Fiscal Policy and Taxes Test Review Ch. 14 and 15

1) What is the equilibrium price determined by? The market

2) The theory of the Laffer curve was used to argue For cutting income tax rates

3) How do you know when there is a budget deficit? When the amount spent is more than the amount raised in taxes

4) In Keynesian economics, what sector of the economy could offset a decline in business spending? The government

5) What term refers to “government taxing and spending”? Fiscal

What is the primary source of revenue for the federal government? Taxes

Which type of tax is levied on specific items or services, including gasoline and telephone services? Excise Tax

8) Give an example of federal mandatory spending Social Security

9) What type of tax is levied on the sale of an asset held for 12 months or longer? Capital Gains Tax

10) What is a debt ceiling? Debt ceiling permits borrowing for expenditures that have already been authorized by Congress and the President

The current tax code is indexed to compensate for... Inflation

12) Of the four sources of government revenue, which is the smallest? Transfer payments

13) What is the single largest source of federal revenue? Individual income tax

14) What group does supply-side policy target through stimulation? Producers

15) What do advocates of supply-side economics argue That spending by the federal government slows economic growth

Supply-siders favor what type of policy? Deregulation

17) Where does the incidence of the individual income tax fall? Workers

18) According to Keynes, what market sector was most responsible for the Great Depression? Investment

19) How would a college student most likely be affected by a severe cut in her state’s budget? She would have to play more for tuition

20) What is FICA? Payroll Tax

21) List a result of a severe economic downturn Falling prices

22) Which tax is the opposite of the regressive tax? Progressive

23) What are the 3 categories of taxes? Proportional, progressive and regressive

24) In Keyne’s view, a short-term budget deficit due to government spending or tax cuts is _________ Sometimes necessary to help stimulate the government

25) An economist might argue that a progressive income tax is effective because it is... Equitable

26) What is the main purpose of a sin tax? As a behavior adjustment

27) What is the single largest federal expenditure? Social Security

28) The way in which income is allocated among families, individuals, or other groups is called... Distribution of income

29) Define the incidence of a tax. It’s the idea of who actually pays the tax

30) What are the criteria for an effective tax? Efficiancy, Simplicity and Equity

31) A ______________tax imposes the same percentage rate of taxation on everyone regardless of income Proportional

32) The _____________ is the rate that applies to the next dollar of taxable income. Marginal Tax Rate

33) Describe a value-added tax. A tax on production and does not include income

34) Describe the Alternative Minimum tax. This tax applies whenever the amount of taxes paid falls below a certain Percentage of your income

35) The tax reforms of what year brought about the Alternative Minimum tax? 1986

36) What is an example of discretionary spending? Money spent on National Defense

37) What is the total amount of money that the United States is authorized to borrow to meet monetary commitments? The Debt Ceiling

38) Define intergovernmental revenue. Funds collected by one level of government that are distributed to another level Of government for expenditures

39) The second largest source of revenue for the state governments comes from _________. Property taxes

40) What is an example of a natural monopoly? A city water supply system

41 A term which refers to “government taxing and spending” is called what? Fiscal

42) An ______________ is a broad social program that uses established eligibility requirements to provide income supplements. Entitlement