Comp 5 - Government Interventions

What is the primary purpose of taxes?

To provide necessary revenue for government functions and public services.

Who stated, 'Taxes are the price we pay for a civilized society'?

Oliver Wendell Holmes, American writer.

What was the total tax revenue collected by the IRS in 2012?

$2.45 trillion.

What are the three basic structures of taxes?

Proportional tax, progressive tax, and regressive tax.

What is a proportional tax?

A tax where the percentage of income paid remains the same for all income levels, also known as a flat tax.

Give an example of a proportional tax.

Sales tax, such as the 6% sales tax in Michigan.

What is a progressive tax?

A tax where the percentage of income paid increases as income increases.

Provide an example of a progressive tax.

Federal income tax, where higher earners pay a higher percentage.

What is a regressive tax?

A tax where the percentage of income paid decreases as income increases.

Give an example of a regressive tax.

A hunting license, which is a flat rate tax that impacts low-income individuals more.

What is a tax base?

The income, property, good, or service being taxed.

What are direct taxes?

Taxes taken directly from individuals or households, such as income and property taxes.

What are indirect taxes?

Taxes charged to businesses that are passed on to consumers, such as gas taxes and sales taxes.

What are the three criteria for a fair tax system?

Equity, simplicity, and efficiency.

What does the equity criterion in taxation refer to?

Whether the tax is fair and impartial.

What does the simplicity criterion in taxation refer to?

Whether the tax is easy to understand and whether those taxed understand it.

What does the efficiency criterion in taxation refer to?

Whether the tax can be efficiently collected and is cost-effective.

What is the benefits-received principle?

The idea that individuals should pay taxes in proportion to the benefits they receive from public services.

What is the ability to pay principle?

The concept that individuals who can afford to pay more in taxes should be taxed at a higher rate.

How do progressive taxes affect wealthier individuals?

They require wealthier individuals to pay a larger percentage of their income in taxes.

What role do taxes play in funding government programs?

Taxes provide the necessary funds for public services like defense, education, and infrastructure.

What is the significance of the US Constitution regarding taxation?

It grants the government the right to tax the people.

What is monetary policy?

The Federal Reserve's use of money creation and interest rates to impact the economy.

What role does the Federal Reserve play in economic stability?

It manipulates interest rates and money creation to encourage or discourage economic growth.

How many district banks are in the Federal Reserve System?

There are 12 district banks.

Who appoints the members of the Federal Reserve Board?

The President of the United States, with confirmation by the Senate.

What is the required reserve ratio?

The amount of money banks must keep on hand at all times.

What is the Federal Open Market Committee (FOMC)?

The committee that makes key decisions on interest rates and the money supply to achieve economic stability.

What is one of the functions of the Federal Reserve regarding currency?

To collect worn and torn currency, destroy it, and reissue new bills.

What does the Federal Reserve do with checks?

It is responsible for clearing all checks written, transferring funds from one account to another.

What is the Federal Reserve's relationship with the federal government?

The Federal Reserve is separate from the federal government but provides banking and financial services to it.

What is the role of the Federal Reserve in regulating banks?

It monitors banks to ensure laws and regulations are followed.

What is the significance of the Federal Reserve's monetary policy?

It regulates the money supply to keep the economy stable.

What is the primary function of the Federal Reserve Bank of Chicago?

To perform numerous tasks including monitoring regional economies and destroying currency.

What happens if less than 51% of a bill remains?

The bill is no longer considered valid currency.

How does the Federal Reserve impact interest rates?

By manipulating them through monetary policy to influence economic activity.

What is the term length for the chairman of the Federal Reserve?

The chairman is appointed to a 4-year term.

What are the Federal Reserve's responsibilities regarding economic conditions?

To monitor and report on the economic and banking conditions within their district.

What does the Federal Reserve provide to member and non-member banks?

Banking services.

What is fiscal policy?

