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Economics > Unit 3 Test: Taxes, Federal Spending and Economic Performance > Flashcards

Unit 3 Test: Taxes, Federal Spending and Economic Performance Flashcards

1
Q

Who is included in the labor force?

A

Defined as non-institutionalized individuals aged 16+ who are either working or are unemployed and actively seeking work.
- Includes underemployed and discouraged workers. `

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2
Q

How is the labor force participation rate and unemployment rate calculated?

A 
LFPR = Labor Force / Population x 100
UR = Unemployed / Labor Force x 100
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3
Q

Who is most negatively affected by unemployment?

A

Minorities. Blacks, asians, and teenagers.

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4
Q

What are the 4 type of unemployment?

A

1) Frictional
2) Structural
3) Cyclical
4) Seasonal

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5
Q

What is frictional unemployment?

A

Temporarily between jobs or just entering the job market.

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6
Q

What is structural unemployment?

A

When someone’s skills are no longer needed or aligned with the needs of the economy.

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7
Q

What is cyclical unemployment?

A

When the demand for goods and services falls (recessions).

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8
Q

What is seasonal unemployment?

A

Employment based on seasonal changes.

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9
Q

What is the BLS?

A

Bureo of Labor Statistics

- reports the “economic situation” every first Friday of the month

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10
Q

What is a discouraged worker?

A

Those who have given up on their job search because they believe no jobs were available for them.

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11
Q

What is underemployed?

A

Have taken part-time work but prefer full time work or have taken a job for which they are overqualified

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12
Q

What is full employment?

A

If we have only the natural rate of unemployment (no cyclical).

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13
Q

What is natural rate of unemployment?

A

Unavoidable unemployment of frictional and structural.

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14
Q

“Marginally attached to the labor force” means…

A

Were able to and wanted to work and had looked for a job in the past 12 months but had since stopped looking for last 4 four weeks.

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15
Q

“Part time for economic reasons” means…

A

These individuals are working part time because their hours were cut or they could not find full time work.

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16
Q

What are the criticisms of underemployment rate?

A

It can misdiagnose the actual unemployment rate.

- Ignores discouraged job seekers, part time workers, race/age inequalities, and illegal labor.

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17
Q

How are income taxes calculated?

A

??? Income brackets?

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18
Q

What are the three tax structures?

A

1) Proportional
2) Progressive
3) Regressive

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19
Q

What is proportional tax?

A

A tax for which the % of income paid in taxes remains the same for all income levels.

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20
Q

What is progressive tax?

A

A tax for which the % of income paid in taxes increases as income increases.
- ex. federal income tax

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21
Q

What is regressive tax?

A

A tax for which the % of income paid in taxes decreases as the income increases.

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22
Q

What are the characteristics of a good tax?

A

1) Simplicity (easily understood)
2) Efficiency (collect/pay)
3) Certainty (clear of what to do)
4) Equity (fair)

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23
Q

What is the benefits-recieved principle?

A

People should pay taxes based on the levels of benefits he/she expects to receive.

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24
Q

What is ability-to-pay principle?

A

People should pay taxes according to their ability to pay.

