Unit 4 - Chapter 16

Mixed economy

Capitalism coexists with and is tempered by government involvement in the economy.

Social welfare policies

Policies that provide benefits, cash or in-kind, to individuals, based on either entitlement or means testing.

Democrats

Stress the importance of keeping unemployment low.

• Appeal particularly to working-class voters concerned about employment.

Republicans

Prioritize the battle against inflation.

• Appeal particularly to voters with more money to save and invest who worry that inflation will erode their savings.

Unemployment rate

The proportion of the labor force actively seeking work but unable to find jobs.

Underemployment rate

As measured by the Bureau of Labor Statistics, a statistic that includes (1) people who aren’t working and are actively seeking a job, (2) those who would like to work but have given up looking, and (3) those who are working part-time because they cannot find a full-time position.

Inflation

A rise in prices for goods and services.

Consumer price index

The key measure of inflation—the change in the cost of buying a fixed basket of goods and services.

Laissez-Faire

The principle that government should not meddle in the economy.

Monetary policy

Government manipulation of the supply of money in private hands.

Monetarism

An economic theory holding that the supply of money is the key to a nation’s economic health, with too much cash and credit in circulation producing inflation.

Federal Reserve System

The main instrument for making monetary policy in the United States. It was created by Congress in 1913 to regulate the lending practices of banks and thus the money supply.

Fiscal policy

Use of the federal budget—taxes, spending, and borrowing—to influence the economy.

Keynesian Economic Theory

The theory emphasizing that government spending and deficits can help the economy deal with its ups and downs.

Supply-side economics

An economic theory holding that the key task for fiscal policy is to stimulate the supply of goods, as by cutting tax rates.

Tariffs

Fees for importing goods into the United States from other countries.

Entitlement programs

Government programs providing benefits to qualified individuals regardless of need.

Means-tested benefits

Government programs providing benefits only to individuals who qualify based on specific needs.

Income distribution

The way the national income is divided into “shares” ranging from the poor to the rich.

Relative deprivation

A perception by an individual that he or she is not doing well economically in comparison to others.

Income

The amount of money collected between any two points in time.

Wealth

The value of one’s assets, including stocks, bonds, bank accounts, cars, houses, and so forth.

Poverty line

The income threshold below which people are considered poor, based on what a family must spend for an “austere” standard of living, traditionally set at three times the cost of a subsistence diet.

Feminization of poverty

The increasing concentration of poverty among women, especially unmarried women and their children.

Progressive tax

A tax by which the government takes a greater share of the income of the rich than of the poor—for example when a rich family pays 50 percent of its income in taxes, and a poor family pays 5 percent.

Proportional tax

A tax by which the government takes the same share of income from everyone, rich and poor alike.

Regressive tax

A tax in which the burden falls relatively more heavily on low-income groups than on wealthy taxpayers. The opposite of a progressive tax, in which tax rates increase as income increases.

Earned Income Tax Credit

Also known as the EITC, a refundable federal income tax credit for low- to moderate-income working individuals and families, even if they did not earn enough money to be required to file a tax return.

Transfer payments

Benefits given by the government directly to individuals—either cash transfers, such as Social Security payments, or in-kind transfers, such as food stamps and low-interest college loans.

Social Security Act

A 1935 law intended to provide a minimal level of sustenance to older Americans and thus save them from poverty.

Temporary Assistance for Needy Families

Replacing Aid to Families with Dependent Children as the program for public assistance to needy families, TANF requires people on welfare to find work within two years and sets a lifetime maximum of five years.

Personal Responsibility and Work Opportunity Reconciliation Act

The welfare reform law of 1996, which implemented the Temporary Assistance for Needy Families program.

• provided that (1) each state would receive a fixed amount of money to run its own welfare programs; (2) people on welfare would have to find work within two years or lose all their benefits; and (3) there would be a lifetime maximum of five years for welfare

Social Security Trust Fund

The “account” into which Social Security employee and employer contributions are “deposited” and used to pay out eligible recipients.

• The Social Security system is going to face challenges in the foreseeable future as the average lifespan lengthens and the typical retiree draws Social Security benefits for longer than ever before