question

a relatively high tax designed to raise revenue while reducing consumption of a socially undesirable product

answer

sin tax

question

tax on liquor or tobacco

answer

example of sin tax

question

the cost of production goes up which causes prices to rise and causes people to buy less which then causes companies to cut back on the factors of production (land, capital, labor, etc.)

answer

What can happen to factors of production when prices go up as an end result of taxation?

question

final burden of a tax

answer

incidence of a tax

question

demand must be inelastic

answer

What situation must exist to make it easier to shift the incidence of a tax to the consumer?

question

it changes the incentives to save, invest, and work

answer

What effect might taxes have on productivity and economic activity?

question

1. Equity 2. Simplicity 3. Efficiency

answer

What are the 3 criterion for effective taxes?

question

exception/oversight in the tax law allowing a taxpayer to avoid paying certain taxes

answer

tax loophole

question

if taxes have fewer exceptions, deductions, and exemptions, then taxes are viewed as being fairer

answer

What criteria is generally recognized as making taxes fairer?

question

when the tax laws are simple and easy to understand

answer

What makes taxes tolerable to many people?

question

federal tax levied on the wages, salaries, and other income of individuals

answer

individual income tax

question

general tax levied on most consumer purchases

answer

sales tax

question

1. tax should be easy to administer 2. tax should generate enough worthwhile revenue that doesn't harm the economy

answer

What are the two criteria for making a tax efficient?

question

annual report by a taxpayer filed with the local, state, or federal gov't detailing income earned and taxes owed

answer

tax return

question

belief that taxes should be paid according to benefits received regardless of income

answer

benefit principle of taxation

question

belief that taxes should be paid according to level of income, regardless of benefits received

answer

ability-to-pay principle

question

1. the benefits received from the gov't can't always be measured 2. people with higher income suffer less discomfort than people with lower income

answer

What two factors is the ability-to-pay principle based on?

question

1. proportional tax 2. progressive tax 3. regressive tax

answer

3 general types of taxes in the U.S.

question

percentage of income paid in tax is the *same* regardless of the level of income

answer

proportional tax

question

percentage of income paid in tax *rises* as the level of income rises (people with higher income pay more tax than lower income people)

answer

progressive tax

question

percentage of income paid in tax goes *down* as income rises (people with lower incomes pay more taxes than people with higher incomes)

answer

regressive tax

question

total taxes paid divided by the total taxable income

answer

average tax rate

question

federal health-care program for senior citizens

answer

Medicare

question

tax rate that applies to the next dollar of taxable income

answer

marginal tax rate

question

benefit

answer

Gasoline taxes are a good example of the ___________ principle of taxation.

question

Progressive

answer

Paying $1,000 tax on $10,000 of taxable income, $4,000 on $20,000 of taxable income, and $20,000 on $60,000 of taxable income is an example of a tax system that is ___________________.

question

a line-item budget expenditure that circumvents normal budget procedures and benefits a small number of people or business

answer

pork

question

that part of the economy made up of local, state, and federal gov'ts

answer

public sector

question

1. a major change in public opinion gave the gov't a larger role in everyday economic affairs (FDR's New Deal) 2. massive gov't spending funded the U.S. involvement in WW2

answer

What are the two main causes for the growth in gov't spending since the 1930s?

question

that part of the economy made up of private individuals and businesses

answer

private sector

question

1. the gov't pays to hire workers, maintain utilities, and give supplies. (tanks, office buildings, etc.) 2. transfer payments such as Social security, welfare, unemployment compensation, and aid for people with disabilities

answer

2 types of gov't spending

question

payment for which the gov't receives neither goods nor services in return

answer

transfer payment

question

transfer payment from one level of the gov't to another that doesn't involve compensation

answer

grant-in-aid

question

gov't payment to encourage or protect a certain economic activity

answer

subsidy

question

way in which the nation's income is divided among families, individuals, or other designated groups

answer

distribution of income

question

annual gov't spending in excess of taxes and other revenues

answer

deficit spending

question

the state of the economy, the changes in the economy, and the way expenditures are reported

answer

What factors affect the accuracy of the deficit projection?

question

total amount borrowed from investors to finance the government's deficit spending

answer

national debt

question

annual budget in which expenditures equal revenues

answer

balanced budget

question

If the federal budget runs a surplus, then the debt goes down.

answer

What is the only way the annual budget can lower the federal debt?

question

special account used to hold revenues designated for a specific expenditure such as Social Security, Medicare, or highways

answer

trust fund

question

Because trust fund balances represent money the gov't owes to itself

answer

Why do most economists tend to disregard trust fund balances?

question

per person basis; total divided by population

answer

per capita

question

higher-than-normal interest rates caused by heavy gov't borrowing

answer

crowding-out effect

question

It causes a transfer of purchasing power from the private sector to the public sector

answer

What happens to the purchasing powers of individuals as a consequence of national debt?

question

requirement that new spending proposals or tax cuts must be offset by reductions elsewhere

answer

pay-as-you-go provision

question

pay-as-you-go provision

answer

What was the 1990 Budget Enforcement Act's main feature?

