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tax

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a required payment to a local, state, or national government

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revenue

answer

income received by a government from taxes and non tax sources

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taxes must be for

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common defense and general welfare; federal taxes must be the same in every state

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tax base

answer

income, property, good, or service that is subject to a tax

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individual income tax

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a tax on a person's earnings

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sales tax

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a tax on the dollar value of a good or service being sold

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property tax

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a tax on the value of a property

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corporate income tax

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a tax on the value of a company's profits

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proportional tax

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a tax for which the percentage of income paid in taxes remains the same for all income levels

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progressive tax

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a tax for which the percentage of income paid in taxes increases as income increases

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regressive tax

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a tax for which the percentage of income paid in taxes decreases as income increases

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A good tax has

answer

simplicity, efficiency, certainty, and equity (fairness)

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benefits-received principle

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a person should pay taxes based on the level of benefits he or she expects to receive

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ability-to-pay principle

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people should pay taxes according to their ability to pay

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incidence of a tax

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the final burden of a tax (inelastic has the cosumer burdened, elastic has the seller burdened)

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6 major sources of tax revenue

answer

individual and corporate income taxes, social insurance taxes, excise taxes, estate and gift taxes, and taxes on imports

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withholding

answer

taking tax payments out of an employee's pay before he or she receives it

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tax return

answer

form used to file income taxes

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taxable income

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income on which tax must be paid; total income minus exemptions and deductions

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personal exemptions

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set amounts that you subtract from your gross income for yourself, your spouse, and any dependents

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deductions

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variable amounts that you can subtract, or deduct, from your gross income (interest on mortgage, donations to charity, some medical expenses and state and local tax payments)

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federal income tax

answer

is a progressive tax

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FICA

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Federal Insurance Contributions Act are taxes that fund Social Security and Medicare

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Social Security

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Old-age, Survivors, and Disability insurance (OASDI) largest category of federal spending

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Medicare

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a national health insurance program that helps pay for health care for people over age 65 or with certain disabilities

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excise tax

answer

general revenue tax on the sale or manufacture of a good

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estate tax

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tax on the estate, or total value of the money and property, of a person who has died

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gift tax

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tax on money or property that one living person gives to another

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tariff

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a tax on imported goods

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tax incentive

answer

the use of taxation to encourage or discourage certain behavior

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sin taxes

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Federal taxes on tobacco products and alcohol

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mandatory spending

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spending on certain programs that is mandated, or required, by existing law (social security and medicare) increased in years

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discretionary spending

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spending category about which government planners can make choices (defense and education) decreased in years

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entitlement

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social welfare program that people are "entitled to" if they meet certain eligibility requirements

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medicaid

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entitlement program that benefits low-income families, some people with disabilities, and elderly people in nursing homes

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examples of discretionary spending

answer

defense, education, training, scientific research, student loans, technology, national parks and monuments, law enforcement, environmental cleanup, housing, land management, transportation, disaster aid, foreign aid, farm subsidies

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operating budget

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state budget for day-to-day expenses

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capital budget

answer

state budget for major capital, or investment, spending

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balanced budget

answer

budget in which revenues are equal to spending (49 states)

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tax exempt

answer

not subject to taxes (nonprofit org., religious groups, and charities)

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real property

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physical property such as land and buildings

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personal property

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possessions such as jewelry, furniture, and boats

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tax assessor

answer

an official who determines the value of a property

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fisc means

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"basket" or "Bag"

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Fiscal policy

answer

the use of government spending and revenue collection to influence the economy (used to acheive economic growth, full employment, and price stability)

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fiscal policy decisions

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how much to spend and how much to make

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federal budget

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a plan for the federal government's revenues and spending for the coming year (written document)

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fiscal year

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a twelve-month period that can begin on any date (October 1st- September 30)

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federal budget process

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4 steps= Spending proposals, in the executive branch, in congress, and in the white house

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Office of Management and Budget

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(OMB) government office of the executive branch that manages the federal budget

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Congressional Budget Office

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(CBO) created in 1974 the CBO gives congress independent economic data to help with its decisions

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appropriations bill

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a bill that sets money aside for specific spending (Congress sends to the President who has to sign them into law)

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expansionary policies

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fiscal policies, like higher spending and tax cuts, that encourage economic growth or increase in output

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contractionary policies

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fiscal policies, like lower spending and higher taxes, that reduce growth and decrease output

