H-chap 16-17

Question 1

5 characteristics of a good tax

Answer 1

1. Justifiable Reason
2. Equitably applied
3. Certitude regarding amt. of tax
4. Convenient to levy
5. Economical to collect compared to revenue generated

Question 2

Contends that taxes should be paid in portion to cost of service received

Answer 2

Cost-Service Theory

Question 3

Individuals should pay taxes based on benefits received

Answer 3

Benefit-Received Theory

Question 4

Individuals should pay an amount of taxes consistent with their ability to pay

Answer 4

Ability-to-Pay Theory

Question 5

Individuals should pay pay taxes according to their marginal utility of income

Answer 5

Equality-of-Sacrifice Theory

Question 6

Type of tax rates that always remain the same, regardless of size of the base

Answer 6

Proportional Tax Rate

Question 7

Tax rates increase based on the size of the base

Answer 7

Progressive Tax Rate

Question 8

Tax rates decrease as the size of the base increases

Answer 8

Regressive Tax Rate

Question 9

What are the largest sources of federal tax revenues?

Answer 9

Personal income and Social insurance

Question 10

Increasing dissatisfaction with personal income has brought forth proposals to replace 4 types of taxes.
What are they?

Answer 10

Personal Income Tax
Flat Tax
Consumption Tax
VAT/National Sales Tax

Question 11

3 major purposes of taxation are

Answer 11

1. Covering government costs
2. Redistributing Income
3. Economic Stabilization

Question 12

Theoretically if there is a surplus of tax revenues the government can

Answer 12

Reduce taxes
and
Expand its services / repay debt

Question 13

When tax revenues continue decreasing

Answer 13

Government can reduce spending.

Question 14

Taxes and government spending are used to try to..

Answer 14

Stabilize total income and outpue

Question 15

What can be used as a stabilizer of total output bc it can moderate business cycles and help stablize economy

Answer 15

Federal Budget

Question 16

A surplus of budget (federal) helps

Answer 16

Prevent inflation during peak period

Question 17

A deficit budget (federal) helps

Answer 17

Offset unemployment during a trough

Question 18

True or False
A nation will be bankrupt if the federal debt becomes too large unless a majority of share is held by foreign banks and government.

Answer 18

False

Question 19

The federal government borrows from

Answer 19

Individuals
Businesses
Banks in the Economy
Foreign Institutions

Question 20

What percentage do foreign and international institution represent in the total national debt?

Answer 20

40%

Question 21

`The government’s ability to repay is governed by only the

Answer 21

economy’s total assets and government’s ability to tax

Question 22

Tax base x total tax that must be paid

Answer 22

Tax Rate

Question 23

Value of the object upon which tax is levied

Answer 23

Tax Base

Question 24

True or False

Based on the Supply and Demand curve the burden of taxes can be shifted –except for personal income

Answer 24

True

Question 25

2 Main types of tax levies

Answer 25

Direct Tax: CAN'T be shifted, ex. income Indirect Tax: CAN be shifted ex. excise tax on g/s

Question 26

Tax shifting is passing tax burden from the taxpayer to another, what are its 3 main aspects?

Answer 26

1. Impact of T: Financial burden entailed 2. Incidence of T: Point which burden of tax ultimately rests 3. Effect of T: Economic consequence of paying tax

Question 27

Which is higher, marginal or average tax rate?

Answer 27

Marginal the top being 35%

Question 28

What are known as employment/payroll taxes and make up 36% of federal budget

Answer 28

Social Security and Social Insurance

Question 29

Major Tax Proposals (Identify): a. Collects taxes only at the time the consumer buys the product b. Collects taxes on each stage of production d. Single tax rate on incomes e. Tax on incomes + savings

Answer 29

a. National Sales Tax b. VAT / Value Added Tax d. Flat Tax e. Consumption Tax

Question 30

Max. amount of federal debt that can be accumulated without going back to Congress to approve advancement on

Answer 30

Debt Ceiling

Question 31

Deficit Budget is used to cause fiscal stimulus this is a good or bad thing?

Answer 31

Good

Question 32

Surplus Budget spends less than you have which is supposed to

Answer 32

Bring down the economy

Question 33

How many deficits since 1997-

Answer 33

70 Deficits

Question 34

Called for reducing federal deficit by $500 billion

Answer 34

Budget Reduction Act 19

Question 35

Measure of the potential revenue and spending that would result if what existed?

Answer 35

Full – employment balanced budget

Question 36

Monetary policies have been what three economic objectives?