question

power to cancel specific budget items without rejecting the entire budget

answer

line-item veto

question

limits on annual discretionary spending

answer

spending cap

question

program/benefit using established eligibility requirements to provide health, nutritional, or income supplements to individuals

answer

entitlements

question

entitlements are classified as mandatory spending in the federal budget

answer

What is the connection between entitlements and mandatory spending in the federal budget?

question

public and private

answer

What are the two broad categories of gov't spending?

question

A. remained fairly constant

answer

Since 1983, spending by all levels of gov't as a percentage of GDP has ________________. A. remained fairly constant B. has decreased slightly C. has increased dramatically D. has increased

question

D. transfer payment

answer

Social Security is an example of a ___________________. A. pork expenditure B. private sector expenditure C. subsidy D. transfer payment

question

Public sector spending

answer

What directly and indirectly affects how resources are allocated?

question

C. The national debt doesn't have to be repaid by a specific date.

answer

In what way is the national debt different from private debt? A. Most of the national debt is owed to others. B. Private debt doesn't have to be repaid by a specific date. C. The national debt doesn't have to be repaid by a specific date. D. The gov't gives up purchasing power when it repays the national debt.

question

The federal deficit leads to borrowing, which adds to the national debt.

answer

Describe the relationship of the federal deficit to the national debt.

question

B. federal money given to a senior citizen as a Social Security payment

answer

Which of the following is an example of entitlement payment? A. federal money given to a contractor in exchange for military uniforms B. federal money given to a senior citizen as a Social Security payment C. federal money spent to pay interest on the national debt D. federal money spent to build a new public highway

question

A. an increase in taxes

answer

Which of the following normally decreases the federal deficit? A. an increase in taxes B. an increase in spending C. entitlement programs D. low economic activity

question

the dollars that become available when people abstain from consumption

answer

savings

question

network of savers, investors, and financial institutions that work together to transfer savings to investors

answer

financial system

question

claims on the property and the income of the borrower

answer

financial assets

question

regular payment intended to provide income security to someone who has worked a certain number of years or reached a certain age

answer

pension

question

degree to which the outcome is uncertain but a probable outcome can be estimated

answer

risk

question

absence of spending that frees resources for use in other activities or investments

answer

saving

question

document showing that an investor has made an interest-bearing loan to a financial institution

answer

certificate of deposit

question

institution that channels savings to investors

answer

financial intermediary

question

1. banks 2. credit unions 3. life insurance companies 4. pension funds 5. savings & loan associations 6. mutual savings banks 7. mutual funds 8. savings banks 9. finance

answer

examples of financial intermediaries

question

non-depository institution that channels savings to investors

answer

nonbank financial institution

question

1. finance companies 2. insurance companies 3. pension funds

answer

examples of nonbank financial institution

question

firm that makes loans directly to consumers and specializes in buying installment contracts from merchants who sell on credit

answer

finance company

question

price paid at regular intervals for an insurance policy

answer

premium

question

fund that collects & invests income until payments are made to eligible recipients

answer

pension fund

question

C. both saving & borrowing

answer

Capital formation depends on _______________________. A. saving alone B. borrowing alone C. both saving & borrowing D. neither saving nor borrowing

question

intermediaries

answer

The financial institutions that bring together funds that savers provide and then lend those funds to others are called financial __________________.

question

households and businesses

answer

What sector(s) of the economy provide(s) the most savings?

question

someone who inherits the ownership of a financial asset if the purchaser dies

answer

beneficiary

question

stated interest on a corporate, municipal, or government bond

answer

coupon rate

question

exceptionally risky bonds

answer

junk bonds

question

bonds issued by the state & local governments

answer

municipal bonds

question

long-term, tax sheltered time deposits that can be set up as a part of an individual retirement plan

answer

IRAs

question

contract to repay borrowed money and interest on the borrowed money at regular future intervals

answer

bond

question

life of a bond or length of time funds are borrowed

answer

maturity

question

principle of a bond or total amount borrowed

answer

par value

question

bond's annual coupon interest rate divided by purchase price; measure of a bond's return

answer

current yield

question

1. coupon rate 2. maturity 3. par value

answer

3 main components of a bond

question

not subject to tax by federal or state gov'ts

answer

tax-exempt

question

low denomination, non-transferable bond issued by the federal gov't

answer

savings bond

question

U.S. gov't obligation with a maturity of 2 to 10 years

answer

treasury note

question

U.S. gov't bond with a maturity of 30 yrs.

answer

treasury bond

question

short-term U.S. gov't obligation w/a maturity of one year or less in denominations of $100

answer

treasury bill

question

market in which financial capital is loaned and/or borrowed for *more than one year*

answer

capital market

question

market in which financial capital is loaned and/or borrowed for *one year or less*

answer

money market

question

market in which only the original issuer can sell/repurchase a financial asset

answer

primary market

question

market in which financial assets can be sold to someone other than the original issuer

answer

secondary market

question

high

answer

High return, _________ risk.

question

municipal bonds

answer

What kind of bonds are generally tax-exempt?

