Econ final

What are the three major sources from which the government gets its money?

Fees for government services, taxes, and borrowing.

What does 'tax base' refer to?

The value of goods, wealth, or income subject to taxation.

What is the 'tax rate'?

The proportion of a tax base that must be paid to the government.

Define 'marginal tax rate'.

The change in tax payment divided by the change in income.

What is a 'tax bracket'?

The income to which a specific marginal tax rate is applied.

How is 'average tax rate' calculated?

By dividing total tax payments by total income.

What is 'proportional taxation'?

A tax system where the percentage is the same regardless of the tax base.

What is 'progressive taxation'?

A taxation type where the rate increases as income increases.

Define 'regressive taxation'.

A taxation type where the percentage of tax paid decreases as more dollars are earned.

What are the functions of money?

Medium of exchange, unit of account, store of value, and standard of deferred payment.

What does 'fiscal policy' involve?

Discretionary changes in government expenditures or taxes to achieve national economic goals.

What is 'deficit spending'?

When the government spends more than it receives in taxes during a specific period.

What is a 'balanced budget'?

When government spending is exactly equal to the total taxes and revenues collected.

What is 'public debt'?

The total value of all outstanding federal government securities.

How does monetary policy affect interest rates?

Through inducing changes in money supply, affecting the opportunity cost of holding money.

What is 'expansionary monetary policy'?

Increasing the money supply, which leads to a fall in interest rates.

What is 'contractionary monetary policy'?

Reducing the money supply, which increases interest rates.

Explain the 'life cycle theory of consumption'.

A theory that individuals base consumption and saving decisions on current and anticipated future income.

What does 'real disposable income' represent?

Real GDP minus net taxes.

What are 'capital goods'?

Non-consumable goods that firms use to produce other goods.