Economics Taxes, Fiscal Policy, Monetary Policy, and Federal Reserve System

Question Answer
What is tax? Required payemtn to a local, state, or a national government
What is revenue? Income recieved by a government from taxes and nontax sources.
What is a tax base? The income, good, or service that is subject to a tax.
What is a list of tax base? -Individual income tax -Sales tax -Property tax -Corporate income tax
Unlike tax rate, you can increase tax base by…… Taxing more items.
What is proportional tax? In all income levels, the percentage of income paid in taxes REMAINS THE SAME
What is progressive tax? As income increase, % income paid in taxes INCREASE too
What is regressive tax? As income increase, % income paid in taxes DECREASE
What are the characteristics of good tax? -Simple and easily understood (Simplicity) – Collecting taxes w/o spending too much time (Efficiency) -Clear of the deadline – how money is due, etc. (Certainty) – Fair and equable(Equity)
Do government has unlimited tax power? No
How does NATIONAL government GETS its money? Individual income tax
What does NATIONAL government SPEND its money on? -Department of Defense (Disrectionary spending) -Social Security (Mandatory spending)
How does the STATE government, like Texas, recieves its money? -Sales tax (Largest tax revenue) -Federal income (largest revenue)
What does the STATE government, like Texas, spends its money on? Education
How does the LOCAL government gets its money? Property tax
What does the LOCAL government spends its money on? Public safety
What is discretionary spending? Spending about which government planners can make choices
What is mandatory spending? Spending on certain programs that is REQUIRED by existing laws
What is an example of proportional tax? Proposed flat tax and Social Security (up to $106,900)
What is an example of progressive tax? US income tax
What is an example of regressive tax? Sales tax, excise tax, and Social Security (tax after $106,900)
What is the federal government's fiscal year? Last year (October 1st – September 30th)
What is a budget surplus? Government TAKES IN more than it spends
What is a budget deficit? Government SPENDS more than it takes in
What is a fiscal policy? The use of government spending and revenue collection to influence the economy
What are two tool of fiscal policy? -Government spending -Taxation
Contractionary fiscal policy- Lower spending and heighten taxes, which collects money from consumers and decrease spending.
When is contractionary fiscal policy used? The economy is growing too fast
Expansionary fiscal policy- Cuts taxes and heighten spending. This increase spending, because consumers keep their money.
When is expansionary fiscal policy used? The economy is falling quickly
What does a supply side economist focus on? Taxes on the economy
How would the supply side economist expect to increase aggregate supply? By decreasing taxes
What do classical economists believe? Free market regulate themselves
What does John Maynard Keynes propose? keynesian economics, a theory that the government regulates the economy
What are the automatic stabilizers? Government programs that changes automatically based on changes in GDP and a person's income.
Examples of automatic stabilizers- Taxes and transfer payments
Regional Reserve Banks' main function – Monitors and reports an economic and banking conditions in its district
How many regions are there? 12 regions
What is the role of the Federal Open-Market Committee? Makes key decisions about interest rates and the growth of the United States money supply
What does the Federal Reserve System consist of ? -Board of Governors -12 Federal Reserve Districts -Member banks
Tight Money policy (Contractionary)- -Sell securities -Increase reserve ratio -Raise discount ratio
Easy Money policy (Expansionary)- -Buy securities -Reduce reserve ratio -Lower discount rate
When is the TIGHT money policy used? Economy is facing excessive spending and inflation
When is the EASY money policy used? Economy is facing unemployment and deflation
Who is the President of the Fed? Ben Bernanke

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