FlashcardsChapter19

Question 1

Term

Answer 1

Description

Question 2

Fiscal policy

Answer 2

the use of government’s budget tools, government spending, and taxes to influence the macroeconomy. (531)

Question 3

Taxes_

Answer 3

involuntary payments levied by governments in order to raise revenue to provide public services. (531)

Question 4

Benefits principle

Answer 4

the principle that taxes should be levied on those who most benefit from the taxed product or activity. (531)

Question 5

Ability to pay principle

Answer 5

the principle that taxes should be levied on those who make more money. (532)

Question 6

Progressive tax

Answer 6

a tax system in which the more you earn, the higher your average tax rate. (532)

Question 7

Average tax rate

Answer 7

the total tax paid divided by the amount of taxable income. (532)

Question 8

Marginal tax rate

Answer 8

the tax rate paid on an individual’s next dollar of income. (533)

Question 9

Regressive tax

Answer 9

a tax system in which the more you earn, the lower your average tax rate. (534)

Question 10

Excise taxes

Answer 10

taxes levied on a particular good or service. (535)

Question 11

Proportional tax

Answer 11

a tax system in which everyone pays the same tax rate regardless of income level. (536)

Question 12

Transfer payments

Answer 12

payments made to groups or individuals when no good or service is received in return. (538)

Question 13

Government outlays

Answer 13

the part of the government budget that includes both spending and transfer payments. (539)

Question 14

Mandatory outlays

Answer 14

government spending determined by ongoing programs like Social Security and Medicare; sometimes called entitlement programs. (539)

Question 15

Entitlement programs

Answer 15

mandatory benefits that some citizens who meet certain requirements are entitled to receive under current laws. (539)

Question 16

Discretionary outlays

Answer 16

government spending that is adjustable during the annual budget process. (539)

Question 17

Expansionary fiscal policy

Answer 17

an increase in government spending or decrease in taxes to stimulate the economy toward expansion. (541)

Question 18

Contractionary fiscal policy

Answer 18

a decrease in government spending or increase in taxes to slow economic expansion. (543)

Question 19

Countercyclical fiscal policy

Answer 19

fiscal policy that seeks to counteract business cycle fluctuations. (544)

Question 20

Marginal propensity to consume (MPC)

Answer 20

the portion of additional income spent on consumption. (545)

Question 21

Spending multiplier

Answer 21

a number that tells us the total impact on spending from an initial government stimulus. (548)

Question 22

Budget deficit

Answer 22

condition occurring when government outlays exceed revenue in a given time period, usually a year. (549)

Question 23

Budget surplus

Answer 23

condition occurring when government revenue exceeds outlays in a given time period, usually a year. (549)

Question 24

Debt

Answer 24

the total of all accumulated and unpaid budget deficits. (550)

Question 25

Recognition lag

Answer 25

the time it takes to recognize the existence of a problem in the economy. (553)

Question 26

Implementation lag

Answer 26

the time it takes to decide on a course of action and pass the legislation required to solve a problem in the economy. (553)

Question 27

Impact lag

Answer 27

the time between passing legislation and observing its effectiveness. (553)

Question 28

Crowding‐out

Answer 28

phenomenon occurring when private spending falls in response to increases in government spending. (554)