- idea behind progressive income tax

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25
What is a tax?
A required payment to a local, state, or national government that allows for finances needed to operate government.
26
What is revenue?
Income received by a government from taxes and non-tax sources.
27
What is a tax base?
Income, property, good, or service that is subject to a tax.
28
Who bears the tax burden/incidence of a tax (final burden)?
In inelastic demand, the consumers. In elastic demand, the sellers.
29
What is Federal Insurance Contributions Act (FICA)?
Taxes that fund social security and medicare. | - payments are shared by employees and employers.
30
What are excise taxes?
General revenue tax on sale/manufacture of a good.
31
What are capital gain taxes?
Taxes on stocks, bonds, etc.
32
What is Earned-Income-Tax credit?
Refundable tax credit for individuals who make under a specific limit (at times, this credit gives people more money then they paid in taxes
33
What is Alternative Minimum Tax?
Began in 1969 to precent rich from not paying income tax. | - flat rate of 26% or 28% with no deductions allowed
34
What is Buffett Rule?
Raising tax for wealthy. If the Buffett Rule was passed, it would require all millionaires to pay a minimum tax rate of 30%
35
What is taxable income?
Income on which tax must be paid; Total income minus exemptions and deductions.
36
What are exemptions?
A set amount you subtract from your gross income for yourself, your spouse, and any dependents.
37
What is tax withholding?
Taking tax payments out of an employee's pay before he/she receives it. - based on estimate of year's federal income tax - sent as an "installment payment"
38
What are deductions?
Variable amounts that you can subtract, or deduct from you gross income.
39
What are credits?
A dollar-dollar reduction in the tax can be reduced directly from taxes owed
40
What are 6 major sources of tax revenue for federal government?
1) Individual & Corporate income taxes 2) Social insurance taxes 3) Excise taxes 4) Estate & Gift taxes 5) Taxes on importants
41
What is a tax return?
Form used to file income tax. Declares income to government and figure out taxable income.
42
What is a tax incentive?
The use of taxation to encourage or discourage certain behavior.
43
What is mandatory spending?
Spending on certain programs that is mandated, or required, by existing law - increases - ex. Social Security, Medicare
44
What is discretionary spending?
Spending category about which government paleness can make choice (decreased) - ex. defense, eduation
45
What are entitlement programs?
Social welfare program that people are "entitled to" if they meet certain eligibility requirements - guaranteed assistance to those who qualify - unchanging part of spending (only eligibility requirements can change) - ex. Social Security, Medicare, Medicaid
46
What is Social Security?
Largest category of federal spending. Provides old-age pensions, surviving members of wage earners, people with disabilities.
47
What is Medicare?
Pays for hospital care and costs of physicians/medical services - for people with disabilities/disease - funded by taxes withheld by people's paychecks
48
What is Medicaid?
Entitlement program that benefits low income families, some people with disabilities and elderly people in nursing homes.
49
What is an operating budget?
Budget for day-to-day expenses
50
What is capital budget?
Budget for major capital or investment expenditures
51
What is a balancing budget?
Budget in which revenues are equal to spending.
52
What is fiscal policy?
Taxing and spending.
53
What is a budget surplus?
A situation in which the government takes in more than its spends.
54
What is a budget deficit?
A situation in which the government spends more than it takes in.
55
What is national debt?
All the money the federal government owes to bondholders | - total of every year's budget deficits
56
What are two problems that arise from national debt?
1) Crowding out effect | 2) Government must pay interest to bondholders (servicing the debt)
57
What is the crowding out effect?
The loss of funds for private increment due to government borrowing.
58
What is the Debt Limit?
The amount of bonds the Treasury is allowed to issue.
59
What is inflation and what causes it?
Inflation is sustained increase in price levels. - core inflation excludes food and energy - causes quantity theory, demand-pull, and cost-push
60
What is quantity theory?
"Too few money, chasing too few goods" | - monetary expansion as a result of printing money or easy credit
61
What is demand-pull?
Demand is greater than supply
62
What is cost-push
The rising cost of commodities like oil pushes up other prices
63
What does the consumer price index measure?
Statistic that shows the changes in price levels by tracking the prices of a specific basket of goods. - Uses 1982 - 1984 prices
64
How is the CPI calculated? and what does it tell us?
CPI = current cost / base period cost x 100
65
How is year to year inflation calculated?
CPI (current year) - CPI (previous) / CPI in previous year x 100
66
Who does inflation help and hurt?
Help: Borrowers Hurt: Lenders, savers, people with fixed incomes
67
What is deflation and why is it bad for our economy?
Deflation is the decease in price levels. It is bad because it is associated with unemployment. May be unemployment or decline in foreign demand. - decreased production and wages and increased unemployment - if it spiral occurs, consumers will postpone shipping
68
What is anticipated inflation?
Represents the level of inflation people expect to occur and have built into their economic decisions.
69
What is unanticipated inflation?
It is not expected and therefore causes a redistribution in the economy because people have not adjusted their expenditure and earnings.
70
What is GDP? What is ex/included in the GDP?
The dollar value of all final goods and services produced within a country's borders in a given year - doesn't include non market activities, underground economy, negative externalities, and quality of life - excludes second hand sales, non market/black market, stocks/bonds/transfer payments, US goods made out of country - include foreign goods made in US
71
How is GDP calculated?
1) Expenditure Approach (Consumption + Investment + Government spending + Net exports) 2) Income Approach (sum of all informed earned in an economy)
72
What is the difference between nominal/current GDP and real GDP?
Nominal GDP is the value of goods/services in current prices. (Current price x current quantities) Real GDP is adjusted for inflation. (Base year price x current quantities)
73
Why is real GDP the more accurate indicator of economic growth?
Adjusted for inflation. It also reflects only changes in the amounts being products.
74
How is real GDP calculated?
Base year price x current quantities OR Nominal GDP / GDP Deflector x 100
75
How is the GDP deflator calculated?
GDP Deflector = Nominal GDP / Real GDP x 100
76
What does GDP deflector tell us?
It measures the current level of prices relative to the prices of the base year. Reflects the prices of goods/services produced domestically.
77
What is the difference between the GDP deflator and CPI?
GDP deflector reflects the prices of goods and services produced domestically. CPI reflects that prices of all goods/services by consumers so face back.

Economics (5 decks)

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