Unit 12

Question 1

Which government level relies on property taxes the most?

Answer 1

Local governments to fund public schools, police, fire services, and local infrastructure

Question 2

Can local revenue be used to fund public schools?

Answer 2

Yes

Question 3

Tax incentive

Answer 3

A policy designed to encourage specific economic activities by reducing taxes for those who engage in them

Question 4

Example of tax incentive

Answer 4

Renewable energy credits

Question 5

Progressive tax

Answer 5

A tax system in which the tax rate increases as income rises

Question 6

Example of progressive tax

Answer 6

The U.S. federal income tax

Question 7

Estate tax

Answer 7

A tax on the transfer of a deceased person’s estate to their heirs, applied to estates above a certain value

Question 8

Gift tax

Answer 8

A tax on money or property transferred from one person to another without compensation

Question 9

Regressive tax

Answer 9

Tax takes a larger percentage from low-income earners

Question 10

Examples of regressive taxes

Answer 10

Sales tax

Question 11

Equity

Answer 11

Taxes should be fair, with people in similar situations paying similar amounts (horizontal) and higher earners paying more (vertical)

Question 12

Simplicity

Answer 12

Taxes should be easy to understand and comply with

Question 13

Efficiency

Answer 13

Taxes should not overly distort economic decisions or require excessive administrative costs

Question 14

Tax base

Answer 14

The total amount of assets, income, or economic activity subject to taxation

Question 15

Taxable income

Answer 15

The portion of income that is subject to taxes after deductions and exemptions

Question 16

Tax return

Answer 16

A form filed with the government to report income, calculate taxes owed, and claim deductions or refunds

Question 17

Define FICA programs. Give 3 examples.

Answer 17

FICA funds Social Security and Medicare.

3 examples: Social Security, Medicare, disability insurance benefits2

Question 18

Define automatic stabilizers. Give 2 examples.

Answer 18

Automatic stabilizers are economic policies that automatically adjust to stabilize the economy without legislative action.

2 examples: unemployment benefits, progressive income taxes

Question 19

2 examples of government transfer payments

Answer 19

Social Security benefits, food stamps (SNAP)

Question 20

What is unique about transfer payments?

Answer 20

Transfer payments do not involve an exchange of goods or services; they are direct financial assistance

Question 21

What is the crowding out effect?

Answer 21

When government borrowing increases interest rates, reducing private investment

Question 22

What does the government budget the most for/spend the most on?

Answer 22

Mandatory spending, especially Social Security, Medicare, and Medicaid

Question 23

Balanced budget

Answer 23

When government revenue equals expenditure

Question 24

Operating budget

Answer 24

A budget for day-to-day expenses

Question 25

Budget surplus

Answer 25

When government revenue exceeds expenditure

Question 26

Fiscal policy

Answer 26

Government use of taxes and spending to influence the economy

Question 27

Supply-side fiscal policy

Answer 27

Policies aimed at increasing production (tax cuts for business)

Question 28

Demand-side fiscal policy

Answer 28

Policies aimed at increasing consumer demand (stimulus checks)

Question 29

What are the 2 tools of fiscal policy? How are they used for contractionary and expansionary policy?

Answer 29

Taxes: increased for contractionary, decreased for expansionary Government spending: decreased for contractionary, increased for expansionary

Question 30

How does contractionary fiscal policy affect aggregate demand?

Answer 30

Contractionary policy reduces aggregate demand by cutting spending or raising taxes

Question 31

How does expansionary fiscal policy affect the economy?

Answer 31

Stimulates growth but can increase inflation and debt

Question 32

What are 2 limits on fiscal policy?

Answer 32

Time lags, political constraints

Question 33

The ability-to-pay tax principle relates to which type of tax structure?

Answer 33

Progressive tax

Question 34

Why would implementing wage and price controls and using expansionary fiscal policy cause high inflation? (Nixon, 1970s)

Answer 34

Increases money supply, meaning more money chases the same amount of goods and services

Question 35

When is the government’s fiscal year?

Answer 35

October 1 to September 30

Question 36

What is the difference between discretionary and mandatory spending?

Answer 36

Discretionary spending is decided annually by Congress (defense), mandatory spending is required by the law (Social Security, Medicare)

Question 37

Monetary policy

Answer 37

The Federal Reserve’s use of money supply and interest rates to influence the economy

Question 38

Required reserve ratio

Answer 38

The fraction of deposits banks must hold in reserve, as set by Federal Reserve

Question 39

What are the duties of The Federal Reserve?

Answer 39

Conduct monetary policy, supervise and regulate banks, maintain financial stability, provide financial services to the government and banks

Question 40

How many district banks does the Fed have?

Answer 40

12

Question 41

What district bank is in charge of Florida?

Answer 41

The Atlanta district (District 6)

Question 42

Tight money policy

Answer 42

The Fed sells securities to reduce money supply

Question 43

Easy money policy

Answer 43

The Fed buys securities to increase money supply

Question 44

What is the Fed’s primary tool?

Answer 44

Open market operations

Question 45

What is the FOMC? Who makes up the FOMC?

Answer 45

FOMC is the branch of the Fed that makes key monetary policy decisions, composed of the 7 Board of Governors and 5 regional bank presidents

Question 46

When to use tight money policy?

Answer 46

To reduce inflation during economic booms

Question 47

When to use easy money policy?

Answer 47

To stimulate growth during recessions