Unit 7: Taxes, Fiscal and Monetary Policies (Chapters 14.1-16.4)

What term describes income, property, goods, or services that are subject to tax?

Tax base

What gives the U.S. government the right to collect taxes?

The U.S Constitution

What is an example of a tax for which the percentage of income paid in taxes decreases as income increases?

Sales tax

What is an example of a tax for which the percentage of income paid in taxes remains the same for all income levels?

Proportional (flat) tax

The more inelastic the demand, the more easily the seller can shift the incidence of a tax on what types of goods to the consumer?

Necessity

How would you describes a tax that is assessed according to the benefits-received principle?

Those who receive the benefits a tax provides are the people who pay the tax

Respectively, what term describes a tax on the values of a property and what term describes a tax on the dollar value of a good or service being sold?

Property tax, sales tax

What term describes a tax in which the percentage paid increases as income increases?

Progressive tax

What term describes income received by a government from taxes and nontax sources?

Revenue

What determines the incidence of a tax?

The elasticity of demand of the product taxed

What is the main purpose of federal taxes on tobacco and alcohol products?

To discourage the use of these products

What term describes taking out a part of an employee's income as it is earned for taxes?

Witholding

What is an example of a tax incentive used to encourage or discourage certain behavior?

All answers are correct

What term describes tax on foreign goods brought into the United States?

Tariff

Why does the federal government collect income taxes in installments rather than waiting until April 15th?

It is more convenient for the government and taxpayers to collect in installments

In 2010, the federal government collected approximately $2.16 trillion in tax revenue and 42% came from what source?

Individual income taxes

Respectively, at what value level would the estate of a person who has died have to pay estate taxes and how much money can a person give tax free each year to several different people?

$5,000,000, $13,000

What term describes a person's gross income minus personal exceptions and deductions?

Taxable income

What term describes the national health insurance program for people over age 65?

Medicare

What term describes the form that a taxpayer files with the government?

Tax return

Why are Social Security and Medicare spending expected to increase further in the near future?

The baby boomer generation will qualify for both programs

What is the difference between Medicare and Medicaid

Medicare is for the people over age 65, Medicaid is for low-income families

Approximately 22% of the total federal budget is spent on what?

Defense

What term describes a social welfare program from which people benefit if they meet certain eligibility requirements?

Entitlements

What is one reason the government has only limited control of its spending?

When criteria have been set for a program there is no control of how many people will qualify

What term describes money lawmakers have a choice about spending?

Discretionary spending

What is the largest category of federal spending?

Social Security

What term describes money lawmakers are required to spend on certain programs?

Mandatory spending

Describe a "means-tested" program

One for which those with higher incomes receive lower benefits or no benefits at all

What term describes benefits paid to retired and disabled workers?

Social Security

What are the major sources of revenue for most state governments?

Sales and individual income taxes

What term describes spending that is equivalent to revenue?

Balanced budget

How does the concept of a balanced budget apply to state government?

Only the operating budget must be balanced

What term describes assets such as land and buildings?

Real property

How do most states finance their capital budget?

Sales of bonds

What term describes spending for major investments such as roads?

Capital budget

What is the main source of revenue for local government?

Property Tax

What do local governments spend the bulk of their revenue on?

Public school systems

What term describes spending for day-to-day expenses?

Operating budget

What term describes assets such as furniture, boats and poverty?

Personal property

What term describes fiscal procedures that try to increase economic output?

Expansionary policies

What term describes a twelve-month period that is used for financial calculations?

Fiscal year

Why is it difficult for the federal government to increase or decrease spending

A large portion of government spending is on entitlements, which the government cannot easily alter

What term describes a written document indicating the amount of money the government will receive and spend?

Federal Budget

Why do political pressures give an incentive to politicians to practice expansionary fiscal prices?

They want to make decisions that benefit the people who elect them, not necessarily the best decision for the economy

Why does the government sometimes use an expansionary fiscal policy?

To encourage growth and try to stop or prevent a recession

What term describes a bill that sets money aside for specific spending

Appropriation bill

What term describes fiscal procedures that try to decrease economic output?

Contractionary policies

What is the role of the Office of Management and Budget (OMB)?

To manage the federal government's budget

What term describes the federal government's use of taxing and spending to keep the economy stable?

