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Test Review 04
| Term | Definition |
|---|---|
| What are the two principles of taxation? | Ability to pay principle & Benefits received principle |
| Ability to pay principle: | Says that citizens should be taxed according to their income or wealth. (Ex. federal income tax) |
| Benefits received principle: | Those who benefit from a government program should pay for it. (Ex. toll road tax) |
| Progressive tax: | A tax that takes a larger proportion of income as income increases. (Ex. federal income tax) |
| Proportional tax: | A tax that takes the same share of income at all income levels. (Ex. gasoline tax) |
| Regressive tax: | A tax that takes a smaller percentage of income as income decreases. (Ex. excise tax) |
| Tax Base: | The total amount of economic activity subject to taxation by a tax authority. |
| Tax Rate: | The ratio at which a business or person is taxed. |
| From which taxes does the Federal Government get most of its money? | Individual income tax, payroll & corporate income tax |
| Mandatory spending: (makes up 2/3) | Fixed by law & can only be changed by passing new laws. (Ex. Social Security) |
| Discretionary spending: (makes up 1/3) | Spending that the legislature can increase or decrease. (Ex. Education) |
| Name 3 of the top things that the Federal Government Spends money on. | Healthcare Social Security Defense |
| Name 3 of the top things that state or local governments spend money on. | Public Schools Police and Fire Departments Public Health - Child Care |
| Who is hurt by inflation? | Fixed income receivers, lenders, pensioners |
| Who is helped by inflation? | Borrowers |
| What is the price index? | Measures the average price change. |
| What is the consumer price index? | A measure of price changes in consumer goods and services over time. (shows changes in the cost of living year to year) |
| What is GDP? | The market value of all final goods and services produced in a country. |
| What is counted in GDP? | All final, new, domestic production for which there is a market transaction. |
| What is not counted as a part of GDP? | Used & intermediate goods Black market/illegal activity |
| How is GDP adjusted for population differences between nations? | GDP Per Capita where the gross domestic product is divided by its population. |
| What are the limits of GDP as a measure of economic health? | - Ignores unpaid work - Ignores illegal activity - Ignores negative externalities - Does Not account for quality of life - Does Not consider income distribution |
| What are the categories of GDP? | Consumer spending, Investment, Net exports, government spending |
| Who is officially counted as unemployed? | People who are actively seeking employment. |
| Frictional: | Seeking first job; left one job for another; short term usually (Ex. New college graduates) |
| Structural: | Unemployed because demand for worker skills declines often because of changes in technology or increased foreign competition. (Ex. A lot of the farming industry is becoming mechanized meaning less need for farmers.) |
| Seasonal: | Unemployed when businesses shut/slow down for part of the year often because of weather (Ex. Lifeguards in winter) |
| Cyclical: | Unemployed because of a period of decline in the business cycle (Ex. Worker loses a job because the economy begins recession.) |
| Full employment: | Means the economy has enough jobs for everyone who wants to work. |
| What is fiscal policy? | Government spending & taxes decided by CONGRESS |
| Fiscal policy goals | - low employment rate - low inflation rate - real GDP growth |
| Expansionary Fiscal policy (recession) | Increase gov. spending; cut taxes |
| Contractionary Fiscal Policy (expansion) | Decrease govt spending; raise taxes |
| How is the Federal Reserve Structured? | Board of Governors - 7 members appointed by the president to 14 year terms No elections (or politics) 12 Districts: - 12 Federal Reserve Banks |
| Monetary Policy: | Solutions made by the FED about the money supply (total amount of money in circulation & interest rates) |
| Easy-money Policy (Recession) | Raises money supply in order to decrease interest rates & stimulate economic growth |
| Tight-money Policy (expansion) | Decreases money supply in order to increase interest rates & reduce inflation |
| Expansionary Monetary Policy (easy-money) | Decreases unemployment; increases inflation rate |
| Contractionary Monetary Policy (tight-money) | Decreases inflation; increases unemployment |
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snarky.v
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