Econ chapter 14, 15, ; 13 – Flashcards
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Why do governments impose taxes?
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Taxes give the government money it needs to operate
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Four characteristics of a good tax
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-Simplicity -Efficiency -Certainty -Equity
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What is the purpose of FICA
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Fund 2 large government programs, social security, and medicare
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Why is the cost of social security programs expected to increase in the next decades?
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Because the population is increasing
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What is the difference between progressive tax and regressive tax?
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Progressive tax is the percent of income paid in taxes increases as income increases Regressive tax is the percent of income paid in taxes decreases as income increases
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Describe the benefits-received principle. How does it differ from the ability-to-pay principle?
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Benefits-received principle is when a person should pay based on the level of benefits he or she expects to receive. The ability-to-pay principle is when people should pay taxes according to their ability to pay
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Describe withholding and explain how it would affect a student with a part-time job.
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Taking payments out of your pay before you receive it. It would affect a student with a part-time job because they would make much money to help them.
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What is an entitlement program
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Social welfare programs that people are "entitled to" if they meet certain eligibility requirements, such as being at a certain income level or age.
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What is the largest category of discretionary spending?
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-Education -Training -Scientific research
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What are the main sources of state revenue? How d they differ from the main sources of local revenue?
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Sales taxes. Local revenue is within the town or city
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The first power granted to Congress in the Constitution is...
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The power to tax
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Limits on taxation
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Must be for the "common defense and general welfare"-cant benefit individual interests
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Federal taxes
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Must be the same in each state
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Federal governments also
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Limit what kind of taxes
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Types of tax structures
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-A persons earnings -The dollar value of an item sold -The value of property -The value or a company's profits
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A persons earnings
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Individual income tax
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The dollar value of an item sold
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Sales tax
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The value of property
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Property tax
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The value or a company's profits
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Corporate tax
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6 major sources of tax revenue
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1. Individual income taxes 2. Corporate income taxes 3. Social insurance taxes 4. Excise taxes 5. Estate and Gift taxes 6. Tax on imports and Gift taxes
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Examples of mandatory spending
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-Social security -Medicare and medicaid -Food stamps -Unemployment insurance -Veteran benefits
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State budgets
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Operating Budgets and Capital Budgets
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Where are state taxes spent?
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-Education -Highways and transportation -Public welfare -Arts and recreation -Administration
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Sales taxes require
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-Sales tax -State income tax -Corporate income tax -Other state taxes
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Local government includes
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-Towns and cities -Counties -Special districts such as school districts
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Examples of Expansionary Fiscal Policy
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-Higher (government) spending -Tax cuts -Combination of both
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Result of Expansionary Fiscal Policy
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Budget Deficit
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Contractionary Fiscal Policy
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-Used when demand exceeds supply-they are trying to present high inflation -Decrease government spending -Tax increases
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Multiplier Effect
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Every one dollar change in fiscal policy causes a greater than one dollar change in the national income-effects of changes in fiscal policy are multiplied
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Classical Economics
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-Adam Smith, David Ricardo, Thomas Malthus -Free market can regulate itself -Dominant theory until the Great Depression
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Supply-Side economics
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-Stressed the negative influence of taxation on the economy -Reagan followed this policy for tax cuts, but government spending didnt decrease
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Fiscal Policy and how it relates to the Federal Budget
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Stabilizes economy. Relates to fed budget because it expresses the governments fiscal policy
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What role does the OMB play in creating the federal budget
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OMB manage the federal budget, and decides who gets what money
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What are the two types of expansionary policies?
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Increasing governments spending and cutting taxes
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What is the central idea of classical economics?
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That free markets can regulate themselves
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Why can low tax rates encourage investment and increase employment and wages?
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If you cut taxes, people get to keep the money and spend it on goods
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What options does the government have to respond to an annual budget deficit?
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The government must find a way to pay for the entire expenditures by creating money or borrowing money
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When does cyclical unemployment take place?
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During recession, or downturns in the business cycle. Economic downturns
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How is unemployment rate calculated?
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Number of people unemployed divided by civilian labor force times 100
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How does inflation affect purchasing power?
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Stops and sets prices increase. Inflation increases purchasing power
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5 reasons that help account for poverty?
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-Lack of education -Location -Racial and gender discrimination -Economic shifts, and shifts in family structure
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Explain how a family can including working adults but still have an income below the poverty threshold
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They only receive minimum wage
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How do existing government polices deal with poverty?
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-Welfare checks -Food stamps -Cash assistance -Free housing -Education
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Which groups are the most affected by poverty?
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-Immigrants -Female headed households -Hispanics -Black
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List three ways in which the government combats poverty
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-Food stamps -Health care -Subsidize housing -Employment
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The percentage of the nations labor force that is unemployed
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Unemployment rate
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Level of employment reached when there is no cyclical unemployment
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Full employment
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Percentage of people who live in households with income below the official poverty line
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Poverty rate
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How the nation's total income is distributed among its population
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Income distribution
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The percentage rate of change in price level over time
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Inflation rate