question

stocks that represent ownership shares in corporations

answer

equities

question

place where buyers & sellers meet to exchange stocks

answer

securities/stock exchange

question

electronic marketplace for securities that aren't traded on an organized change

answer

over-the-counter market

question

period during which stock market prices move *down* for several months or years in a row

answer

bear market

question

period during which stock market prices move *up* for several months or years in a row

answer

bull market

question

person who buys or sells securities for investors

answer

stockbroker

question

argument that stocks are always priced about right because they are closely watched

answer

efficient market hypothesis

question

strategy of holding different investments to protect against risk

answer

portfolio diversification

question

company that sells stock in itself and uses the proceeds to buy stocks and bonds issued by other companies

answer

mutual fund

question

the market value of a mutual fund share found by dividing the net value of the fund by the number of shares issued

answer

net asset value

question

tax deferred investment and savings plan that acts as a personal pension fund for employees

answer

401(k) plan

question

measure of stock market performance based on 30 representative stocks

answer

Dow Jones Industrial Average

question

measure of stock market performance based on 500 stocks traded on several markets

answer

Standard & Poor's 500

question

market in which a transaction is made immediately at the prevailing price

answer

spot market

question

an agreement to buy/sell at a specific date in the future at a predetermined price

answer

futures contract

question

futures contract giving a buyer the right to cancel the ocntract

answer

option

question

futures contract giving a buyer the right to cancel a contract to *buy* something

answer

call option

question

futures contract giving a buyer the right to cancel a contract to *sell* something

answer

put option

question

Dow Jones Industrial Average

answer

the most popular and widely measure of stock market performance?

question

New York Stock Exchange

answer

oldest, largest, and most prestigious organized stock exchange in the U.S.?

question

regular increases and decreases in real GDP

answer

business cycles

question

irregular increases and decreases in real GDP

answer

business fluctuations

question

decline in real GDP lasting at least two quarters

answer

recession

question

point in the business cycle when real GDP stops expanding

answer

peak

question

point in the business cycle when real GDP stops declining

answer

trough

question

period of uninterrupted growth of real GDP

answer

expansion

question

growth path the economy would follow if it were not interrupted alternating periods of recession and recovery

answer

trend line

question

state of the economy with large numbers of unemployed people, declining real incomes, overcapacity in manufacturing plants, and general economic hardship

answer

depression

question

currency issued by towns, chambers of commerce, and other civic bodies during the Great Depression of the 1930s

answer

depression scrip

question

statistical series that turns down before the economy turns down, or up before the economy turns up

answer

leading economic indicator

question

statistical series used to predict turning points in the business cycle

answer

composite index of leading economic indicators

question

mathematical expression used to describe how the economy is expected to perform in the future

answer

econometric model

question

increase in the general level of prices of goods and services

answer

inflation

question

decrease in the general level of prices for goods and services

answer

deflation

question

statistical series used to measure changes in price level over time

answer

price index

question

series used to measure price changes for a representative sample of frequently used consumer items

answer

consumer price index

question

representative selection of goods and services used to compile a price index

answer

market basket

question

year serving as a point of comparison for other years in the price index

answer

base year

question

dividing the cost of every market basket by the base-year market basket cost

answer

How is the dollar cost of a market basket converted to an index value?

question

low rate of inflation at 1-3% annually

answer

creeping inflation

question

inflation in excess of 500% per year

answer

hyperinflation

question

period of slow economic growth coupled w/inflation

answer

stagflation

question

index used to measure prices received by domestic producers

answer

producer price index

question

index used to measure price changes in GDP

answer

implicit GDP price deflator

question

prices rice b/c all sectors of the economy try to buy more good and services than the economy can produce

answer

demand-pull inflation

question

rising input costs drive up prices of products

answer

cost-push inflation

question

person/institution to whom money is owed

answer

creditor

question

person who borrows and owes money

answer

debtor

question

people 16 or older either working or looking for a job

answer

labor force

question

number of unemployed persons divided by civilian force; percentage of people unemployed

answer

unemployment rate

question

workers that are in between jobs

answer

frictional unemployment

question

caused by change in economy that reduced demand for workers

answer

structural unemployment

question

hiring outside firms to perform non-core operation to lower operating costs

answer

outsourcing

question

caused by technological advances that makes workers' skills obsolete

answer

technological unemployment

question

related to swings in the business cycles

answer

cyclical unemployment

question

caused by changes in weather or other conditions that reduce demand for jobs

answer

seasonal unemployment

question

doesn't blame any group for rising prices

answer

wage-price spiral

question

difference b/t what economy can and does produce

answer

GDP gap

question

unofficial statistic that is the sum of the monthly inflation and unemployment rates

answer

misery/discomfort index

question

divide CPI by the beginning value of CPI

answer

how to calculate rate of inflation?

question

demand-pull

answer

According to the excessive monetary growth theory of inflation, any extra money in the economy is spent, leading to a _________ ___________ effect.

question

True

answer

T/F Reduced purchasing power is a consequence of inflation.

Economics Ch. 9-13 – Flashcards

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