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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
Q

What is a tax?

A

A required payment to a local, state, or national government that allows for finances needed to operate government.

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26
Q

What is revenue?

A

Income received by a government from taxes and non-tax sources.

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27
Q

What is a tax base?

A

Income, property, good, or service that is subject to a tax.

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28
Q

Who bears the tax burden/incidence of a tax (final burden)?

A

In inelastic demand, the consumers. In elastic demand, the sellers.

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29
Q

What is Federal Insurance Contributions Act (FICA)?

A

Taxes that fund social security and medicare.

- payments are shared by employees and employers.

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30
Q

What are excise taxes?

A

General revenue tax on sale/manufacture of a good.

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31
Q

What are capital gain taxes?

A

Taxes on stocks, bonds, etc.

32
Q

What is Earned-Income-Tax credit?

A

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
Q

What is Alternative Minimum Tax?

A

Began in 1969 to precent rich from not paying income tax.

- flat rate of 26% or 28% with no deductions allowed

34
Q

What is Buffett Rule?

A

Raising tax for wealthy. If the Buffett Rule was passed, it would require all millionaires to pay a minimum tax rate of 30%

35
Q

What is taxable income?

A

Income on which tax must be paid; Total income minus exemptions and deductions.

36
Q

What are exemptions?

A

A set amount you subtract from your gross income for yourself, your spouse, and any dependents.

37
Q

What is tax withholding?

A

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
Q

What are deductions?

A

Variable amounts that you can subtract, or deduct from you gross income.

39
Q

What are credits?

A

A dollar-dollar reduction in the tax can be reduced directly from taxes owed

40
Q

What are 6 major sources of tax revenue for federal government?

A

1) Individual & Corporate income taxes
2) Social insurance taxes
3) Excise taxes
4) Estate & Gift taxes
5) Taxes on importants

41
Q

What is a tax return?

A

Form used to file income tax. Declares income to government and figure out taxable income.

42
Q

What is a tax incentive?

A

The use of taxation to encourage or discourage certain behavior.

43
Q

What is mandatory spending?

A

Spending on certain programs that is mandated, or required, by existing law

  • increases
  • ex. Social Security, Medicare
44
Q

What is discretionary spending?

A

Spending category about which government paleness can make choice (decreased)
- ex. defense, eduation

45
Q

What are entitlement programs?

A

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
Q

What is Social Security?

A

Largest category of federal spending. Provides old-age pensions, surviving members of wage earners, people with disabilities.

47
Q

What is Medicare?

A

Pays for hospital care and costs of physicians/medical services

  • for people with disabilities/disease
  • funded by taxes withheld by people’s paychecks
48
Q

What is Medicaid?

A

Entitlement program that benefits low income families, some people with disabilities and elderly people in nursing homes.

49
Q

What is an operating budget?

A

Budget for day-to-day expenses

50
Q

What is capital budget?

A

Budget for major capital or investment expenditures

51
Q

What is a balancing budget?

A

Budget in which revenues are equal to spending.

52
Q

What is fiscal policy?

A

Taxing and spending.

53
Q

What is a budget surplus?

A

A situation in which the government takes in more than its spends.

54
Q

What is a budget deficit?

A

A situation in which the government spends more than it takes in.

55
Q

What is national debt?

A

All the money the federal government owes to bondholders

- total of every year’s budget deficits

56
Q

What are two problems that arise from national debt?

A

1) Crowding out effect

2) Government must pay interest to bondholders (servicing the debt)

57
Q

What is the crowding out effect?

A

The loss of funds for private increment due to government borrowing.

58
Q

What is the Debt Limit?

A

The amount of bonds the Treasury is allowed to issue.

59
Q

What is inflation and what causes it?

A

Inflation is sustained increase in price levels.

  • core inflation excludes food and energy
  • causes quantity theory, demand-pull, and cost-push
60
Q

What is quantity theory?

A

“Too few money, chasing too few goods”

- monetary expansion as a result of printing money or easy credit

61
Q

What is demand-pull?

A

Demand is greater than supply

62
Q

What is cost-push

A

The rising cost of commodities like oil pushes up other prices

63
Q

What does the consumer price index measure?

A

Statistic that shows the changes in price levels by tracking the prices of a specific basket of goods.
- Uses 1982 - 1984 prices

64
Q

How is the CPI calculated? and what does it tell us?

A

CPI = current cost / base period cost x 100

65
Q

How is year to year inflation calculated?

A

CPI (current year) - CPI (previous) / CPI in previous year x 100

66
Q

Who does inflation help and hurt?

A

Help: Borrowers
Hurt: Lenders, savers, people with fixed incomes

67
Q

What is deflation and why is it bad for our economy?

A

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
Q

What is anticipated inflation?

A

Represents the level of inflation people expect to occur and have built into their economic decisions.

69
Q

What is unanticipated inflation?

A

It is not expected and therefore causes a redistribution in the economy because people have not adjusted their expenditure and earnings.

70
Q

What is GDP? What is ex/included in the GDP?

A

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
Q

How is GDP calculated?

A

1) Expenditure Approach (Consumption + Investment + Government spending + Net exports)
2) Income Approach (sum of all informed earned in an economy)

72
Q

What is the difference between nominal/current GDP and real GDP?

A

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
Q

Why is real GDP the more accurate indicator of economic growth?

A

Adjusted for inflation. It also reflects only changes in the amounts being products.

74
Q

How is real GDP calculated?

A

Base year price x current quantities
OR
Nominal GDP / GDP Deflector x 100

75
Q

How is the GDP deflator calculated?

A

GDP Deflector = Nominal GDP / Real GDP x 100

76
Q

What does GDP deflector tell us?

A

It measures the current level of prices relative to the prices of the base year. Reflects the prices of goods/services produced domestically.

77
Q

What is the difference between the GDP deflator and CPI?

A

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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