Ch. 11 Flashcards
(20 cards)
progressive income tax
An income tax system in which one’s tax rate rises as taxable income rises (up to some point).
Proportional Income Tax
An income tax system in which a person’s tax rate is the same regardless of taxable income.
Regressive Income Tax
An income tax system in which a person’s tax rate declines as his or her taxable income rises.
budget deficit
Government expenditures greater than tax revenues.
budget surplus
Tax revenues greater than government expenditures.
balanced budget
Government expenditures equal to tax revenues.
cyclical deficit
The part of the budget deficit that is a result of a downturn in economic activity.
structural deficit
The part of the budget deficit that would exist even if the economy were operating at full employment.
public debt
The total amount that the federal government owes its creditors.
fiscal policy
Changes in government expenditures and/or taxes to achieve economic goals, such as low unemployment, stable prices, and economic growth.
Expansionary Fiscal Policy
Increases in government expenditures and/or decreases in taxes to achieve particular economic goals.
contractionary Fiscal Policy
Decreases in government expenditures and/or increases in taxes to achieve economic goals.
Discretionary Fiscal Policy
Deliberate changes of government expenditures and/or taxes to achieve economic goals.
Automatic Fiscal Policy
Changes in government expenditures and/or taxes that occur automatically without (additional) congressional action.
crowding out
The decrease in private expenditures that occurs as a consequence of increased government spending or the financing needs of a budget deficit.
complete crowding out
A decrease in one or more components of private spending that completely offsets the increase in government spending.
incomplete crowding out
The decrease in one or more components of private spending that only partially offsets the increase in government spending.
Marginal (Income) Tax Rate
The change in a person’s tax payment divided by the change in taxable income: ΔTax payment ÷ ΔTaxable income.
Laffer curve
The curve, named after Arthur Laffer, that shows the relationship between tax rates and tax revenues. According to the Laffer curve, as tax rates rise from zero, tax revenues rise, reach a maximum at some point, and then fall with further increases in tax rates.
tax base
In terms of income taxes, the total amount of taxable income. Tax revenue = Tax base × (average) Tax rate.
