POD B Final Exam (updated 2023)

proportional tax

a tax that takes the same share of income at all income levels

progressive tax

a tax that takes a larger share of income as income increases

regressive tax

a tax that takes a smaller share of income as income increases

infrastructure

the basic physical and organizational structures and facilities needed for the operation of a society or enterprise

withholding

employers take out a certain amount of tax from each paycheck

W-2 form

lists the wages from the previous calendar year and the amount of tax that was withheld

audit

formal review of the tax return

social security tax

set at fixed rate, which is paid half by the employer and half by the employee

property taxes

tax on the value of a property, usually levied on real estate

sales tax

levies a percent charge on the purchase of a wide variety of goods and services

federal deficit

shortfall between tax revenues and government expenditures

national debt

total amount owed money by a nation's government as a result of borrowing

fiscal year

a 12 month accounting period

mandatory spending

spending that is fixed by law

discretionary spending

is government spending implemented through an appropriations bill

inflation

an increase in the overall price level of goods and services produced in an economy

economic indicators

statistics that help economist judge the health of an economy

gross domestic product (GDP)

the market value of all final goods and services produced within a country during a given period of time

unemployment rate

the percentage of the labor force that is not employed but is actively seeking work

inflation rate

the percentage of increase in the average price level of goods and services from one month or year to the next

consumer price index (CPI)

a measure of price changes in consumer goods and services

business cycle

a recurring pattern of growth and decline in economic activity over time

recession

a period of declining national economic activity for at least six months or longer

market value

the price consumers are willing to pay for a good or service in a competitive market place

final good

any new good that is ready for use by a consumer

intermediate goods

goods that are used in the production of final goods

net exports

the value of all exports minus all imports

nominal GDP

GDP evaluated at current market prices that will include all of the changes in market prices that have occurred during the current year due to inflation or deflation.

current dollars

value of a dollar without adjusting for the effect of inflation

real GDP

a macroeconomic measure of the value of economic output adjusted for price changes

constant dollars

fixed rate that was current in a specified base year

per capita GDP

nations real gross domestic product divided by its population

frictional unemployment

the unemployment which exists in any economy due to people being in the process of moving from one job to another

structural unemployment

unemployment resulting from industrial reorganization, typically due to technological change, rather than fluctuations in supply or demand

seasonal unemployment

occurs when people are unemployed at certain times of the year, because they work in industries where they are not needed all year round.

cyclical unemployment

a factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle

natural rate of unemployment

a combination of frictional and structural unemployment that persists in an efficient, expanding economy when labor and resource markets are in equilibrium

discouraged workers

a person of legal employment age who is not actively seeking employment or who does not find employment after long-term unemployment

price index

measures the average change in price of a type of good over time

creeping inflation

the circumstance where the inflation of a nation increases gradually, but continually, over time

hyperinflation

monetary inflation occurring at a very high rate

deflation

reduction of the general level of prices in an economy

demand-pull inflation

asserted to arise when aggregate demand in an economy outpaces aggregate supply

cost-push inflation

nflation caused by an increase in prices of inputs like labour, raw material, etc

expansion

a period of economic growth

peak

the point at which an expansion ends

contraction

period of general economic decline marked by a falling GDP and rising unemployment

trough

lowest point of contraction

depression

prolonged economic downturn characterized by a plunging real GDP and extremely high unemployment

fiscal policy

government policy regarding taxing and spending

monetary policy

central bank policy aimed at regulating the amount of money in circulation

deficit spending

government spending in excess of what is collected in revenues

stagflation

a combination of economic stagnation or slowdown and high inflation

multiplier effect

a ripple effect in which a change in spending by one person or business leads to additional changes in spending by another person or business

expansionary fiscal policy

seeks to expand the money supply to encourage economic growth or combat inflationary price increases

reserve requirement

the regulation that banks must keep a certain percentage of deposits on hand to repay depositors

open-market operations

involve the buying and selling of government securities in the bond market

required reserve ratio

he portion of depositors' balances that banks must have on hand as cash

discount rate

the minimum interest rate set by the Federal Reserve for lending to other banks

federal funds rate

he interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis

economics

the study of how society manages its scarce resources

opportunity cost

the most desirable alternative given up as the result of a decision

economic system

the method used by a society to produce and distribute goods and services

Scarcity

unlimited wants and limited resources

factors of production

land, labor, capital, entrepreneurship

labor

Human effort directed toward producing goods and services

capital

assets that are owned in the production of goods and services. Examples include machines, or experts in production.

Entrepreneur

a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.

key economic question

what goods and services should be produced? How should these goods and services be produced? Who consumes these goods and services?

Law of supply

producers offer more of a good as its price increases and less as its price falls

supply curve shifters

input prices, technology, \# of sellers, expectations

law of demand

consumers buy more of a good when its price decreases and less when its price increases

demand curve shifters

number of buyers, income, prices of related goods, tastes, expectations

quantity supplied

the amount a supplier is willing and able to supply at a certain price

quantity demanded

the amount of a good that buyers are willing and able to purchase

demand

the quantity of a good or service that consumers are willing and able to buy

supply

The quantity of something that producers have available for sale

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

complementary goods

Goods that are commonly used with other goods

Oligopoly

A market structure in which a few large firms dominate a market

monopoly

A market in which there are many buyers but only one seller.

positive externality

beneficial side effect that affects an uninvolved third party

monopolistic competition

a market structure in which many companies sell products that are similar but not identical

perfect competition

a market structure in which a large number of firms all produce the same product

price floor

A legal minimum on the price at which a good can be sold

price ceiling

A legal maximum on the price at which a good can be sold

functions of an economic system

what, how, and for whom to produce

US economic system

capitalist economy

Types of Economic Systems

traditional, command, market, mixed

Tradeoffs

The sacrifice of some or all of one economic goal, good, or service to achieve some other goal, good, or service.

cost-benefit analysis

a decision-making process in which you compare what you will sacrifice and gain by a specific action

shortage

A situation in which quantity demanded is greater than quantity supplied

market equilibrium

a situation in which quantity demanded equals quantity supplied

negative externality

harmful side effect that affects an uninvolved third party

Federal Reserve System

The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

contractionary fiscal policy

Fiscal policy used to decrease aggregate demand or supply. Deliberate measures to decrease government expenditures, increase taxes, or both. Appropriate during periods of inflation.

expansionary monetary policy

Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy.

contractionary monetary policy

the Federal Reserve's policy of increasing interest rates to reduce inflation

expansionary policy

cut taxes or increasing spending to GROW the economy ex: use this policy during/after a recession or a depression

contractionary policy

raise taxes or decrease spending to SLOW the economy ex: use contractionary policy to avoid inflation