fiscal policy

Question 1

what is social insurance?

Answer 1

the insurance provided by the government against bad outcomes such as unemployment, illness, disability, or outliving your savings

Question 2

what accounts for 80% of total fed gov spending?

Answer 2

social insurance and military spending

Question 3

what does the state gov. spend on?

Answer 3

states also spend much of their money on social insurance, but they focus it on the unemployed, the poor, and retired state gov workers

states spend about 20% of their budget on education, most of which goes to higher education

states also spend money in healthcare

Question 4

what does the local gov. spend on?

Answer 4

education accounts for the greatest share of local gov spending

much of local spending goes to primary and secondary schools and other community service s

Question 5

what are the trends observed in government spending?

Answer 5

federal gov spending has been stable in recent decades

state and local gov spending has trended upward in recent decade

Question 6

how has social insurance changed over time?

Answer 6

social insurance spending has grown over time

increased spending is due to
- creation of CHIP
- expansion of Medicare and Medicaid
- insurance subsidies included in the affordable care act

Question 7

what is mandatory spending?

Answer 7

spending on programs that does not get determined annually. it is instead set into law

Question 8

what is discretionary spending?

Answer 8

spending that Congress appropriates annually

Question 9

where does the federal government’s revenue come from?

Answer 9

primarily from taxing people’s income

Question 10

what is income tax?

Answer 10

taxes collected on all income regardless of its source (work and unearned)

Question 11

what are payroll taxes?

Answer 11

taxes on earned income

Question 12

what is taxable income?

Answer 12

the amount of income that you pay taxes on

Question 13

what is marginal tax rate?

Answer 13

the tax rate you pay if you earn another dollar

Question 14

what is progression tax?

Answer 14

those with more income tend to pay a higher share of their income in tax

Question 15

what are corporate taxes?

Answer 15

6% of federal taxes are collected from corporations

the taxes are paid primarily by the owners of the corporations

workers also bear the burden of corporate taxes through lower wages

Question 16

what types of tax does the state and local gov collect?

Answer 16

sales, property and income

Question 17

what is a sales tax?

Answer 17

a tax on purchases that’s typically a percentage of the purchase price of goods and services

Question 18

what is an excise tax?

Answer 18

a tax on a specific product. based on quantity purchased. ex. gasoline and cigs

Question 19

what is a property tax?

Answer 19

a tax on the value of property such as real estate

Question 20

what are tax expenditures?

Answer 20

special deductions, exemptions, or credits that lower your tax obligations to encourage you to engage in certain kinds of activities

they are a hidden form of government spending

Question 21

what are the three reasons why tax expenditures generally benefit those with high incomes?

Answer 21

1. the value of tax exclusions and deductions is higher when your income tax rate is higher
2. higher-income people tend to buy more tax-preferred goods and services
3. most tax expenditures don’t provide much help if your income tax bill is zero

Question 22

What is regulation?

Answer 22

allows the government to require spending, while others pay the bills

Question 23

what is the fiscal policy?

Answer 23

the government’s use of spending and tax policies to attempt to stabilize the economy

involve policies aimed at keeping actual GDP close to potential output

Question 24

describe fiscal policy as a countercyclical force

Answer 24

higher spending and lower taxes will boost output

lower spending and higher taxes reduce output

Question 25

what is discretionary fiscal policy?

Answer 25

policy that temporarily changes gov spending or taxes to boost or slow the economy

timely implementation if discretionary fiscal policy is difficult because there are delays at every step of the process

Question 26

when does a fiscal policy works best when it is:

Answer 26

1. timely
2. targeted
3. temporary

Question 27

what is crowding out?

Answer 27

crowding out occurs when private spending (particularly investment) declines after an increase in government borrowing

government spending can crowd out private investment spending

Question 28

what is an automatic stabilizer?

Answer 28

refers to spending and tax programs that adjust as the economy expands and contracts, without policy makers taking any action

automatic stabilizers are timely, targeted, and temporary

Question 29

describe fiscal vs. monetary policy interactions

Answer 29

monetary policy is more nimble than fiscal policy (monetary policy can be implemented quickly but it takes time for these to have an effect)

fiscal policy can be more targeted

fiscal policy is particularly important at the zero bound

Question 30

what is a budget deficit?

Answer 30

the difference between spending and revenue in a year in which spending exceeds revenues

may be a timing mismatch

may reflect short-run political incentives

requiring a balanced budget could make business cycles worse

Question 31

what is a budget surplus?

Answer 31

the difference between spending and revenue in a year in which revenue exceeds spending

Question 32

describe federal gov deficits

Answer 32

1. the federal gov typically runs deficits
2. persistent large deficits are fairly new
3. wars require a surge in spending that results in deficits
4. business cycles create deficit cycles

Question 33

what is gross gov debt?

Answer 33

the total accumulated amount of money the gov owes is called the gross gov debt

Question 34

what is the net gov debt?

Answer 34

the debt that the gov owes to individuals, businesses, and other gov both here and abroad

Question 35

what is an unfunded liability?

Answer 35

are a commitment to incur expenses in the future without a plan to pay for those expenses

they are a driver in debt projections