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Flashcards in Test 8 Deck (33):
1

Roles of Government in our Economy

1. To safeguard the market system
2. To provide public goods and services
3. Deal with externalities
4. Assist those in need
5. Stabilize the economy

2

How does the government safeguard the market system?

1. They establish and enforce the rules of the game
2. They provide the public with information about market conditions and the state of the economy
3. They help settle disputes

3

What are examples of public goods and services that the government provides?

1. National defense
2. Schools
3. Roads
4. Law and order

4

How does the government deal with externalities (pollution)?

1. Persuasion
2. Taxation
3. Subsidies
4. Regulation

5

How does the government assist those in need?

Transfer payments (entitlement programs)

6

Transfer payments (entitlement programs)

Money paid directly to the individual for which no goods or services are produced

7

How does the government stabilize the economy?

They control the interest rate

8

What three levels does the government conduct on?

1. Local
2. State
3. National

9

Types of Government Budget

1. Balanced budget (spending same as gaining)
2. Surplus (gaining more than spending)
3. Deficit (spending more than gaining)

10

How does government spend money?

1. Direct benefit payments to individuals
2. National defense
3. Net interest
4. Grants to the states

11

Grants-in-aids

Lots of conditions

12

Block Grants

Less conditions
State spends money where they see fit

13

Where does the federal government get its money?

1. Personal income tax
2. Taxes on corporations
3. Excise tax
4. Social insurance receipts
5. Estate and gift taxes
6. Customs duties (tariffs, tax on imported goods)
7. Bonds

14

Excise tax

Tax on manufacture and sale of certain items

15

Where do states and local governments get their money?

1. Sales tax
2. Income tax
3. Property tax
4. Federal aid
5. Lottery

15

What is the state and local governments highest expense?

Education

16

Why does the government collect taxes?

1. To pay the cost of government
2. To protect selective industry (protective tariff)
3. To discourage activities that the government believes is harmful
4. To encourage activities
5. To regulate the level of economic activity

17

Three most important questions regarding taxes

1. Who should pay?
2. What types of taxes should be collected?
3. Who will actually pay the taxes?

18

Benefits Received Principle

Belief that those who benefit from a government program, are the ones who should pay for that program

19

Ability to Pay Principle

Belief that taxes should be paid by those who can most afford them

20

Progressive Tax

Taxes a larger percentage of a higher income and a smaller percentage of a lower income

21

Proportional Tax

Takes the same percentage of all income

22

Regressive Tax

Takes a higher percentage from low income than from high income people
(Example: Sales tax)

23

Tax Incidents

The individual or business that will bare the burden of a tax

24

Tax Shifting

Passing the burden of paying a tax to someone else

25

How can someone Tax Shift?

1. Shifting Forward
2. Shifting Backwards

26

Shifting Forward

The tax is passed down to the consumer

27

Shifting Backwards

Suppliers or workers who produce a product are forced to assume the tax burden

28

Justifications of a National Debt

1. It's not as large as it sounds
2. Deficits can be used to stimulate the economy
3. Government securities provide the public with investment opportunities

29

Criticisms of the National Debt

1. The annual interest payments are too high
2. Deficits lead to inflation
3. High deficits can lead to higher interest rates
4. It hurts foreign investment

30

Proposals to Reduce the Deficit

1. Balanced Budget Amendment
2. Line Item Veto

31

Balanced Budget Amendment

A constitutional amendment that requires the government to have a balanced budget

32

Line Item Veto

Allows the president to strike out whatever laws he wants