Economics Vocabulary Chapter 14-16

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tax
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a required payment to a local, state, or national governmentt
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revenue
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income received by a government from taxes and nontax sources
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tax base
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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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incidence of a tax
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the final burden of a tax
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withholding
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taking tax payments out of an employee’s pay before he or she receives it
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tax return
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form used to file income taxes
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taxable income
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income on which tax must be; total income minus exemptions and deductions
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personal exemption
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set amount 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
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FICA
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taxes that fund Social Security and Medicare
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Social Security
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Old-Age, Survivors, and Disability Insurance (OASDI)
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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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estate tax
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a 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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a 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
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the use of taxation to encourage or discourage certain behavior
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mandatory spending
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spending on certain programs that is mandated, or required, by existing law
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discretionary spending
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spending category about which government planners can make choices
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entitlement
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social welfare program that people are “entitled to” if they meet certain eligibility requiirements
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Medicaid
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entitlement program the benefits low-income families, some people with disabilities, and elderly people in nursing homes
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operating budget
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budget for day-to-day expenses
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capital budget
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budget for major capital, or investment, expenditures
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balanced budget
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budget in which revenues are equal to spending
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tax exempt
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not subject to taxes
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real property
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physical property such as land and building
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personal property
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possessions such as jewelry, furniture, and boats
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tax assessor
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an official who determines value of a property
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fiscal policy
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the use of government spending and revenue collection to influence the economy
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federal budget
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a plan for the federal government’s revenues and spending for the coming year
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fiscal year
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a twelve-month period that can begin on any date
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Office of Management and Budget (OMB)
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government office that manages the federal budget
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Congressional Budget Office (CBO)
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government agency that provides economic data to Congress
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appropriations bill
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a bill that sets money aside for specific spending
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expansionary policies
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fiscal policies, like higher spending and tax cuts, that encourage economic growth
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contractionary policies
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fiscal policies, like lower spending and higher taxes, that reduce economic growth
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classical economics
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the idea that free markets can regulate themselves
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productive capacity
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the maximum output that an economy can produce without big increases in inflation
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demand-side economics
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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
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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 stabilizer
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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 can help an economy by raising supply
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Council of Economic Advisers (CEA)
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a group of three respected economists that advise the President on economic policy
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budget surplus
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a situation in which the government takes in more than it spends
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budget deficit
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a situation in which the government spends more than it takes in
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hyperinflation
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very high inflation
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Treasury bill
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a government bond that is repaid within three months to a year
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Treasury note
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a government bond that is repaid within two to ten years
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Treasury bond
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a government bond that can be issued for as long as 30 years
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national debt
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all the money the federal government owes to bondholders
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crowding-out effect
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the loss of funds for private investment due to government borrowing
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Board of Governors
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the seven-member board that oversees the Federal Reserve System
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monetary policy
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the actions the Federal Reserve 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 (FAC)
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the research arm of the Federal Reserve
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Federal Open Market Committee (FOMC)
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Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply
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check clearing
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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
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a company that owns more than one bank
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federal funds rate
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interest rate banks charge each other for loans
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discount rate
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rate the Federal Reserve charges for loans to commercial bnks
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net worth
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total assets minus total liabilities
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money creation
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the process by which money enters into circulation
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required reserve ratio (RRR)
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ratio of reserves to deposits required of banks by the Federal reserve
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money multiplier formula
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amount of new money that will be created with each demand deposit, calculated as 1 divided by RRR
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excess reserves
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reserves greater than the required amounts
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prime rate
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rate of interest banks charge on short-term loans to their best customers
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open market operation
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the buying and sellling of government securities to alter the supply of money
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monetarism
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the belief that the money supply is the most important factor in macroeconomic performance
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easy money policy
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monetary policy that increases the money supply
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tight money policy
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monetary policy that reduces the money supply
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inside lag
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delay in implementing monetary policy
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outside lag
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the time it takes for monetary policy to have an effect

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