front 1 Price level def. | back 1 the average price of goods. (typically in a market basket.) |
front 2 Market Basket def. | back 2 A selected group of consumer g/s whose prices are tracked for the purpose of calculating a consumer price index. (measures cost of living.) |
front 3 Consumer price index(CPI) def. | back 3 a measure of the average change over time in the prices paid by consumers for a market basket of g/s. |
front 4 Inflation Rate def. | back 4 The % increase in the average price level of g/s over a period of time. |
front 5 Inflation def. | back 5 General, sustainable upward movement of average prices for goods & services. Can also mean a sustained fall in the purchasing power of money. |
front 6 Deflation def. | back 6 Occurs when price levels go down over time. |
front 7 Creeping Inflation def. | back 7 A certain, and expected, amount of gradual inflation every year, typically from 2-3%. |
front 8 Hyperinflation def. | back 8 Occurs when inflation is very high and rapidly increasing. |
front 9 What are the 3 theories on the causes of Inflation? | back 9 Quantity theory, Demand-Pull theory, and Cost-Push theory. |
front 10 What is Quantity Theory? | back 10 Too much money in circulation in the economy. Meaning Money supplied must be carefully monitored. |
front 11 What is Demand-Pull theory? | back 11 Increase in overall demand. Causes: -Rapid Economic Expansion: consumers spend more= steady increase in demand=higher prices. -Increased Govt. Spending: Govt. spends more freely -Future Expectations: increase prices expected in future inflation. |
front 12 What is Cost-Push theory? | back 12 Factors of production cost more. Causes: - External shocks: conflict, war, natural disaster |
front 13 Effects of Inflation, and what do they mean? | back 13 Purchasing power/income: reduces amount of g/s money can buy. Interest Rates: as price increases interest rates increase. Interest rates are raised to ensure they receive profit. Savings: saved money will lose its value it once had before. |
front 14 Why is deflation undesirable? why isn't an inflating rate of 0% desired? | back 14 People will not loan money, and it leads to decline in real GDP. |
front 15 What is the Business Cycle? | back 15 Describes fluctuations in economic GROWTH & DECLINE. |
front 16 What happens during an Expansion? (Describe: GDP, Unemployment, Consumer Behavior, Business Behavior, and Housing Market, Inflation & Interest Rates.) | back 16 Real GDP is increasing. Unemployment is low. Consumer Behavior increases. Business Behavior increases, expansion of the company. Both are confident in spending. The Housing Market is increasing, new homes being built. Inflation & Interest Rates are increasing. |
front 17 What is a Peak? | back 17 Maximum economic output. Marks the turning point into a period of decline. |
front 18 What happens during a Contraction? (Describe: GDP, Unemployment, Consumer Behavior, Business Behavior, and Housing Market, Inflation & Interest Rates.) | back 18 Real GDP is decreasing. Unemployment increases. Consumer Behavior decreases. Business Behavior decreases, close stores. Both lose confidence in spending. The Housing Market is decreasing, foreclosures may occur. Inflation & Interest Rates both decrease. |
front 19 Describe Types of Contractions: | back 19 Recession: Prolonged contraction lasting 6-18 months Depression: Long, severe recession(18 months or longer.) High unemployment& low factory output. Stagflation: Decline in real GDP (output) & rise in price level (inflation). Economy is un-moving. |
front 20 What is a Trough? | back 20 Minimum economic output. Marks turning point to a period of recovery or growth. |
front 21 What is the Growth Trend Line? | back 21 Shows a clearer picture of the overall growth/trend of economic activity over time. |
front 22 What are the 3 indicators in the business cycle? Describe them. | back 22 Leading (Before a change in phases): Housing Market (Contraction = “Buyer’s Market”; Expansion = “Sellers Market” Coincident (Simultaneous with changes in phases): Unemployment Lagging (After a change in phases): Inflation & Interest Rates |
front 23 Factors that may influence the Business Cycle | back 23 Business Decisions Interest Rates Consumer Expectations External Shocks |
front 24 Business Investment: | back 24 hire more and spend more. This contributes to economic expansion (Rise in real GDP). Spend less=impact on unemployment=GDP increases. |
front 25 Consumer expectations: | back 25 influence consumer spending. If downturn expect an economic down-turn they may save more and spend less causing a decrease in GDP. When they are confident about the economy they often spend more, increasing GDP. |
