1. Fiscal Policy and Taxes Test Review Ch. 14 and 15

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

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

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

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

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

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

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

9. 8) Give an example of federal mandatory spending Social Security

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

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

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

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

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

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

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

17. Supply-siders favor what type of policy? Deregulation

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

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

20. 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

21. 20) What is FICA? Payroll Tax

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

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

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

25. 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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

42. 41 A term which refers to “government taxing and spending” is called what? Fiscal

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