Government and the Economy Flashcards
business cycle
downward and upward movement of gross domestic product around its long-term growth trend
recession
small slowdown in economy with negative growth for 3 consecutive quarters
gross domestic product
GDP
measurement of total value of final goods or services of a country
measured in dollars
uses for gross domestic product
observation of growith over time
comparison of countries
laissez-faire
economic system in which transactions between private parties are free from government intervention
interest
payment from borrower to lender of amount above repayment of principal sum
set at particular rate
income tax
tax imposed on individuals that varies with respective income
inflation
general increase in price of goods and services
budget defecit
amount by which spending exceeds revenue in 1 year’s budget
tariff
tax on imports or exports between sovereign states
progressive tax
tax in which average tax rate increases as taxable amount increases
standard of living
measurement of quality of life
based on income and leisure time
national debt
accumulation of borrowing by government over time
currently at $22 trillion
depression
small slowdown in economy with negative growth for 3 consecutive quarters
regressive tax
tax wherein average tax rate decreases as amount subject to taxation increases
budget surplus
amount by which revenue exceeds spending in 1 year’s budget
goals of government in dealing with economy
provide economic benefits
maintain stable and sustainable growth
solve economic problems
stages of economy
expansion period
boom (perk) period
slowdown (contraction) period
recession or depression
expansion period
improvements in economy and business activity
growth in consumption, production, and employment
boom (perk) period
full employment
high sales
unstable in long run (cannot last forever)
slowdown (contraction) period
decline in economy and business activity
shrinking in consumption, production, and employment
economic indicators
gross domestic product
standard of living
inflation
unemployment rate
fiscal policy
method of taxation and allocation by a government
classical economic policy
laissez-faire approach to economy
faught for annually balanced budget
problems with annually balanced budget during depression
problems with annually balanced budget during inflation
Keynes’s monetary policy
way that government controls amount of money in circulation
controlled by fed
opposite of classical economic policy
benefits of Keynes’s monetary policy during recession
benefits of Keynes’s monetary policy during inflation
multiplier effect
any change in fiscal policy affects aggregate demand by more than original change in spending or taxing
difficulty of fighting inflation
very politically unpopular
difficulty of fighting recession or depression
creates national debt
Adam Smith’s principles of taxation
states taxes should be based on person’s ability to pay
states that taxes should be clear and straightforward
states that taxes should be collected in most convenient way possible
states that taxes should be collected efficiently
states that taxes should be reasonable to not slow economic growth