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classical economics

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the idea that free markets can regulate themselves and have dominated economic theory and government policies

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productive capacity

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often called full employment output is the maximum output that an economy can produce without big increases in inflation

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demand-side economics

answer

the idea that government spending and tax cuts help an economy by raising demand

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keynesian economics

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a form of demand-side economics that encourages government action to increase or decrease demand and output (three sectors- individuals, business, and govern.- and that govern. can make up for changes in the other two)

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multiplier effect

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the idea that every one dollar of government spending creates more than one dollar in economic activity

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automatic stablilizers

answer

a government program that changes automatically depending on GDP and a person's income

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supply-side economics

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a school of economics that believes tax cuts help an economy by raising supply (taxes have strong negative influences on economic output) use the Laffer curve

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Council of Economic Advisers

answer

(CEA) a group of three respected economists that advise the President on economic policy

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Federal budgets components

answer

revenue (taxes) and expenditures (spending programs)

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balanced budget

answer

a budget in which revenues are equal to spending

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budget surplus

answer

a situation in which the government takes more then it spends (revenues exceed expenditures)

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budget deficit

answer

a situation in which the government spends more than it takes in (expenditures exceed revenues)

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treasury bill

answer

a government bond that is repaid within three months to a year

question

treasury notes

answer

a government bond that is repaid within two to ten years

question

treasury bonds

answer

a government bond that can be issued for as long as 30 years

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national debt

answer

all the money the federal government owes to bondholders

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crowding-out effect

answer

the loss of funds for private investment due to government borrowing

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Federalists

answer

favored central bank

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board of Governors

answer

the seven-member board that oversees the Federal Reserve System (14 year terms and cant be reappointed)

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Chair of the Board of Governors

answer

four-year terms which can be renewed they are the main spokesperson for the monetary policy for the country

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monetary policy

answer

the actions the Federal Reserve (Fed) takes to influence the level of real GDP and the rate of inflation in the economy

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Federal Reserve Districts

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the twelve banking districts created by the Federal Reserve Act

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Federal Advisory Council

answer

(FAC) the research arm of the Federal Reserve

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Federal Open Market Committee

answer

(FOMC) the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply meets 8 times a year

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the federal reserve system

answer

provides banking and fiscal services to the federal govern., provides banking services to member and nonmember banks, regulates the banking industry, tracks and manages the national money supply to meet current demand and to stabilize the economy

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the united states operating budget is

answer

$2.3 trillion raising $1.1 trillion in annual taxes

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check clearing

answer

the process by which banks record whose account gives up money and whose account receives money when a customer writes a check

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bank holding company

answer

a company that owns more than one bank

question

federal funds rate

answer

interest rate banks charge each other for loans

question

discount rate

answer

rate the Federal Reserve charges for loans to commercial banks

question

net worth

answer

total assets minus total liabilities

question

M3

answer

large time deposits and some government securities

question

4 factors of demand for money

answer

cash needed on hand, interest rates, price levels in the economy, and general level of income

question

Department of the Treastury is responsible for

answer

manufacturing money

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The Federal Reserve is responsible for

answer

putting dollars into circulation

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money creation

answer

the process by which money enters into circulation

question

required reserve ratio

answer

(RRR) ratio of reserves to deposits required of banks by the Federal Reserve or the fraction of the deposit that must be kept on reserve

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money multiplier formula

answer

amount of new money that will be created with each demand deposit, calculated as 1/RRR

question

excess reserves

answer

reserves greater than the required amounts

question

three tools for adjusting the amount of money in the economy

answer

reserve requirements, the discount rate, and open market operations

question

prime rate

answer

rate of interest banks charge on short-term loans to their best customers- usually large companies with good credit ratings

question

changes in the federal funds rate and the discount rate are reflected in the

answer

prime rate

question

open market operations

answer

the buying and selling of government securities to alter the supply of money

question

monetarism

answer

the belief that the money supply is the most important factor in macroeconomic performance

question

easy money policy

answer

monetary policy that increases the money supply lowering interest rates encouraging investment spending GDP goes up

question

tight money policy

answer

monetary policy that reduces the money supply interest rates go up and investment spending declines with GDP

question

inside lag

answer

delay in implementing monetary policy occur because it takes time to identify a problem and it takes time to enact policies

question

outside lag

answer

the time it takes for monetary policy to have an effect takes a while to enact

question

interventionist policy

answer

policy encouraging action

Economics Chapters 14-16 – Flashcards

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