front 26 Interest Rates & Credit: | back 26 Increased interest rates make it harder for consumers/businesses to borrow money. This may contribute to economic decline. |
front 27 External Shocks: | back 27 Negative: disruption in oil supply, droughts, stock market crash, terrorist attack Positive: Sudden innovation in science or technology, discovery of mineral deposit, surplus crop |
front 28 Define federal spending: | back 28 The budget reflects decisions to tax and spend, to borrow and lend, and to consume and invest. |
front 29 Define fiscal year: | back 29 a 12-month accounting period that a business uses for financial and tax reporting purposes. |
front 30 Mandatory spending | back 30 govt. required to spend on certain programs. |
front 31 Discretionary spending | back 31 govt spending that there is a choice in |
front 32 Examples of Mandatory Spending: | back 32 Entitlements: people that meet a certain criteria for entitlements. "Mean-tested": Benefits are dependent on income Social Security: Monthly benefits retired or survivors or disabled people & their families receive. Medicare: programs paying for hospital care and medical services. usually for over 65. Medicaid: Benefits low income families, disabled, elderly by assisting with medical care costs. |
front 33 Examples of Discretionary Spending: | back 33 National Defense, Transportation, Education, Energy, etc. |
front 34 Deficit def. | back 34 Spending more than you make |
front 35 Debt def. | back 35 The total of every time we overspent. All annual deficits since 1776. |
front 36 What was caused the National Debt? | back 36 spending on wars, increased govt. spending during recession, and taxes decreased. |
front 37 Where does the govt. get money when it wants to spend more than it takes in? | back 37 Bonds. You're loaning money to the govt. to be later compensated with interest. |
front 38 Taxes def. | back 38 required payment to local, state or national govt. |
front 39 Revenue def. | back 39 Income received by govt. |
front 40 Tax Base def. | back 40 something that is taxed. Four main types: Income, corporate, property, and sales. |
front 41 What are the purposes of taxes? | back 41 1. Generate revenues to support functions of government |
front 42 Criteria for taxation? | back 42 EQUITY(fair): Established by how uniformly a tax is applied and the fairness of the burden it imposes. ABILITY TO PAY: Individuals & entities should be taxed based on their ability to pay. BENEFITS RECEIVED:Individuals who benefit directly from public
goods/services SIMPLICITY: Determined by how easy it is for the taxpayer to understand and how easy it is for the government to collect. EFFICIENCY: Judged by how well the tax achieves the goal of raising
revenue for the |
front 43 What is a Proportional tax structure?(Definition, Pros&Cons) | back 43 A tax for which the % of income paid in taxes remains the same for ALL income levels. Pros: Simplicity. Fair because everyone pays the same rate regardless of income.(Equitable) Cons: The tax burden is disproportionate & a larger burden on lower incomes.(Ability-to-pay) |
front 44 What is a Progressive tax structure? (Definition, Pros&Cons) | back 44 A tax for which the % of income paid in taxes increases as income increases. Pros: Fair because it requires those with a greater ability to pay taxes to pay more than those who do not. Cons: can discourage investment, entrepreneurship, and economic growth, as individuals may have less incentive to earn more if a significant portion is taxed at higher rates. May encourage tax evasion to minimize tax liabilities. Not simply--complex. |
front 45 What is a Regressive tax structure? (Definition, Pros&Cons) | back 45 Percentage of income paid in taxes decreases as income increases. Pros: straightforward & easy to administer, typically involve a fixed tax rate. Some argue regressive taxes on certain goods can discourage undesirable consumption. "user pays" principle. Everyone pays the same tax rate on the taxed goods or services. Cons: Impose a greater financial burden on lower-income individuals. |
front 46 W4 | back 46 a document used by employees to inform their employers about how much money to withhold from their paychecks in order to pay federal income tax. |
front 47 Withholding | back 47 money taken from (or withheld) from pay before the worker received it. |
front 48 Payroll Taxes | back 48 taxes that are withheld from an employee's paycheck by their employer and are used to fund various government programs and benefits (primarily Social Security & Medicare). |
front 49 W2 | back 49 a document used by employers to report an employee's annual earnings and the amount of taxes already withheld from their pay.(Needed for filing taxes) |
