ECON Chapter 10
Terms
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- Progressive Income Tax
- An income tax system in which one's tax rate rises as one's taxable income rises. There's usually a cap.
- Proportional Income Tax
- An income tax system in which one's tax rate is the same no matter what one's taxable income is.
- Regressive Income Tax
- An income tax system in which one's tax rate declines as one's taxable income rises.
- Budget Deficit
- Government exprenditures greater than tax revenues.
- Budget Surplus
- Tax revenues greater than government expenditures.
- Balanced Budget
- Government expenditures equal to tax revenues.
- Cyclical Deficit
- The part of the budget deficit that is a result of a downturn in economic activity.
- Structural Deficit
- The part of the budget deficit that would exist even if the economy were operating at full employment.
- Total Budget Deficit = ?
- Structural Deficit + Cyclical Deficit.
- Public Debt
- The total amount the federal government owes its creditors.
- Fiscal Policy
- Changes in government expenditures and/or taxes to achieve particular economic goals, such as low unemployment, stable price, and economic growth.
- Expansionary Fiscal Policy
- Increases in government expenditures and/or decreases in taxes to achieve particular economic goals.
- Contractionary Fiscal Policy
- Decreases in government expenditures and/or increases in taxes to achieve particular economic goals.
- Discretionary Fiscal Policy
- Deliberate changes of government expenditures and/or taxes to achieve particular economic goals.
- Automatic Fiscal Policy
- Changes in government expenditures and/or taxes that occur automatically without (additonal) congressional action.
- Crowding Out
- The decrease in private expenditures that occurs as a consequence of increased government spending or the financing needs of a budget deficit.
- Complete Crowding Out
- A decrease in one or more components of private spending completely offsets the increase in government spending.
- Incomplete Crowding Out
- The decrease in one or more components of private spending only partially offsets the increase in government spending.
- The data lag
- Policymakers are not aware of changes in the economy as soon as they happen.
- The wait-and-see lag
- After policymakers are aware of a downturn in economic activity, they rarely enact counteractive measures immediately.
- The legislative lag
- After policymakers decide some type of fiscal policy measure is required, Congress has to propose and get the measure passed which can take many months.
- The transmission lag
- After enacted, a fiscal policy measure takes time to be put into effect.
- The effectiveness lag
- After a policy measure is actually implemented, it takes time to affect the economy.
- Marginal (Income) Tax Rate
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-The change in a person's tax payment divided by the change in the person's taxable income
-Change in Tax Payment / Change in taxable income. - Laffer Curve
- The curve that shows the relationship between tax rates and tax revenues. According to Laffer, as tax rates rise from zero, tax revenues rise, reach a max at ome point, and then fall with further increases in tax rates.
- Tax Base
- The total amount of taxable income.
- Tax revenue = ?
- Tax Base * (Average) Tax Rate.
- Where is most of government spending going to?
- Social Security, Medicare, Medicaid, and National Defense.
- What type of income tax does the U.S. have?
- Progressive.
- What are the three taxes that the federal gov'ts tax revenues come from?
- Individual Income Tax, Corporate Income Tax, and Social Security Taxes.
- What do new classical economists think about fiscal policy?
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(1) Individuals will decrease consumption spending and increase saving to pay the higher future taxes and just like complete crowding out, AD will not shift.
(2) Deficits do not necessarily bring higher interest rates. - Two reasons that demand-side fiscal policy may be ineffective at achieving certain macroeconomic goals?
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(1) crowding out
(2) lags - Three major points made by Laffer Curve
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(1) There are two tax rates at which zero tax revenues will be collected - 0 percent and 100 percent.
(2) An increase in tax rates could cause tax revenues to increase.
(3) A decrease in tax rates could cause tax revenues to increase.