?

Setting the long-run real growth rate of the economy

Which activity is NOT a way in which the government can affect the economy? - collecting revenue and making expenditures - commandeering resources from the private sector - setting the long-run real growth rate of the economy - regulating businesses and industries

Austria

Which country has the highest level of total government spending as a percentage of GDP? - Sweden - The United States - The United Kingdom - Austria

When federal government spending exceeds tax revenues, the national debt falls.

Which statement is FALSE? - The average interest rate on U.S. debt in 2017 was about 2 percent. - The national debt held by the public is all federal debt held by individuals, corporations, and governments not including the U.S. government. - When federal government spending exceeds tax revenues, the national debt falls. - The deficit is the annual difference between federal spending and revenues.

The original goal of the Alternative Minimum Tax was to make sure that it would be possible for too many people to avoid all income tax.

Which statement is FALSE? - The corporate income tax rate in United States is around 35 percent, one of the highest rates in the world. - The Alternative Minimum Tax was supposed to hit just a small group of the super-rich, but every year more and more people become subject to it since it was not adjusted for inflation. - The original goal of the Alternative Minimum Tax was to make sure that it would be possible for too many people to avoid all income tax. - Most of the burden of the FICA tax falls on workers, not on employers.

The average interest rate on U.S. debt in 2017 was about 5 percent.

Which statement is FALSE? - The national debt held by the public is all federal debt held by individuals, corporations, and governments not including the U.S. government. - The deficit is the annual difference between federal spending and revenues. - When federal government spending exceeds tax revenues, the national debt rises. - The average interest rate on U.S. debt in 2017 was about 5 percent.

The real tax rates people pay are not the same as the rates written into the tax code.

Which statement is TRUE? - Capital gains taxes are paid only when the assets are purchased. - The income tax is a tax only on labor income. - The alternative minimum tax is adjusted for inflation. - The real tax rates people pay are not the same as the rates written into the tax code.

Capital gains taxes are paid only when the assets are sold.

Which statement is TRUE? - Capital gains taxes are paid only when the assets are sold. - The alternative minimum tax is adjusted for inflation. - The real tax rates people pay are the same as the rates written into the tax code. - The income tax is a tax only on labor income.

Capital

_______ Gains tax are composed of profits made on investments.

The national debt held by the public is all federal debt held by individuals, corporations, and governments other than the U.S. government.

Which statement is TRUE? - The average interest rate on U.S. debt in 2017 was about 10 percent. - The debt is the annual difference between federal spending and revenues. - The national debt held by the public is all federal debt held by individuals, corporations, and governments other than the U.S. government. - When federal government spending exceeds tax revenues, the national debt falls.

In recent decades, health care costs per person have been rising more than twice as fast as GDP per capita.

Which statement is TRUE? - The fiscal health of the federal government can be determined simply by looking at today's budget or today's deficit. - In recent decades, health care costs per person have been rising more than twice as fast as GDP per capita. - The growth in health care costs is quite different throughout the developed world. - By 2030 more than 40 percent of the U.S. population will be elderly.

The marginal tax rate is the tax rate paid on an additional dollar of income

Which statement is TRUE? - The marginal tax rate is the tax rate paid on an additional dollar of income. - A flat tax has a variable tax rate. - A regressive tax has higher tax rates on people with lower incomes. - A progressive tax has lower tax rates on people with higher incomes.

A flat tax has a constant tax rate.

Which statement is TRUE? - The marginal tax rate is the tax rate paid on total income. - A flat tax has a constant tax rate. - A regressive tax has higher tax rates on people with lower incomes. - A progressive tax has lower tax rates on people with higher incomes.

The average interest rate on U.S. debt in 2017 was about 2 percent.

Which statement is TRUE? - When federal government spending exceeds tax revenues, the national debt falls. - The average interest rate on U.S. debt in 2017 was about 2 percent. - The debt is the annual difference between federal spending and revenues. - The national debt held by the public is all federal debt held by individuals, corporations, and governments including the U.S. government.

Whether he or she is married

Which variable will affect the amount of a Social Security recipient's benefits? - what other retirement savings he or she has - whether he or she is married - whether he or she plans to work part time in retirement - whether he or she has children

Ida May Fuller (Social Security Check #00-000-001)

Who received the very first Social Security Check?

Because it's the marginal rate that matters for determining things like the incentive to work additional hours.

Why do we care about the marginal tax rate?

13.1%=($6,573/$50000) * 100

You pay 10% on the first $18,550, or $1,855, then you pay 15% on the next $31,450, or $4,718, for a total tax of $6,573. Your average tax rate is then?

Mandatory

_______ spending is based on prior promises and commitments made.