Macro Flashcards
The 4 Economic institutions?
More Developed Countries (MDCs)
Countries with primarily industrial and service-based economies. Advanced technology is also prevalent in an MDC. Note: some exams still call these “developed countries.”
Less Developed Countries (LDCs):
Countries with primarily agricultural economies or economies based on low-tech industries (e.g. coal mining). Note: some exams still call these “developing countries.” Historically, these countries were also referred to as “third world countries.”
Inflation
Inflation is a sustained increase in the general price of goods and services over a given period of time.
What causes Inflation?
Increase in aggregate demand or a decrease in aggregate supply, and either way results in a steady rise in the overall price level of goods and services, leading to various impacts on the economy.
What causes inflationary gap
The gap between real GDP and potential GDP caused by inflation is known as an inflationary gap.
price control
a maximum or minimum limit on the price of a good.
price ceiling
When governments decide on a maximum price at which a good can be sold, that is called a price ceiling
subsidies
a supplemental payment made by the government to members of a specific industry with the aim of keeping prices low. Subsidies are used to offset production costs for expensive undertakings, in order to encourage companies to produce.
tax incidence
The proportion of the tax paid by the producer and the consumer is known as the tax incidence and is determined by the elasticity (or inelasticity) of the good or service being produced.
Elastic vs. Inelastic
A product is considered to be elastic if the quantity demand of the product changes more than proportionally when its price increases or decreases. Conversely, a product is considered to be inelastic if the quantity demand of the product changes very little when its price fluctuates.
deadweight loss
which is the loss of efficiency that would have otherwise been realized if the price of the good had been determined solely by market forces.
flat tax
is a system with a constant marginal rate, and is usually applied to consumer goods and services. With a flat tax, consumers pay a fixed percentage of the value of the item being taxed.
proportional tax
is similar to a flat tax but applied mainly to income. In a proportional tax system, the rate is fixed and the amount of tax paid is proportional to the income of the individual being taxed. Those earning less income pay a lower total amount than those earning more
progressive tax
system uses income brackets to determine the tax rate. As an individual’s income increases, their tax rate progresses from bracket to bracket.
This system takes an equity approach to income and taxes higher earners at a higher rate as a way to shift the burden of taxation from poorer individuals to wealthier individuals.
This system is currently used in the United States for the federal income tax.
regressive tax
system, such as one that caps the total amount an individual can be required to pay, or one that just collects a lump sum amount from every individual, tends to place a higher share of the tax burden on poorer individuals and less on wealthier individuals.
Income taxes
are some of the most commonly encountered taxes and are collected from an individual’s pay. These may be taken as mandatory deductions to fund programs like Social Security and Medicare or as general state and federal taxes used to provide revenue for the government.
Property taxes
are assessed by local governments, such as towns or counties, on the value of a home or land and are paid by the owner of the real estate. These taxes are used to fund local projects and expenditures, such as roads or schools.
Sales taxes
are assessed on the purchase price of a good and are usually levied by state and local agencies. Sales taxes are an example of how a consumer might pay several taxes on a single item. The majority of sales tax revenue goes to local and state governments to fund publicly funded projects.
capital gains taxes
which are taxes on the profit gained by the sale of an asset, such as stocks, bonds, or property.
Federal Reserve System (The Fed)
is the central banking system of the United States. After a series of financial panics in the late 19th and early 20th centuries, the United States Federal Government determined it was necessary to create a central governing authority for the American monetary system, and the Federal Reserve came into existence in 1913.
Federal Reserve’s dual mandate
to maximize employment and stabilize prices.
How does the FED stimulate economic activity?
When the Fed feels it is necessary to stimulate economic activity, it can lower interest rates (making borrowing less expensive) motivating spending, business expansion, and hiring.
How does the the FED lower inflation?
in order to reign in inflation, the Fed might choose to increase interest rates. Then, spending slows and inflation decreases.
The federal budget is calculated how?
United States is the revenue minus expenditure of the federal government. Revenues come primarily in the form of taxes and expenditures are the ways in which that tax money is spent.
