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Business Cycle
The recurring pattern of economic growth and decline
Expansion
Period of economic growth measured by a rise in real GDP
Peak
Highest point between economic expansion and contraction
Contraction
Period of declining real GDP after a peak
Trough
Bottoming process of moving from contraction to recovery
Factors affecting business cycle
Consumer spending, government spending, innovation, technology, global economic conditions, natural disasters, political factors
Types of taxes
Income, sales, property, corporate, excise, payroll, capital gains, inheritance/estate, tariffs
Levels of government taxed by
Federal, state, local
Principles of taxation
Ability to pay principle (progressive) and benefits received principle
Income tax
Tax on individual or entity's income
Property tax
Tax on the value of owned property
Consumption tax
Tax on spending or consumption
Sin tax (excise tax)
Tax on goods or activities considered harmful to society
Other types of federal taxes
Social security, corporate income, estate taxes
IRS
United States government agency responsible for administering and enforcing internal revenue laws
Purposes of taxes
Generate revenue for the government
Government services
Public schools, public safety (police, military)
Benefit from tax dollars
Access to public services like education
Federal Budget approval process
Federal agencies create budget requests, OMB develops budget proposal, president submits proposal to Congress, Congress creates budget resolutions and funding bills, president signs or vetoes bills
Public debt (national debt)
Total amount of money a government owes to external creditors and its citizens
Debt
Total amount of money a government owes to external creditors and its own citizens
Deficit
When a government's expenditures exceed its revenues during a specific period
Surplus
When a government's revenues exceed its expenditures during a specific period
U.S. Federal budget
Includes discretionary spending and mandatory spending
Top spending categories
Defense, social security, medicare, interest on national debt
Impact of big national debt
Allocation of government budget to paying interest, higher interest rates, volatility to economic downturns
Fiscal year
Period used for financial reporting and budgeting, starts on October 1 and ends on September 30
Fiscal policy
Use of government revenue and expenditure to influence the economy
Expansionary fiscal policy
Increasing government spending or reducing taxes to stimulate economic growth
Contractionary fiscal policy
Cutting spending or raising taxes to cool down an overheated economy
Tools of fiscal policy
Government spending and taxation
Responsibility for fiscal policy
Government authorities, executive and legislative branches
Application of fiscal policy
Counter-cyclical approach, expansionary measures during economic downturns and contractionary measures during periods of inflation or excessive growth
Keynesian economics
Advocates for government intervention to manage economic cycles through fiscal measures
Politics and Keynesian economics
Political considerations can influence the timing and magnitude of fiscal measures
Supply-side economics
Emphasizes policies that promote the supply or production side of the economy
Reaganomics
Economic policies implemented during Ronald Reagan's presidency, caused economic growth, job creation, inflation reduction, income inequality
Current state
Expansion state, fiscal policy should be employed by cutting taxes and expanding the economy