Fiscal policy

What term describes the idea that every dollar of change in government use of money is reflected in a greater change in the economy?

Multiplier effect

What term describes the idea that markets regulate themselves?

Classical economics

Respectively, what term describes a school of economics that believes tax cuts help an economy by raising supply and what term describes a school of economics that believes government spending and tax cuts help an economy by raising demand?

Supply-side economics, demand-side economics

What is the most recent US President who was not influenced by Keynesian economics?

Herbert Hoover

What term describes the idea that the government can and should, regulate the economy?

Keynesian economics

What does experience show about the relationship of taxation and work?

A tax cut does not necessarily cause workers to work significantly more hours

When the government collects taxes and pays our transfer payments as a way to balance the economy, what are these fiscal tools called?

Automatic stabilizers

What is the maximum output that the economy can sustain over a period of time called?

Full-employment output (productive capacity)

What problem did the Great Depression in the 1930s highlight that classical economics did not address?

How long the market would take the return to equilibrium

What are the two main economic problems that Keynesian economics seeks to address?

Periods of recession/depression and inflation

What problem may result when the government attempts to cover large deficits by creating more money?

Hyperinflation

What term describes the total amount of money owed by the federal government?

National debt

What was the state of the federal budget at the start of the twenty-first century?

Surpluses for the first time in 30 years

Governments respond to budget deficits by creating money or by issuing what?

All answers are correct

What is a major argument against a constitutional amendment requiring a balanced budget?

It would be too inflexible

What term describes federal spending equal to federal revenue?

Balanced budget

What term describes the loss of funds for private investment due to government borrowing?

Crowding-out effect

What is one of the major problems caused by a large national debt?

It decreases the amount of money available to be borrowed by businesses

How will the federal budget be affected when members of the baby boom generation begin to retire in large numbers?

Increased deficits

Respectively, what term describes a situation in which the government spends more than it takes in and what term describes a situation in which the government takes in more than it spends?

Budget deficit, budget surplus

What banks must join the Federal Reserve System?

All nationally chartered banks

Who appoints the members of the Board of Governors of the Federal Reserve?

The U.S. President

What term describes the Federal Reserve committee that makes key decisions about interest rates and the U.S. money supply?

Federal Open Market Committee (FOMC)

Why does the Federal Reserve System have a high degree of political independence?

The system is owned by the banks

How many Federal Reserve Districts are there?

12

What term describes the research arm of the Federal Reserve?

Federal Open Market Committee (FOMC)

What is the subject of Federal Open Market Committee decisions?

Level of interest rates and growth of the money supply

What term describes the seven-member body that oversees the Federal Reserve System?

Board of Governors

What does 'monetary policy" mean?

Actions the Federal Reserve takes to influence the economy and inflation

What term describes the twelve banking regions created by the Federal Reserve Act?

Federal Reserve Districts

What term describes the interest rate Federal Reserve banks charge each other for loans?

Federal funds rate

What term describes a company that owns more than one bank?

Bank holding company

What does a "fractional reserve banking system" mean?

One that keeps only a small part of customers' deposits on hand

What term describes the process by which banks record whose account gives up money and whose account recieves money when a customer writes a check?

Checking clearing

Who is considered the banker for the United States government?

Federal Reserve

What term describes total assets minus total liabilities?

Net worth

What is the function of a bank examiner?

To make sure banks are obeying laws and regulations

Who issues United States paper currency?

District Federal Reserve banks

What term describes the rate the Federal Reserve charges for emergency loans to commercial banks?

Discount rate

The amount of money that individuals hold depends generally on what factor?

All answers are correct

What is created as banks go about their normal day-to-day operations?

Money

Why does the Fed rarely change the reserve requirements?

It can be disruptive to the whole banking system

What term describes the buying and selling government securities to change the supply of money?

Open market operations

What term describes a formula that tells us how much money will be created by an initial cash deposit?

Money Multiplier

How does reducing the required reserves by the Fed affect the money supply?

It increases the money supply

How does the Fed encourage banks to loan more money?

By reducing the discount rate

How does a bond sale made by the Fed affect the money supply?

The sale decreases the money supply

What term describes the rate of interest banks charge on short-term loans to their best customers?

Prime rate

What is the policy used most by the Fed to change the money supply?

Open market operations

What is the required reserve ratio (RRR)?

The portion of a deposit that a bank must keep in hand