1. Sources of Government Revenue
Chapter 9
Sources of Government Revenue

2. Criteria for Effective Taxes
Equity- fairness
Avoid loopholes
Simplicity- understandable
Efficient- easy to administer & successful generating revenue

3. Why Tax? Benefits Received Principle- Ability-to-Pay Principle-
If you use a govt. service you should support in proportion to the benefits you receive from the service
Ability-to-Pay Principle-
Those with a higher income should pay more in taxes than those with lower incomes

4. Types of Taxes Progressive
- a larger % of higher incomes are taken than lower incomes
Regressive
- a larger % of lower incomes are taken than higher incomes
Proportional
- the same % of income is taken regardless of income

7. Achieving Economic Stability
Chapter 16
Achieving Economic Stability

8. Stagflation
Stagnant growth & inflation

10. Aggregate Supply AS
Total value of goods & services that ALL firms would produce
Assume- $ supply is fixed, given price prevails
Affects GDP level
Mostly costs of factors of production

13. Aggregate Demand AD
Total quantity of goods & services demanded at different price levels
Quantity of real GDP that would be purchased at various prices

16. Macroeconomic Equilibrium
Level of real GDP consistent with given price level
Intersection of AS & AD

18. Goals of Stabilization Policies
Economic growth
Full employment
Price Stability

19. Demand-Side Policies
Federal policies designed to increase or decrease total demand in the economy
Fiscal Policy

20. Fiscal Policy
Fed Govts attempt to stabilize economy by taxing & govt. spending
From Keynesian economics- decrease unemployment by stimulating AD
Changes in GDP caused by increase in demand

21. Fiscal Policy Consumer spending most stable
Investment/Business causes instability
Only govt. big enough to counter changes in investment spending
Direct- spending to offset business spending
Indirect- changing taxes to encourage spending

24. Fiscal Policy- Problems
Growing federal deficit-
Necessary but temporary
When economy recovers= increase taxes – run surplus – pay back debt

25. Fiscal Policy- Automatic Stabilizers
Programs that trigger benefits if changes in economy threaten income
1. Unemployment Insurance
2. Federal Entitlement Programs
3. Progressive Income Tax

26. Fiscal Policy- Limitations
Fed. Govt. has NOT been able to control its spending
Runs huge budget deficit

27. Supply-Side Economics
Stimulate output & decrease unemployment by increasing production NOT demand
Reagan
Reduce role of govt.- deregulation & less govt. agencies

28. Supply-Side Economics
Lower federal taxes on people & businesses
Taxes too high- people not want to work, businesses produce less- govt. not get as much in taxes

29. Supply-Side Economics
Limitations
Lack of experience- hard to predict effects
Promotes economic growth- not fix instability

30. Laffer Curve