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Gov and Econ > Domestic Policy Test > Flashcards

Domestic Policy Test Flashcards

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1
Q

Federal Reserve

A

Nation’s central bank

Oversees banking system

Regulates the quantity of money in the economy

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2
Q

3 Primary elements of the Federal Reserve

A
  1. Board of governors
  2. Regional Federal Reserve Banks
  3. The Federal Open Market Committee
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3
Q

Board of Governors

A

7 members

Chairman is the most important

Appointed by the President and approved by the Senate

Staggered 14 year terms (vacancy every 2 years)

Chairman serves 4 years

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4
Q

Current Chairman of the Federal Reserve

A

Janet L. Yellen

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5
Q

Federal Reserve System

A

Made up of the Federal Reserve Board in Washington, DC

12 regional Federal Reserve Banks

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6
Q

Federal Open Market Committee

A

Main policy-making organ of the Federal Reserve System

Meets every 6 weeks to review the economy

Made up of Board of Governors, Pres. of New York Fed, and presidents of 4 other rotating Federal Reserve Banks (rotate yearly)

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7
Q

3 primary functions of the Fed

A
  1. Regulates banks to ensure they follow federal laws intended to promote safe and sound banking
  2. Acts as banker’s bank. Makes loans to banks
  3. Conducts monetary policy
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8
Q

Who conducts Monetary Policy

A

Federal Open Market Committee

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9
Q

Monetary Policy

A

The setting of the money supply by policymakers and the bank

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10
Q

Money supply

A

Refers to the quantity of money available in the economy

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11
Q

3 ways in which the Fed controls the money supply

A
  1. Open Market Operations
  2. Reserve Requirement
  3. Discount Rate
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12
Q

Open-Market Operations

A

Primary way the Fed controls the money supply

Purchases and sells US government bonds

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13
Q

Bonds to increase the money supply

A

Fed buys government bonds from the public

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14
Q

Bonds to decrease the money supply

A

Fed sells government bonds to the public

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15
Q

Reserves

A

Deposits that banks have received but have not loaned out

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16
Q

Fractional-reserve banking

A

Banks hold a fraction of the money deposited as reserves and lend out the rest

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17
Q

Reserve ratio

A

The fraction of deposits that banks hold as reserves

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18
Q

what happens when a bank makes a loan…

A

the money supply increases

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19
Q

Reserve requirement

A

the amount (%) of a bank’s total reserves that may not be loaned out

Increasing the reserve requirement decreases the money supply

Decreasing the reserve requirement increases the money supply

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20
Q

Money multiplier

A

the amount of money the banking system generates with each dollar of reserves

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21
Q

Discount rate

A

the interest rate the Fed charges banks for loans

Increasing the discount rate decreases the money supply

Decreasing the discount rate increases the money supply

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22
Q

Problems that the Fed faces

A

Cannot control how people chose to spend money

Cannot control the amount of money bankers chose to lend

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23
Q

Largest source of revenue for the Federal government

A

The individual income tax

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24
Q

Marginal tax rate

A

Sub of individual income tax

Tax rate applied to each additional dollar of income

Higher income families pay a larger percentage of their incomes in taxes

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25
Q

What type of tax is the marginal tax rate?

A

Progressive

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26
Q

Payroll taxes

A

Tax on the wages that a firm pays its workers

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27
Q

Social insurance taxes

A

taxes on wages that is earmarked to pay for Social Security and Medicare

FICA Taxes

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28
Q

Excise taxes

A

Taxes on specific goods like gas, alcohol, and cigs

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29
Q

Estate tax

A

Tax on the transfer of property when a person dies

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30
Q

Gift tax

A

Tax on donations of money or wealth

Paid by the person who makes the gift

31
Q

Customs duties

A

Tax on goods brought into the country from another country

32
Q

User fees

A

Charges levied for the use of a good or service

33
Q

Budget surplus

A

An excess of government receipts over government spending

Does not happen often

34
Q

Budget deficit

A

Excess of government spending over government receipts

35
Q

State and local tax percent…

A

collect about 40% of taxes paid

36
Q

Receipts

A

Sales taxes

property taxes

individual income

corporate income

37
Q

What do state and local government spend their money on?

