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55 Cards in this Set

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What category accounted for the largest percentage of total federal government expenditures in recent years?
Income security
What category accounted for the largest percentage of total state and local government expenditures in recent years?
Which taxes contributed the greatest percentage of total federal government tax revenues in recent years?
Individual Income taxes
What is an example of a progressive tax?
The federal personal income tax
Suppose Georges income is $10,000 and he pays a tax of $1,000, but Laura's income is $50,0000 and she pays a tax of $4,000. Such tax is:
The social security tax is a:
Regressive tax above a certain income level
Some cities finance their airports with a departure tax:every person leaving the city by plane is charged a small fixed dollar amount that is used to help pay for building and running the airport. The departure tax follows the:
Benefits-received principle
When the U.S. Federal Government runs a budget deficit, it borrows money by selling:
Treasury bills, notes, and bonds
Assumed the budget is currently balanced. If the federal government increases taxes it will create a:
Budget surplus
The United States currently has a budget:
deficit of 247.7
Which of the following owns the largest portion of national debt?
Federal, State, and local governments and the Federal Reserve
The current national debt is approximately:
8.8 trillion in bonds
What is the most liquid store of purchasing power?
A dollar bill
The M1 money supply is defined to be the sum of currency, travelers check, and:
Checking accounts
Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?
M1 falls by $1,000 and M2 is unchanged.
Who is the current chair of the federal reserve?
Ben Bernanke
Decisions regarding purchases and sales of government securities by the FED are made by the:
Federal Open Market Committee (FOMC)
Find the tax multiplier if the MPC is .75
Assume the the marginal propensity to consume (MPC) is .80 and the government cuts taxes by $100 billion. The aggregate demand curve will shift to the:
right by $4oo billion
Which of the following should shift the aggregate demand curve to the left?
A decrease in government spending
Demand-pull inflation is caused by:
an increase in aggregate demand
Other factors held constant, a decrease in resource prices will shift the aggregate:
supply curve rightward
Aggregate demand (AD) =
C, I, G, (X-M)
Reasons for downward sloping AD:
Real balance effect/ Wealth effet.
1) Prices increase, real balance decreases (C decreases)
2)Prices decrease, real balance increases (C increases)
Interest rate effect.
1)Prices increase, then you borrow more money and interest increases (I decreases and C decreases)
2)Prices decrease and you borrow less money and interest decreases. (I and C increase)
Net export effect/ trade effect.
1) Price of U.S. goods increase, foreign goods become more attractive and M increases. U.S. goods become less attractive to the world (X decreases and X-M decrease)
2)Price of U.S. goods decrease and foreign goods become less attractive and M decreases. U.S. goods become more attractive ( X and X-M increase)
Shift in AD guidelines:
Non Price determanint

Anything that makes C, I, G, (X-M) increase is because of and increase in AD

Anything that makes C,I,G(X-M) decrease is because of a decrease in AD
Aggregate supply has what kind of slope? Why?
Profit effect
1)Prices and TT increase (produce more)
2) Prices and TT decrease (Produce less)
Cost Effect
1)Produce more and production cost increases and the price increases.
2)Produce less and production cost decreases and price decrease.
Shift in AS guidelines:
Non price determanint
Resource prices; ex. oil
Business tax/ Subsidy
1)Taxes increase, AS decrease
2)Taxes decrease, AS increase
3)Subsidies increase, AS increase
4)Subsidies decrease, AS decrease
1)Tech. increase, AS increase
1)Ex. Environmental increase, AS decrease
2)Environmental decrease, AS increase.
Inflation guidelines:
Contractionary fiscal policy/ fiscal restraint
1)G decrease and T increase, AD decrease
Fiscal policy guidelines:
a change in G and T
How to tax people?
1)Ability to pay priciple...
1)Higher income means higher taxes
2)Lower income means lower taxes
2)Benefits-received pricipl....
Those that benefit from the governemt spending should pay the taxes that finance that benefit.
How to tax people?
What category does education fall under?
Ability to pay.
How to tax people?
What category does police/fire fall under?
Ability to pay.
How to tax people?
What category does the crosstown exp. fall under?
Since you have to pay a tol then its benefits received.
How to tax people?
What category does the stadium fall under?
Ticket tax is benefits received and sales tax is ability to pay.
Progressive taxes....
1)Higher income means higher tax rate
2)Lower income means lower tax rate.
What is the equation for the tax rate?
Tax/ income= %
Regressive taxes...
1)Higher income means lower tax rate.
2)Lower income means higher tax rate.
Proportional/ Flat taxes....
Everyone pays the same tax rate.
Examples of regressive taxes.
Sales tax= 7%
Social Security= 6.2%
Examples of proportional taxes.
Medicare/ Medicaid= -1.45% there is no limit
What is the fiscal policy guidelines?
G>T = Deficit
G<T = Surplus
G=T = Balanced
What was the U.S. deficit in 2006?
How does the governemt borrow money?
Issues U.S. Treasury Bonds
What is the Risk VS. Reward idea?
Every bond is rated by letters such as AAA, AA, A, BBB, BB, B, ETC. These letters indicate how much risk the bond has. The higher the risk, the higher the reward.
Which bonds are not rated?
U.S. Bonds. Interest is so low on them because they are so safe.
What is the national debt?
8.8 trillion
Who ownes most of the bonds?
The public
Who do you manage to get a government thats in a deficit to go into a surplus?
Decrease government spending and increase taxes (Contractionary fiscal policy)
During the clinton administration, what did he do to help the economy?
He decrease govt spending (Military, medicad/ medicare, food stamps)
He also increased taxes.
During the bush administration, what did he do to help the economy?
We were in a recession so he increased government spending and decrease taxes.(deficit) This is how you get out of a recession.
What is money?
1)Medium of exchange; accepted as payment for goods and services.
2)Store of value; can be held for future purchases.
3)Standard of value; serves as a yardstick for measuring the price of goods and services.
What is the money supply?
M1= Currency+checking account+travelers checks.
M2= M1+savings account+small time deposits(under $100,000)
M3= M2+large time deposits
What is liquidity?
The ability of an asset to be turned into cash.
What are the levels of the federal reserve system?
1)Board of Govenors (7 ppl)
Appointed by president to 14 yr terms. 1 person expires every 2 years.
2)Federal Reserve Banks (12)
Federal Open Market committee (FOMC)- Direct the buying and selling of government securities. They consist of Board of Govenors and 5 regional bank presidents(always NY)
3)Private Banks.