AP Gov Monetary, Fiscal Policy, Budget Quiz

individual income taxes

a mandatory federal charge on personal earnings, typically structured as a progressive tax

corporate taxes

a direct tax on the profits (net income) of corporations

social insurance taxes (payroll taxes)

mandatory contributions from employee wages and employer funds, specifically earmarked to finance major social welfare programs like Social Security (retirement/disability) and Medicare (health insurance for elderly/disabled)

tariffs

a tax on imported goods to protect domestic industries, raise revenue, or influence foreign policy, making foreign products pricier

excise taxes

a domestic tax on specific goods (like gas, tobacco, alcohol) or services, often hidden in the price, used to discourage consumption (negative externalities) or generate revenue for specific purposes

other sources

taxes that include interest on gov. holdings or investments and estate taxes paid by people who inherit a large amount of $

deficit

the federal government spends more money (outlays) than it collects in revenue (taxes, fees) within a single fiscal year

John Maynard Keynes

liberals…economist(s)?

“supply side”; economists during Reagan

conservative…economist(s)?

Alan Greenspan, Milton Friedman

libertarians…economist(s)

fiscal policy

the part of the economic policy that is concerned w/ government spending + taxation

supply side economics

gov. should leave as much money supply as possible with the people letting laws of econ govern market place (laissez faire)

16th Amendment

grants Congress the power to levy a federal income tax on individuals and corporations from any source, without needing to apportion it among the states by population

Internal Revenue Service (IRS)

oversees tax collection process (federal)

progressive tax

one’s tax rate increases or progresses as one’s income increases

flat tax

one that taxes citizens at the same rate

monetary policy

how the government manages the supply and demand of its currency and thus the value of the dollar

inflation

rising prices and the devaluation of the dollar

Federal Reserve Board

• Board of 7 governors appointed by the president and approved by the Senate for staggered 14-year terms

• Sets monetary policy by buying and selling securities or bonds, regulating money reserves required at commercial banks, and setting interest rates

• non-partisan

discount rate

the interest rate at which gov. loans actual dollars to commercial banks

reserve requirement

how much cash commercial banks must keep in their vaults

bonds

also known as securities; government IOUS, when to sell or purchase these; Fed determines rates for this and when to sell or purchase these

trade balance

a nation that exports more than it imports has a favorable …

globalization

the process of an ever-expanding and increasingly interactive world economy

North American Free Trade Agreement

lifted trade barriers among the 3 largest North American countries, US, Mexico, Canada; removed import taxes among these powers

social welfare

support for disadvantaged people to meet their basic needs

entitlements

government services Congress has promised by law to citizens -- that are major contributions to both annual deficits and overall debt

mandatory spending

paying those who are legally “entitled” to these funds

Social Security Act

federal safety net for the elderly and those out of work; created insurance program that required the employed to pay a small contribution via a payroll tax into an insurance fund designed to assist the unemployed and to help financially strapped retirees

Medicare

government-run health insurance program for citizens over 65 years old

Medicaid

healthcare program for the impoverished who cannot afford necessary medical expenses

John Maynard Keynes

Government spending to boost economy; no need to balance budget on a yearly basis

supply-side economics

• Arthur Laffer (Reaganomics)

• Government Tax Cuts

• Deregulation

• Increase productivity and investment, in turn increases revenue to govt.

Monetarists- Milton Friedman

• Free-market thinker

• Small government libertarian

• Stead supply of money tied to GDP

• Challenged Keynesian economics

Structure and Tools of the Fed

• Board of Governors, 12 Regional Banks, FOMC

• OMO, discount rate, reserve requirements, interest on excess reserves

• Control money supply, stabilize prices, promote employment