Government and the Economy

Comprehensive vocabulary flashcards covering the economic systems, factors of production, fiscal policy, taxation, and Federal Reserve monetary policy outlined in Chapter 21.

Capitalism

An economic system in which individuals are free to own the means of production and maximize profits.

Land

A factor of production that includes all natural resources with a variety of economic uses, such as agriculture, mining, and forestry.

Capital

All human-made resources used to produce goods and services, such as buildings, machines, and computers.

Labor

A human resource consisting of the individuals who work in mines, factories, offices, hospitals, and other workplaces to provide work essential to a nation's economy.

Entrepreneur

An individual with the drive and ambition to combine land, labor, and capital resources to produce goods or offer services, who is willing to risk losses and failure.

Free Enterprise System

An economic system characterized by private ownership of capital and by investments determined by private decision rather than public authorities.

Free Market

A market in which buyers and sellers are free to buy and sell as they wish.

Private Ownership

A core feature of capitalism where private individuals and companies own most of the factors of production and citizens retain rights to their goods and services.

Individual Initiative

The freedom under a free enterprise system for all individuals to start and run their own businesses or enterprises.

The Profit Motive

The desire to gain from business dealings, entitling individuals to benefit from whatever value their investment or enterprise earns.

Competition

A situation where multiple companies offer similar products or services and compete for customers, which helps keep prices down and quality high.

Law of Supply and Demand

An economic principle that determines the market price for goods or services based on available supply and consumer demand.

Supply

The quantity of goods or services available for sale across a range of prices.

Demand

The desire and financial ability of buyers to purchase a good or service.

Aggregate Demand

The total demand for goods produced domestically, including consumer goods, services, and capital goods.

Monopoly

A firm that is the only source of a product or service.

Sherman Antitrust Act of 1890

Legislation prohibiting every contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce among states or with foreign nations.

Laissez-Faire

The economic theory created by Adam Smith holding that the government should play a limited, hands-off role confined to defense, police, courts, and unprofitable public functions.

Mixed Economy

An economic system in which private enterprise and governmental participation coexist.

Command Economy

An economy in which government bureaucrats plan and direct most economic activity, prioritizing the state over individualism.

Socialism

An economic system where the state makes many economic decisions, uses some central planning, owns large key industries, provides social services, and collects high taxes.

Communism

A centrally planned economic system where the state makes all economic decisions, establishes five-year plans, and owns and controls all aspects of the economy.

Budget

A plan detailing how much revenue an individual or government expects to collect and how that money will be spent or allotted.

Revenue

The money a government collects from taxes or other financial sources.

Budget Surplus

Extra funds remaining in a budget after all expenditures have taken place.

Budget Deficit

A financial condition occurring when the federal government spends more money than it takes in.

National Debt

The total cumulative amount of money the government has borrowed but not yet repaid.

Gross Domestic Product (GDP)

The total market value of all goods and services produced within a country in a single year.

Full Employment

An economic state where there are sufficient jobs available to employ everyone who is able and willing to work.

Price Stability

The absence of significant fluctuations, rises, or falls in the prices of goods and services.

Inflation

A general, economy-wide increase in prices, often accompanied by rising business profits and low unemployment.

Deflation

A general, economy-wide decrease in prices.

Recession

A general economic slowdown marked by shrinking GDP and declines in sales, wages, demand, prices, production, profit, and employment.

Discretionary Spending

Government expenditures that are open to choice, judgment, and annual legislative appropriation.

Uncontrollable Spending

Government expenditures that are mandated by law or result from prior binding budgetary commitments.

Fiscal Policy

The government's use of taxation and spending policies to influence and guide economic conditions.

Tax

Money paid by individuals and businesses to support the operational activities and programs of the government.

Excise Tax

A tax levied on the manufacture, transportation, sale, or consumption of specific goods and the performance of services.

Protective Tariff

A high customs duty placed on imported goods designed to protect domestic manufacturers.

Progressive Tax

A tax structure where individuals with higher incomes pay a larger share of their income in taxes than individuals with lower incomes.

Regressive Tax

A tax structure where individuals with lower incomes pay a larger percentage of their income in taxes than individuals with higher incomes.

Marginal Tax Rate

The tax rate that applies to incomes within specified brackets, increasing as an individual's total taxable income rises.

Severance Tax

A state tax imposed on the extraction and removal of nonrenewable natural resources, such as in Texas and Alaska.

Block Grant

A grant of federal funds allocated to state or local governments to be spent on a broadly defined public purpose.

Bond

A government-issued debt security used to borrow money, promising repayment of the principal with interest upon maturity.

Real Property

Immovable physical assets subject to local property taxes, primarily consisting of land and buildings.

Personal Property

Movable items such as furniture and jewelry, as well as intangible holdings like stocks and bonds.

Market Value

The estimated price that a property owner could reasonably expect to receive if the property were sold.

Special Assessment

A localized fee charged directly to property owners for specific government improvements or services that benefit their property.

Expansionary Fiscal Policy

Fiscal policy that aims to speed up the economy and reduce unemployment during a recession by decreasing taxes and increasing government spending.

Contractionary Fiscal Policy

Fiscal policy that aims to slow down economic growth and curb inflation by raising taxes and decreasing government spending.

Monetary Policy

A government's regulation and management of the supply of money and credit to influence overall economic performance.

Federal Reserve System

The central banking system of the United States, responsible for regulating money supply, adjusting interest rates, and supervising financial institutions.

Discount Rate

The interest rate charged by the Federal Reserve to commercial member banks when borrowing short-term funds.

Reserve Requirement

The minimum percentage of total customer deposits that member banks must retain in vault cash or on deposit at the Federal Reserve.

Open-Market Operations

The buying and selling of U.S. government securities (bonds, notes, and bills) by the Federal Reserve to adjust money supply and interest rates.

Securities

Financial instruments, such as bonds, notes, or certificates, sold to borrow money with a guarantee to repay the purchaser with interest over time.

Expansionary Monetary Policy

Actions by the Federal Reserve to combat recessions by lowering the discount rate, reducing reserve requirements, and purchasing government securities.

Contractionary Monetary Policy

Actions by the Federal Reserve to reduce inflation by raising the discount rate, increasing reserve requirements, and selling government securities.