A

Education ($$$)

Public welfare

Highways

38
Q

Tax Criteria

A
  1. Equity
  2. Efficiency
  3. Simplicity
39
Q

equity

A

fairness

just cause fair does not does not mean equal

40
Q

Tax loophole

A

Exceptions or oversights in the tax that allow some business to avoid taxes

Legal

41
Q

How to tell if a tax system is efficient?

A

It raises the same amount of revenue at a smaller cost to the taxpayers

Imposes small deadweight loses and small administrative burdens

42
Q

Deadweight losses

A

The reduction of the economic well-being of taxpayers in excess of the amount of revenue raised by the gov

43
Q

Average Tax Rate (ATR)

A

Total taxes paid divided by total income

44
Q

Marginal Tax Rate

A

The extra taxes paid on an additional dollar of income

45
Q

Lump sum taxes

A

A tax that is the same amount for every person

Efficient

Problem: larger burden for the poor than the rich

46
Q

Benefits principle

A

The idea that people should pay taxes based on the benefits they receive from government services

Ex: gas tax

47
Q

Ability to pay principle

A

The idea that taxes should be levied on a person according to how well that person can shoulder the burden

vertical vs. horizontal equity

48
Q

Vertical equity

A

The idea that taxpayers with a greater ability to pay taxes should pay larger amounts

people with higher incomes pay more

49
Q

Propotional tax

A

One for which the high-income and low-income taxpayers pay the same fraction of income

50
Q

Regressive tax

A

one for which high income taxpayers pay a smaller fraction of their income than do low-income taxpayers

51
Q

Progressive tax

A

one for which high income taxpayers pay a larger fraction of their income than do low-income taxpayers

52
Q

Horizontal equity

A

the idea that taxpayers with similar abilities to pay taxes should pay the same amount

53
Q

Sin tax

A

taxes on items considered harmful

ex: drugs and alchohol

54
Q

Luxury tax

A

Tax placed on goods that are deemed to be not necessary

ex: yachts, private jets

55
Q

FICA

A

Federal Insurance Contribution Act

payroll tax that goes to social security

56
Q

fiscal policy

A

Decisions made by Congress and the White House

Change spending and tax levels

57
Q

expansionary fiscal policy

A

cut taxes

increase government spending

58
Q

contractionary fiscal policy

A

increase taxes

cut government spending

59
Q

expansionary monetary policy

A

increase money supply by buying bonds

decrease interest rates

60
Q

contractionary monetary policy

A

decrease money supply by selling government bonds

increase interest rates

61
Q

Property tax

A

tax on the value of property

usually real estate

62
Q

FED creation date

A

1913

Followed a series of Bank failures

63
Q

How to calculate the money multiplier?

A

1/reserve ratio requirement

Inverse of the reserve ratio

64
Q

GDP-Gross Domestic Product

A

Currency value of all FINAL goods and services produced within a country in a given period

total income of nation

measure of economic growth and well being

65
Q

What’s included in GDP?

A
  1. Consumption by households
  2. Investment by businesses and households
  3. Government expenditures by local, state, and federal government (roads and schools)
  4. Net exports
66
Q

GDP=

how we measure it

A

consumption+investment+government spending+net exports

67
Q

What is not included in GDP?

A

intermediate goods

used goods

black market

financial transactions

household production

68
Q

Nominal GDP

A

GDP that is not adjusted for inflation. Value is shown in current prices.

Nominal=Not adjusted

69
Q

Real GDP

A

Dollar price of GDP in a base year’s price, used to compare changes in GDP from one year to the next

Increase in real GDP is an increase in economic growth

70
Q

What does GDP not tell us?

A

Income distribution

non-monetary output or transactions

does not measure social well-being

not a true measure of standard of living

71
Q

Intermediate goods

A

Used to produce another good

Ex: flour

72
Q

Final goods

A

Produced for the consumer

Ex: cake

73
Q

GDP wording “within a nation” meaning

A

Means that even if the company is headquartered somewhere else if it is made in the country it counts

Ex: Toyota factories in the US

74
Q

Taxes effect on supply and demand

A

Taxes reduce both supply and demand

Market equilibrium price becomes higher than without tax

Quantity is lower than without the tax

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