front 50 Tax Return | back 50 form used to report income and taxes owed to the government. |
front 51 Gross Income | back 51 the total amount of money an individual/entity earns before any deductions, taxes, or expenses are subtracted. |
front 52 Deduction | back 52 an expense that can be subtracted from a taxpayer's gross income to determine their taxable income. |
front 53 Taxable Income | back 53 the portion of income subject to taxation. |
front 54 Tax Rebate | back 54 a refund of overpaid taxes that is issued by the government to a taxpayer. |
front 55 APRIL 15TH! | back 55 Date taxes are due each year |
front 56 Tax Incidence: | back 56 Tax incidence refers to the redistribution of the burden of a tax onto other individuals/groups. Ultimately, it reflects who bears the ACTUAL cost of a tax. |
front 57 Corporate/Business Taxes | back 57 Corporations often pass the burden of increased taxes on to consumers employees, and/or shareholders. |
front 58 Sales/Sin Taxes | back 58 Consumers bear the burden of taxes on in-elastically demanded goods Suppliers bear the burden of taxes on elastically demanded goods. |
front 59 Property Taxes | back 59 Property owners who rent out space to tenants, businesses, and so on may pass the burden of various property taxes onto renters. |
front 60 Goal of monetary policy | back 60 to increase the money supply just fast enough to keep up with economic growth – but no faster. |
front 61 Reserve ration | back 61 A minimum percentage of deposits banks must keep in reserve at all times.(Banks cannot loan out all the money they take in). |
front 62 Interest Rate | back 62 Banks can borrow money from the Federal Reserve Bank to shore up their reserves. The interest rate on these loans is known as discount rate. |
front 63 OPEN-MARKET OPERATIONS | back 63 Involves the buying and selling of government bonds. (The Fed’s most used tool) |
front 64 Expansionary fiscal policy | back 64 used in a recession (or when predicting a recession) to speed the economy up. |
front 65 What is the goal of Expansionary fiscal policy? When is it used? | back 65 Expand economy, increase output, reduces unemployment . |
front 66 Contractionary fiscal policy | back 66 used to slow the economy down and avoid inflation. (If producers cannot expand production enough to meet demand → will raise prices → which leads to inflation) |
front 67 What is the goal of Expansionary fiscal policy? When is it used? | back 67 Slows economy to avoid inflation, decrease output, decrease demand. |
front 68 Ways to achieve goal? Explain chain reaction. (Expansionary Fiscal Policy) | back 68 Increase spending; Increases demand-output increases-employment increases. Cut Taxes; individuals keep money-consumers/businesses spend more- businesses raise prices&production increases. |
front 69 What is the goal of Contractionary Fiscal Policy | back 69 slow economy to avoid inflation-decreases output- decreases demand. |
front 70 Ways to achieve goal? Explain chain reaction. (Contractionary Fiscal Policy) | back 70 Decrease Spending; Decreases demand-production decreases- unemployment increases. Increase taxes; individuals/businesses have less money to spend-demand decreases-production decreases. |
front 71 Laffer curve | back 71 Taxes increase = Tax revenue increases. |
front 72 The Multiplier Effect | back 72 explains how money is spend as it moves through the economy. |
front 73 Limits of Fiscal Policy | back 73 Difficulty Changing Spending Levels & Concerns; Mandatory vs. Descretionary. Changing spending is likely to cause deficit spending resulting in increased national debt. Predicting The Future; Difficult to predict speed of changes in business cycle OR future behaviors of individuals. Delayed Results; Changes take time! Tracking trends, determining courses of action, implementing and then reanalyzing takes time. Political Pressures; President/Members of congress often do what benefits the people who elect them versus what is good for the economy.
Coordinating Fiscal Policy branches & levels of
branches & levels of |
front 74 Easy Money Policy | back 74 The Federal Reserve follows an easy money policy, encourages economic growth & lowers the unemployment rate. |
front 75 Tight Money Policy | back 75 The Fed adopts a tight money policy to slow economic growth& decrease inflation rate. |
front 76 Goals of Easy Money Policy: | back 76
RESERVE RATIO
DECREASE! Banks decrease reserves, |
front 77 Goals of Tight Money Policy: | back 77
RESERVE RATIO
INCREASE (Banks increases reserves, which decreases
lending, which decreases money in the money supply,
which |
front 78 no data | back 78 |