Government and the Economy

Question 1

business cycle

Answer 1

downward and upward movement of gross domestic product around its long-term growth trend

Question 2

recession

Answer 2

small slowdown in economy with negative growth for 3 consecutive quarters

Question 3

gross domestic product

GDP

Answer 3

measurement of total value of final goods or services of a country

measured in dollars

Question 4

uses for gross domestic product

Answer 4

observation of growith over time

comparison of countries

Question 5

laissez-faire

Answer 5

economic system in which transactions between private parties are free from government intervention

Question 6

interest

Answer 6

payment from borrower to lender of amount above repayment of principal sum

set at particular rate

Question 7

income tax

Answer 7

tax imposed on individuals that varies with respective income

Question 8

inflation

Answer 8

general increase in price of goods and services

Question 9

budget defecit

Answer 9

amount by which spending exceeds revenue in 1 year’s budget

Question 10

tariff

Answer 10

tax on imports or exports between sovereign states

Question 11

progressive tax

Answer 11

tax in which average tax rate increases as taxable amount increases

Question 12

standard of living

Answer 12

measurement of quality of life

based on income and leisure time

Question 13

national debt

Answer 13

accumulation of borrowing by government over time

currently at $22 trillion

Question 14

depression

Answer 14

small slowdown in economy with negative growth for 3 consecutive quarters

Question 15

regressive tax

Answer 15

tax wherein average tax rate decreases as amount subject to taxation increases

Question 16

budget surplus

Answer 16

amount by which revenue exceeds spending in 1 year’s budget

Question 17

goals of government in dealing with economy

Answer 17

provide economic benefits

maintain stable and sustainable growth

solve economic problems

Question 18

stages of economy

Answer 18

expansion period

boom (perk) period

slowdown (contraction) period

recession or depression

Question 19

expansion period

Answer 19

improvements in economy and business activity

growth in consumption, production, and employment

Question 20

boom (perk) period

Answer 20

full employment

high sales

unstable in long run (cannot last forever)

Question 21

slowdown (contraction) period

Answer 21

decline in economy and business activity

shrinking in consumption, production, and employment

Question 22

economic indicators

Answer 22

gross domestic product

standard of living

inflation

unemployment rate

Question 23

fiscal policy

Answer 23

method of taxation and allocation by a government

Question 24

classical economic policy

Answer 24

laissez-faire approach to economy

faught for annually balanced budget

Question 25

problems with annually balanced budget during depression

Answer 25

Question 26

problems with annually balanced budget during inflation

Answer 26

Question 27

Keynes's monetary policy

Answer 27

way that government controls amount of money in circulation controlled by fed opposite of classical economic policy

Question 28

benefits of Keynes's monetary policy during recession

Answer 28

Question 29

benefits of Keynes's monetary policy during inflation

Answer 29

Question 30

multiplier effect

Answer 30

any change in fiscal policy affects aggregate demand by more than original change in spending or taxing

Question 31

difficulty of fighting inflation

Answer 31

very politically unpopular

Question 32

difficulty of fighting recession or depression

Answer 32

creates national debt

Question 33

Adam Smith's principles of taxation

Answer 33

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