Answer 36

Econ. Stability Econ. Growth Price Stability

Question 37

Monetary policy involves…

Answer 37

Regulation of the money supply by the Feds

Question 38

Increasing the money supply can raise

Answer 38

Aggregate Expenditure during period of unemployment

Question 39

The goal of fiscal policy

Answer 39

Promote max. income w/ full employment in closed economy

Question 40

Automatic Stabilizers

Answer 40

``` Social Security Pension Unemployment compensation Farm price support Federal personal income tax ```

Question 41

What activate the economy as a result of a budget deficit

Answer 41

Fiscal stimulus

Question 42

What slows the economy aw a result of a budget surplus

Answer 42

Fiscal Drag

Question 43

3 ways the government can pay for its spending

Answer 43

Tax financing Debt financing (Borrowing from Banks Creating Money by selling bonds

Question 44

If the government increases it spending but does not increase the taxes

Answer 44

Total spending for the economy as a whole should increase

Question 45

If gov decreases taxes

Answer 45

It results in a deficit budget

Question 46

If gov spending is held but taxes are decreases

Answer 46

Less revenue for government which the has to borrow

Question 47

2 Forms of discretionary government spending that can raise level of total income and employment

Answer 47

Transfer payments | Public works

Question 48

1. A persistent decline in level of prices 2. Slowdown in rate of inflation (usually considered good) 3. Persistent increase in level of prices 4. When inflation and higher employment are higher at same time 5. Inflation that goes out of control and makes currency worthless

Answer 48

``` A. Deflation B. Disinflation C. Inflation D. Stagflation E. Hyperinflation ```

Question 49

1. Results from spiral wage and price benefit cost/price increase. Is a backward shift of the aggregate supply curve 2. Occurs when aggregate demand exceed aggregate supply

Answer 49

A. Cost-Push inflation | B. Demand - Pull inflation

Question 50

Wartime inflation involves

Answer 50

Taxation Voluntary/Forced savings Wage/Price/Credit controls Number of other tools

Question 51

Curve showing relationship between unemployment and inflation

Answer 51

Phillips Curve

Question 52

Take that a one-time dose of gov spending puts the economy on the road to recovery

Answer 52

Pump Priming

Question 53

One of the primary causes for the Great Depression

Answer 53

Accumulate consumer and commercial debt fueled by cheap credit

Question 54

Most serious problem to discretionary government spending

Answer 54

It is difficult to begins = how long it takes to end | so gov deficit grows

Question 55

Public works is to the

Answer 55

Multiplier effect (one chain reaction will start another which will project the growth of the economy)

Question 56

3 methods of increasing gov spending: 1. Involves increasing money spent by gov. And taxes remain constant 2. Referred to as "tax rebate plan" results in deficit budget 3. Maintains balanced budget but effect is limited that taxes are raised and private funds are absorbed (eliminating multiplier effect)

Answer 56

1. Increase Gov spending hold taxes 2. Hold gov. Spending and decrease taxes 3. Increase gov spending and taxes proportionately

Question 57

Monetary and fiscal policies that are used to try increase the equilibrium level of income and output

Answer 57

Expansionary Policies

Question 58

Monetary and fiscal policies used to try to lower aggregate demand for output to level that can be achieved with full employment of resources

Answer 58

Contractionary Policies

Question 59

Forces within economy that naturally counteract recession and inflation

Answer 59

Auto Stabilizers

Question 60

1. Activating effect on the economy resulting from budget deficit 2. Slowing effect on economy resulting from budget surplus

Answer 60

1. Fiscal Stimulus | 2. Fiscal drag

Question 61

Occurs when deficit spending by gov. force private investment spending to contract

Answer 61

Crowding Out

Question 62

4 general fiscal policies developed to promote max. income and full employment

Answer 62

1. Consumption stimulated, marginal propensity increased 2. Investment encouraged 3. Gov spending increases aggregate expenditures 4. Taxes reduced increase in disposable income

Question 63

Aggregate expenditure remains constant and no increase in total output and employment results. Idle funds are taxed

Answer 63

Tax Financing

Question 64

More desirable for raising funds for gov. spending Aggregate expenditure will show no net increase and interest rates will rise. Keyword: borrowing

Answer 64

Debt Financing

Question 65

Treasury sells bonds to Federal Reserve A.k.a. Printing money or monetizing debt bc. it removes gov. Spending from hands of the public and replaces it with deposits

Answer 65

Financing Creating Money