Get documents about "Econ Unit VI Flash Cards
Document Sample
UNIT 6
Governmetn and the Economy (Chapters 14-16)
IMPORTANT TERMS
Tax A required payment to a local, state, or national
government to pay for public goods and services,
transfer payments, and other programs.
Revenue The income received by a government from
taxes and other non tax sources.
Tax Base The income, property, good, or services that are
subject to a tax.
Individual Income Tax A progressive (or proportional) tax based on a
person’s earnings.
Sales Tax A regressive tax based on the dollar value of a
good or service being sold.
Property Tax Tax based on the value of real property.
Corporate Income Tax Tax based on the value of a company’s profits.
Proportional Tax A tax for which the percentage of income paid in
taxes remains the same for all income levels—
everyone pays the same percentage.
Progressive Tax A tax for which the percentage of income paid in
taxes increases as income increases—the more
you make the higher percentage of tax you pay.
Regressive Tax A tax for which the percentage of income paid in
taxes decreases as income increases—everyone
pays the same tax regardless of income.
Withholding The process of taking payments out of your pay
before you receive it and sending it to the
government.
Tax Return A form used to file income taxes.
Taxable Income A person’s gross (total) income minus
exemptions and deductions.
Personal Exemptions Set amounts that you subtract from your gross
(total) income for yourself, your spouse, and any
dependents.
Deductions Variable amounts that you can take away from
your gross (total) income.
FICA (Federal Insurance Contribution Taxes that fund two large government programs,
Act) Social Security and Medicare.
Social Security A retirement fund to provide old-age pensions to
workers. Today, it also provides benefits to
surviving family members of wage earners and to
people whose disabilities keep them from
working.
Medicare A national health insurance program that helps
pay for healthcare for people over the age of 65.
Estate Tax A tax on the estate, or total value of the money
and the property, of a person who has died.
Gift Tax A tax on money or property that one living person
gives to another.
Tariffs Taxes on imported goods (foreign goods brought
into the country).
Tax Incentive The use of taxation to encourage or discourage
behavior.
Mandatory Spending Money that lawmakers are required by existing
laws to spend on certain programs or to use for
interest payments on the national debt.
Discretionary Spending Spending about which government planners can
make choices.
Entitlements Social welfare programs that people are “entitled
to” if they meet certain eligibility requirements,
such as being at a certain income level
Medicaid Medical benefits given to low-income families,
some people with disabilities, and elderly people
in nursing homes.
Operating Budget A category of a budget that pays for day-to-day
expenses.
Capital Budget A category of a budget that pays for major
capital, or investment, spending.
Balanced Budgets Budgets in which revenues are equal to
spending.
Tax Exempt Nonprofit organizations, religious groups, and
charities that are usually not subject to taxes.
Real Property Physical property such as land and buildings.
Personal Property Possessions such as jewelry, furniture, and
boats.
Tax Assessor A government employee who determines the
value of property.
Fiscal Policy The use of government spending and revenue
collection to influence the economy.
Federal Budget A written document indicating the amount of
money the government expects to receive for a
certain year and authorizing the amount the
government can spend that year.
Fiscal Year A twelve-month period that is not necessarily the
same as the January-to-December calendar
year.
Office of Management and Budget A government agency that helps the president
(OMB) determine the federal and is responsible for
managing the federal government’s budget.
Congressional Budget Office (CBO) A Congressional staff agency that provides
Congress with independent economic data to
help with its decisions.
Appropriations Bills A bill that sets money aside for specific spending.
Expansionary Policies Fiscal policies like higher spending and tax cuts
that encourage economic growth.
Contractionary Policies Fiscal policies, like lower spending and higher
taxes that reduce economic growth.
Classical Economics The idea that free markets regulate themselves.
Productive Capacity Often called full-employment output, it is the
maximum output that an economy can sustain
over a period of time without increasing inflation.
Demand-side Economics A school of economics that believes government
spending and tax cuts help an economy by
raising aggregate demand.
Keynesian Economics The idea that the economy is composed of three
sectors—individuals, businesses, and
government—and that government actions can
make up for changes in the other two.
Multiplier Effect The idea that every dollar change in fiscal
policy—whether an increase in spending or a
decrease in taxes—creates a greater than one
dollar change in the national income.
Automatic Stabilizers Taxes and transfer payments.
Supply-Side Economics A view of macroeconomics that stresses the
influence of costs and aggregate supply in
explaining inflation, unemployment, and
economic growth.
Council of Economic Advisers (CEA) A group of three respected economists that
advise the President on economic policy.
Balanced Budget A condition that occurs when the federal
government’s revenues equal its expenditures in
any particular year.
Budget Surplus A condition that occurs in any year when
revenues exceed expenditures.
Budget Deficit A condition that occurs in any year when
expenditures exceed revenues.
National Debt The total amount of money that the federal
government owes to bondholders—the
accumulation of deficits over time.
Treasury Bills A government bond that is repaid within three
months to a year.
Treasury Notes A government bond that is repaid within two to
ten years.
Treasury Bonds A government bond that can be issued for as
long as 30 years.
Crowding-Out Effect The loss of funds for private investment due to
government borrowing.
Board of Governors The seven-member board that oversees the
Federal Reserve System.
Monetary Policy The actions the Fed takes to influence the level
of real GDP and the rate of inflation in the
economy by changing the money supply and
therefore interest rates.
Federal Reserve Districts The 12 banking districts created by the Federal
Reserve Act.
Federal Advisory Council (FAC) A group that collects information about each
Federal Reserve district and reports to the Board
of Governors about economic condition within
that districts.
Federal Open Market committee (FOMC) A 12-member group of the Fed that makes key
decisions about interest rates and the growth of
the money supply.
Check Clearing The process by which banks record whose
account gives up money and whose account
receives money when a customer writes a check.
Bank Holding Company A company that owns more than one bank.
Federal Funds Rate The interest rate that banks charge each other
for overnight loans of excess reserves.
Discount Rate The rate that the Federal Reserve charges for
loans to commercial banks.
Net Worth Total assets minus total liabilities.
Money Creation The process by which money enters into
circulation.
Required Reserve Ratio (RRR) The fraction of bank deposits that must be kept
on reserve.
Money Multiplier Formula 1 divided by the RRR.
Excess Reserve Reserves greater than the required amount.
Prime Rate The rate of interest that banks charge on short-
term loans to their best customers.
Open Market Operations The buying and selling of government securities
to alter the supply of money.
Monetarism A belief that the money supply is the most
important factor in macroeconomics
performance.
Easy Money Policy Monetary policy used during economic
downturns that increases the money supply.
Tight Money Policy Monetary policy used during inflationary periods
that reduces the money supply.
Inside Lags Delays in implementing monetary policy.
Outside Lags The time it takes for monetary Policy to have an
effect.