The government's use of taxation and spending to achieve economic stability and growth.

What are the two main types of fiscal policy?

Expansionary fiscal policy and contractionary fiscal policy.

What is expansionary fiscal policy?

A policy that involves increasing government spending or cutting taxes to stimulate economic growth.

What is contractionary fiscal policy?

A policy that involves decreasing government spending or raising taxes to slow down economic growth.

What economic theory suggests that free markets regulate themselves?

Classical economics.

What is Keynesian economics?

The belief that government involvement is necessary to encourage economic growth through increased spending and tax cuts.

What is supply-side economics?

The belief that cutting taxes is the best way to encourage economic growth by increasing output for businesses.

What is the multiplier effect?

The concept that for every dollar the government spends on economic growth, more than one dollar in economic growth is created.

How much does the federal government spend per hour?

$400 million.

What is the annual federal government spending amount?

Approximately $3.5 trillion.

What are some goals of successful nations regarding the economy?

Stable prices, low unemployment, and economic growth.

What can the government do to combat large budget deficits?

Raise taxes or cut spending to increase revenue.

Why can fiscal policy be controversial?

It involves political decisions that may not align with the best interests of the country.

What is a challenge of implementing fiscal policy?

Real change in economic growth takes time, and results are often delayed.

What is the role of government officials in the budget process?

They debate how much of tax dollars should be spent on various programs.

What is a potential downside of government officials focusing on re-election?

They may prioritize their interests over the country's best interests.

What is the significance of government spending in the economy?

It can directly influence economic growth and stability.

What is the main objective of fiscal policy?

To stabilize the economy and promote growth through taxation and spending adjustments.

What happens during a contractionary fiscal policy?

The government decreases spending or raises taxes to slow down the economy.

What is the impact of increased government spending according to Keynesian economics?

It leads to more goods and services being produced, stimulating economic growth.

What is the relationship between taxation and economic growth in supply-side economics?

Cutting taxes is believed to increase business output and lower costs, thereby encouraging growth.

What is the federal budget?

The federal budget is a financial plan that outlines government revenue and expenditures.

What are the two main components of the federal budget?

Revenue (money brought in) and expenditures (money spent).

What does a balanced budget mean?

A balanced budget occurs when expenditures equal revenue.

What is a budget surplus?

A budget surplus occurs when revenue exceeds expenditures.

What is a budget deficit?

A budget deficit occurs when expenditures exceed revenue.

What is the national debt?

The national debt is the total amount of money the government owes, accumulated from all deficits.

What is a bond in the context of government finance?

A bond is a public loan to the government, allowing it to borrow money from the public.

How does the government typically cover a budget deficit?

By creating new money or borrowing money through the sale of bonds.

What are the potential consequences of creating new money to cover a deficit?

It may lead to increased inflation.

What is one disadvantage of government borrowing?

Interest payments on the debt can be costly and provide no return to the country.

How can running a deficit affect the perception of the US economy globally?

It may portray the US as weak and mismanaged, affecting its influence.

What role does fiscal policy play in the federal budget?

Fiscal policy regulates taxing and spending to ensure a healthy economy.

What happens to money when individuals invest in government bonds?

It reduces the money available for households and businesses to spend.

What is the relationship between deficits and the national debt?

All deficits added together equal the national debt.

What is one pressing issue related to the federal budget?

The national debt and budget deficits.

What is the impact of government spending on the economy?

Enormous government spending can lead to accumulating debt.

What is the primary purpose of the federal budget?

To outline how the government will allocate resources through revenue and expenditures.

Why is tax revenue important for the federal budget?

Without tax revenue, the government cannot address its yearly deficit or national debt.

What is the effect of a surplus on the economy?

A surplus can indicate a healthy economy where revenue exceeds spending.

What does it mean when the government runs a deficit?

It means the government did not take in enough revenue to cover its expenses for the year.

What is one way the government can use borrowed money?

To build public goods and services.