Learn: Economics: Business Cycles, Taxes, Fiscal Policy & Labor

Business Cycle

Increases and decreases in the real GDP, with GDP increases = economic activity is up

Expansion

Optimistic view of future, consumers begin to buy more, store inventories decline, increase production, more work, more money

Peak

Supplies of labor and other resources are limited, firms bid for best workers, interest rates rise

Contraction

People cut back on spending, inventories build up, produces cut back on overtime and employees, fewer loans, unemployment rises

Trough

Economy stops declining, demand begins to rise

Recession

when real gdp declines for 2 consecutive quarters

Depression

severe recession

External Factors Affecting the Business Cycle

international relations, new discoveries, social and political changes

Internal Factors Affecting the Business Cycle

capital investment, inventories, demand

Leading Indicators

Predict when expansion or contraction is approaching

Coincident Indicators

happen a the same time as the business cycle

Lagging Indicators

Follow business cycle

Benefit Principle

You use it you pay for it (like gas taxes)

Ability to Pay Principle

Pay what you can (higher income people pay more)

Progressive Taxes

Higher income people pay more, rate climbs as income climbs

Regressive Taxes

Same rate for everyone, applied to product price (ex sales tax)

Proportional Taxes

Same percentage of income for everyone (eg Flat Tax)

Direct Taxes

Money directly taken out of paycheck and given to govt

Indirect Taxes

Built into price of what you buy (ex sales tax)

Personal Income Tax

Company withholds some of paycheck, file taxes to settle up

Corporate Income Tax

a direct tax imposed by a jurisdiction on the income or capital of corporations

Social Security Tax

6.2% of income, 12.4% total (with employer), regressive, pays for social security program

Medicare Tax

proportional tax, 1.45% of total income, goes towards medicare

Excise Tax

Tax on "sin" products, ex cigarettes or alcohol

Tariffs

Taxes on imported goods, often price is passed on to consumers, US manufacturers raise cost to save

Capital Gains Taxes

Tax on profit for selling an asset (ex share gains), less if held more than a year (0-15-20% depending on tax bracket)

Estate/Gift Tax

a tax on people who pass assets to the next generation—either after death or during life in the form of gifts

Sales Tax

a tax on the dollar value of a good or service being sold

Property Tax

tax based on percentage of assessed monetary value of owned property levied on real or personal property by local government (often supports education)

The Federal Budget Process

1 Federal Agencies submit their budget requests to the President.

2 Office of Management and Budget (OMB) prepares the President's budget

3 In January the President submits his/her budget to Congress

4 House of Representatives

5 House of Representatives Subcommittees

6 House Appropriations Committee

7 Full House Vote

8) Senate

9) Senate Subcommittees

10) Senate Appropriations Committee

11) Joint Conference Committee

12) Full House & Senate Vote

13) Submit to President

14) President Sign or Veto

15) Senate can override a Presidential Veto with a 2/3 vote

Joint Conference Committee

Temporary panel of both HoR and Senate reps to reconcile their version of the legislative bill

Fiscal Policy

Use of govt spending and taxation to influence a country's economy, manage aggregate demand, promote economic goals

Office of Management & Budget

Helps prepare President's budget

Fiscal Year

12 month financial planning period that may or may not coincide with calendar year

Supply-Side Tax Cuts

Cutting corporation income taxes so that businesses can expand without too much increase in consumer demand

Monopolies (Sherman anti-trust Act)

outlawed monopolistic practices, enforced by federal trade commission

Demand-Pull Inflation

increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

Cost-Push Inflation

Inflation caused by increases in in the costs of production in the economy.

Stagflation

Increase in both unemployment and inflation

Aggregate Demand

Total spending on final goods and services in an economy at given price level and time

Keynes and his Philosophy

expansions = inflation, contraction = deflation

Reaganomics

The federal economic polices of the Reagan administration, elected in 1981. These policies combined a monetarist fiscal policy, supply-side tax cuts, and domestic budget cutting. Their goal was to reduce the size of the federal government and stimulate economic growth. Main outcome was explosion of national debt

Unskilled workers

do manual labor for little pay

semi-skilled workers

jobs involving routine, repetitive tasks with limited independent decision making (ex truck driver or receptionist or assembly line)

skilled workers

specialized knowledge, formal educaiton, complex decision making, higher pay

blue collar

Manual or physical labor, mostly trade occupations, don't require college degree (ex washing dishes, athletes)

white collar

Do mental labor, often office settings, higher education (at least high school) needed

Professional

must pass a test to be admitted to profession (ex doctor or lawyer)

strikes

organized work stoppage to pressure employer to meet union demands

vigilantes

unofficial groups that punish strikers without authority of law

scabs

aka strikebreakers, work during a strike

sit-down strikes

strikes where people stop working but stay occupying physical workplace

lockouts

company locks workers out of work to pressure them to accept a deal

closed shop

when a business can only hire union members, provides security to union

Taft-Hartley Act

included anti-labor policies that limited power of unions, such as outlawing "closed shops" and restricting bargaining strategies of unions

Right to work laws

statutes that prohibit employees from being required to join a union as a condition of employment

Seniority system

a system where employees with company for longest are layed off last

unemployment

people above 16 years old actively looking for work but don't have it

mediation/arbitration

Mediator: third party that helps negotiate settlements between unions and employers, just suggestions

Arbitrator: mediator but decision must be accepted by both sides

poverty line

income level below which a family can only meet basic necessities (food, shelter, clothing)

How many people live in poverty? Poverty rate?

34.5 million, poverty rate 10.2%

percentage of children in poverty

14.3% overall, 13.4% taking into account social safety net programs

typical person in poverty

single mother without high school degree, of child under 6 years old, living in a Southern state

elderly (group with high rate of poverty)

didn't pay into social security, companies went bankrupt and didn't receive pension, rising inflation, discrimination in employment

minorities

systemic disparities, discrimination in education and employment, fewer existing connections

one parent families

women earn less, lack of universal child care, healthcare access

chronically unemployed

skills gap (lack of education), disabilities

urban poor

rise of suburbs = fewer job opportunities as rich move out of major cities, high costs of basic necessities

cycle of poverty

the way in which a family's poverty will limit children's opportunities to obtain a better income (ex limited education

welfare programs

government backed initiatives designed to help low income individuals or families meet basic needs

cash benefits

provide financial assistance for families, disabled, and adults with little or no income

food stamp porgrams/free reduced price lunches

help supply food to families and individuals below the poverty line

new welfare reform law (TANF)

gives federal block grants to states every 6 years, used to offer cash assistance, 5 year limit