Government And The Economy Test😛✌🏻️ Flashcards
Sources for government revenue?
- Taxes
- Fees
- Government securities
Example of revenue?
Arkansas charges fee for fishing license, benefit is going fishing
What are the three types of revenue?
Taxes, fees, and government spending
Taxes?
-Mandatory payment to the government
-2 principles
•benefit receive
•ability to pay
What are the types of taxes?
Progressive, proportional, and regressive
Progressive taxes?
- Higher rate on higher incomes
- Ex: Federal income tax
Proportional taxes?
- Same rate for all tax payers
- Aka flat tax
- Ex: sales tax
Regressive taxes?
- Larger rate on lower incomes
- Portion of income for taxes fails as income rises
- Ex: sales tax
Fees?
-Money charged for a good or a service based upon the benefit received
Examples of fees?
- Entrance, parking, and participation at state or national parks
- Fishing and hunting licenses
Government spending?
- Government borrows money from its citizens
- Issued by the apartment of treasury
- Ex: Bonds, and treasury notes
What are the characteristics of a good tax?
Equity, simplicity, neutrality, and productive
Equity (taxes characteristic)
Fair to those whom it is collected
Simplicity(tax characteristic)
Easy to calculate and easy to understand
Government revenue
- Income from taxes and other services
- Provide citizens with public goods and services
- Based upon benefit received and ability to pay
Neutrality (tax characteristic)
Neutral on the economy. Must allocate resources effectively and efficiently
Productive (tax characteristic)
Collect enough funds for the program it’s designed to support
National expenditures?
Mandatory spending, and discretionary spending,
Mandatory spending?
-About half of all federal spending
-Entitlements
•social welfare programs with specific requirement
•ex: social security, Medicare, Medicaid, food stamps, veterans benefits, etc..
Discretionary spending?
-About 1/3 of the national budget
-Just a few catagories
•transportation
•conservation programs
•education
•technology and research programs
•law enforcement
Ex of transportation
Interstate highway system
Ex of conservation programs
National parks
Ex of education
Scholarships and grants
Ex of technology and research programs
NASA
Ex of law enforcement
FBI and CIA
State expenditures
Education,public welfare programs, and state administration
Education
- Public schools and university’s
- Major expenditures for the state
Public welfare programs
- State hospitals (ex: UAMS)
- Unemployments and job training
Local expenditures
-Most direct services to its citizens
-Examples
•public schools
•public safely (ex: police and fire departments)
•utilities (ex: water, sewage, and trash)
Public goods and services
-Provided by the government and consumed by the public as a whole
-two characteristics
•people can not be excluded from the benefits even if they do not pay for it
•one persons use of the product or service does not reduce its usefulness to others
Ex: of public goods and services
- sidewalks
- fire department
- police protection
- Cabot public schools
Government budgets
Government was try to balance their budgets (revenue equal experiments)
- budget surplus
- budget deficit
Budget surplus
Occurs when the government takes in more money than it spends
Budget deficit
Occurs when the government spends more than it brings in
Deficit spending
- Practice of spending more than what is taken in for a specific budget
- Annual deficits contribute to the national debt
National debt
The total amount of money that the government owes
Causes of deficit spending
- national emergencies (wars, natural disasters)
- public goods and services
- stabilization of the economy (fiscal policy)
- entitlements
Fiscal policy
-use of taxes and government spending to affect the economy
-two goals
•increase demand
•fight inflation
Contractionary plans
- plan to reduce demand and slow down the economy
- fight inflation
- this is used when the economy is growing too rapidly
Expansionarys plans
- plan to increase demand and stimulate the economy
- used when the economy is slowing down
Contractionary fiscal policy
-government actions
•cut government spending
•increase spending
-individuals have less money to spend and demand is decreased/inflation is stopped
What is the purpose of the contractors fiscal policy
To take money out of the economy
Expansionary fiscal policy
-government actions
•increase government spending
•decease taxes
-individuals have more money to spend and demand is increased
What is the purpose of the expansionary fiscal policy
To put money into the economy
Automatic stabilizers
Public transfer payments and progressive income taxes
Public transfer payments
- aka entitlements (ex: food stamps, unemployment
- automatically set up a flow of money in the economy
- provides relief In a contraction
Progressive income taxes
- individuals will not have all of their increased income for saving or spending
- prevents economy from growing too quickly in an expansion
Monetary policy
- all the actions of the federal reserve system that changes the money supply to influence the economy
- must be well timed and balanced to have the desired effect
The federal reserve system
-organization within the gov’t that influences the economy through monetary policy
-the central bank of the US
•12 district banks
•board of governors
•federal open market committee
• advisory councils
Functions of the federal reserve system
- check clearing
- lending money
- regulate and supervise banks
- pay government bills
- sell government securities
- distribute and control currency
Short term impact of the mortuary policy
- change the interest rate on loans
- decreasing or increasing the level of reserves the banks have available to lend
Timing issues with the monetary policy
Must be coordinated with the business cycle to provide a stable economic environment
Expansionary monetary policy
-plan to increase the money supply
-may include
•buying bonds on the open market
•lowering the reserve requirement
•reducing the discount rate
Contractionary monetary policy
-plan to decrease the money supply
-may include
•sale/purchase of government securities
•adjusting the reserve requirement
•adjusting the discount rate
Discount rate
Interest rate that the fed charges when it lends money to other banks
Reserve requirement
Fraction of a banks deposits that it must keep in reserve
Open market operations
Sale and purchase of federal securities (stocks and bonds)
When the fed sells bonds; federal funds rate (FFR) rises…
Excess reserves and lending decreases; money supply decreases (contractionary monetary)
Fed raises the RRR banks hold more in reserves…
banks decrease lending money supply decreases (monetary contractionary)
Fed raises the discount rate, banks borrow less money…
Banks have fewer resources and money supply decreases (monetary contractionary)
Fed buys bonds; FFR decreases…
excess reserves and lending increases; money supply increases (expansionary monetary)
Fed lowers the RRR Banks hold fewer reserves…
Banks increase lending money supply increases (expansionary monetary)
Fed lowers discount rate…
banks borrow more and have more in reserves to lend/money supply increases (expansionary monetary)
