AP Macro Unit 3 Flashcards

6802854182	fiscal policy	Congress and the President influence the economy through changes in SPENDING and TAXES	0
6802854183	deficit	the amount of excess expenditures over revenues at one time/within one year	1
6802854184	transfers in kind	transfers that substitute money (food stamps)	2
6802854185	progressive taxes	the more money you earn, the greater the percentage of your income you pay in taxes -ex: federal income tax	3
6802854186	proportional taxes	flat tax. all incomes are taxes at the same percentage	4
6802854187	merit goods	-people have a right to them -there are positive externalities -role of the government to provide them	5
6802854188	Social Security	-taxes covered by the Federal Insurance Contributions Act (FICA) -2nd largest source of federal revenue -income for retirees, survivors, etc -regressive -employers (indirect) -employees (direct)	6
6802854189	net export effect	A higher price level increases the relative price of domestic exports to other countries while decreasing the relative price of foreign imports from other countries. This results in a decrease in exports and an increase in imports and thus a decrease in net exports.	7
6802854190	crowding out effect	A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect.	8
6802854191	automatic stabilizers	Automatic stabilizers offset fluctuations in economic activity without direct intervention by policymakers. When incomes are high, tax liabilities rise and eligibility for government benefits falls, without any change in the tax code or other legislation. When incomes slip, tax liabilities drop and more families become eligible for government transfer programs, such as food stamps and unemployment insurance that help buttress their income.	9
6802854192	debt	the total of how much owed, the government borrows by selling US treasury bonds	10
6802854193	transfer payments	government actually giving you money (welfare, social security)	11
6802854194	regressive taxes	the less money you earn, the greater the percentage of your income you pay in taxes	12
6802854195	demerit goods	-goods that have negative externalities (cigarettes, alcohol) -role of the government to regulate demerit goods	13
6802854196	What are the different types of taxes?	-proportional (flat) tax -progressive tax -regressive tax	14
6802854197	Which types of taxes do federal and state governments use to generate revenue?	-personal income tax (largest source of federal income, direct, progressive) -corporate income tax (progressive, indirect)	15
6802854198	How can the government act to help fight inflation?	Contractionary Fiscal Policy -decrease government spending -increase taxes	16
6802854199	What is the difference between expansionary fiscal policy and contractionary fiscal policy?	Expansionary = used when AD is too low (recession) Contractionary = used when AD is too high (inflation)	17
6802854200	What is the difference between automatic and discretionary fiscal policy?	Discretionary = government actively does something to change G or T Automatic = G or T change without any NEW government action	18
6802854201	sales tax	regressive, indirect	19
6802854202	excise tax	tax paid on specific goods, regressive, indirect	20
6802854203	property tax	regressive landlords (indirect) homeowner (direct)	21
6802854204	estate (death) tax	federal tax on the property of someone who has dies progressive, direct	22
6802854205	tax of gifts	progressive, direct	23
6802854206	How can the government act to help fight unemployment?	Expansionary Fiscal Policy -increase government spending -decrease taxes	24
6802854207	Recessionary Gap	when GDP < Full Employment GDP	25
6802854208	Inflationary Gap	when GDP > Full Employment GDP	26
6802854209	Lags in Fiscal Policy	-the impacts of spending and tax changes are not immediate -if the economy self-corrects before the policy effects kicks in, they can cause problems -natural correction + fiscal policy = over correction	27
6802854210	Which of the following taxes is generally progressive in the U.S.? -corporate income -social security -sales -excise	corporate income	28
6802854211	Which of these would qualify as an example of discretionary fiscal policy? -during a recession, more unemployment checks are sent -in a moment of high inflation, more taxes are collected -in a time of recession, Congress passes a tax cut -in a time of high inflation, less is spent on Medicare	-in a time of recession, Congress passes a tax cut	29
6802854212	What is the likely result of an increase in government borrowing?	an increase in interest rates	30
6802854213	When GDP drops, what is likely to occur to the federal budget? Deficit or Surplus	Deficit	31
6802854214	The government opts to increase spending by $100. MPC is 0.8. To maintain current employment:	taxes must be raised by $125	32
6802854215	Spending Multiplier	change in GDP = multiplier x initial change in spending multiplier = 1/MPS or (1-MPC)	33
6802854216	Tax Multiplier	change in GDP = tax multiplier x change in taxes tax multiplier = -MPC/MPS	34
6802854217	Which of the following is not an automatic stabilizer? -tax cut during recession -unemployment benefits -progressive income tax system -food stamps	-tax cut during recession	35
6802854218	Federal budget deficits always occur when	spending is greater than revenue	36
6802854219	Expansionary fiscal policy will generally have what effect on price levels in the economy?	price levels will rise	37
6802854220	To address an inflationary gap, all of the following would help except: -a reduction in exports -decrease in consumer spending -cuts in government spending -tax cuts	tax cuts	38
6802854221	Decreasing taxes and increasing government spending will likely have what effect?	unemployment falls	39
6802854222	Which of the following would reduce absolute value of the tax multiplier?	drop in MPC	40
6802854223	If MPC is 0.75 and taxes go up $5 million, which will be the likely effect on the economy?	GDP will fall $15 million	41
6802854224	If the government adjusts fiscal policies in such a way as to add to the deficit,	we would expect GDP to rise	42
6802854225	Which type of tax generates the most revenue for the federal government?	personal income	43
6802854226	Approximately what level of inflation does the government aim to maintain?	1-2%	44
6802854227	Why might the government refrain from using fiscal policy to address an inflationary gap?	concerns about the lag effect	45
6802854228	Expansionary fiscal policy will most likely cause interest rates and investment to change in which of the following ways in the short run?	increase interest rates decrease investment	46
6802854229	Total spending in the economy is most likely to decrease by the largest amount if which of the following happens to government spending and taxes?	decrease spending increase taxes	47
6802854230	the crowding out effect suggest that	the reduction in private spending resulting from higher interest rates cause by a budget deficit will partially offset the expansionary impact of an increase in government spending	48
6802854231	automatic stabilizers in government policy are less effective when	taxes are regressive	49
6802854232	in order to be called an automatic stabilizer, which of the following must taxes automatically do in a recessionary period and in an inflationary period?	decrease recessionary increase inflationary	50
6802854233	personal income tax	progressive, direct	51