Unit 5 Exam Statistics

1. Unit 5 Exam Statistics

2. 2. gross domestic product expressed a. current GDP • in constant dollars b. gross national product • 3. gross domestic product c. personal income (PI) • unadjusted for inflation d. real GDP • e. underground economy

3. Why are intermediate products excluded from macroeconomic calculations of GDP? • because those products are goods, not services • because their value is included in that of the final product • because the GDP is a measure of market output on a local level • because the GDP is a measure of market output on a national level

4. Which of these describes the overall trend in U.S. population since the 1970s? • The North and the East have seen greater growth than the West and the South. • The East and the West have seen greater growth than the North and the South. • The North and the South have seen greater growth than the East and the West. • The West and the South have seen greater growth than the North and the East.

5. Which of these is true of the U.S. fertility rate at present? • It is far below the replacement population rate. • It is barely above the replacement population rate. • It is slightly below the replacement population rate. • It is roughly equal to the replacement population rate.

6. Which of these describes the relationship of demographers to our nation’s infrastructure? • Demographers compile population information needed to maintain the infrastructure. • Demographers track the GDP to keep our infrastructure competitive with other nations. • Demographers study the infrastructure of rural areas, so it can be duplicated in urban areas. • Demographers track the center of population, so the infrastructure can be moved as needed.

7. Which of these is not considered when determining whether someone falls below the poverty threshold? • the amount of his or her income • the effects of inflation on food prices • whether he or she receives food stamps • results of government studies on poverty

8. How are the effects of U.S. inflation rates felt around the world? • The effects of U.S. inflation rates are not felt around the world. • The number of goods and services that each dollar will buy increases. • The dollar’s exchange rate rises. • U.S. inflation makes U.S. exports more expensive overseas.

9. What conditions stop the economy from growing and turn an expansion into a contraction? • decrease in foreign investment • increase in exports • low-interest capital expenditures • external shocks

10. Which of the following is not a cause of inflation? • wage-price spiral • excessive monetary growth • demand-push • none of the above

11. What type of unemployment occurred when the government closed military bases in the 1990s? • cyclical • frictional • long-term • structural

12. Which of the following is a form of instability that reverses economic growth? • recession • frictional unemployment • deflation • creeping inflation

13. Which of the following is included in the unemployment rate? • people who hold only part-time jobs • people who are too frustrated to look for work • the jobless who made an effort to find a job during the past month • all of the above

14. A trend line is • a trough on a graph. • a hypothetical graph line. • a reflection of an external shock. • a peak on a graph.

15. Which of the following is true about inflation? • Inflation has a tendency to make people change retail spending habits. • Economists have agreed on a single explanation for the cause of inflation. • Inflation tempts some people to speculate in an attempt to take advantage of rising prices. • Inflation is a decrease in the general level of the prices of goods and services.

16. How did business cycles change after World War II? • There were no external shocks. • Business cycles became much more extreme. • Recessions occurred more frequently. • Recessions became shorter and periods of expansion became longer.

17. Chapter 14: Taxes and Government Spending How does the government collect revenue and on what is that revenue spent?

18. Crash Course: Taxes • https://www.youtube.com/watch?v=7Qtr_vA3Prw

19. Economic Impact of Taxes • Taxes can affect resource allocation by raising the price of a product, which makes people buy less, which in turn results in the company cutting back on production. • Taxes can be used to encourage or discourage certain types of activities; sin taxes help raise revenue while discouraging liquor and tobacco. • Distribution of income is affected by taxes. • Taxes change the incentives to save, invest, and work, which affects productivity and economic growth. • The incidence of a tax—the person or company who actually pays it—is not necessarily the entity that is taxed; if a utility is taxed, for example, it may pass the burden of the tax on to its customers in the form of higher rates.

20. Characteristics and Types of Taxes • The three criteria for effective taxes are equity, simplicity, and efficiency. • No single tax has all three of the criteria for effective taxes. • Taxes in the United States are based on the benefit principle and the ability-to-pay principle. • The three types of taxes that exist in the United States today are proportional taxes, progressive taxes, and regressive taxes.

21. Alternative Tax Approaches • Lawmakers want to find new tax revenues that alter the tax burden. • A flat tax is proportional to individual income after a threshold is reached, without exemptions or deductions. • The advantage of a flat tax is its simplicity, but it would remove many incentives (such as home ownership) built into the current tax code. • A value-added tax (VAT) would tax a product at every stage of production on a national basis and would be used instead of an income tax. • Advantages of a VAT include the difficulty of producers to avoid paying it, its widely spread incidence, and its ease of collection. • The main disadvantage of a VAT is that consumers cannot attribute higher prices to the almost invisible tax.

22. Taxes Change Behavior

23. Government and Taxes • The Economic Functions of Government • Maintaining the Legal and Social Framework • Providing Government Goods and Services • Maintaining Competition • Redistributing Income • Correcting for Externalities • Stabilizing the Economy

24. Government and Taxes • Roles of Taxation • Provide funding for government activities • Influence behavior

25. How do Taxes Change Behavior?

26. How do Taxes Change Behavior?

28. Tax Reform Highlights • In 1981 Republicans passed the Economic Recovery Tax Act reducing taxes for individuals and businesses • In 1986, Congress passed a sweeping reform that established the alternative minimum tax. • In 1993, top marginal tax brackets of 36 and 39.6 percent were added to help the government drive down the deficit. • In 2001, tax law was revised to lower the top four marginal tax brackets by 2006, introduced a new 10 percent bracket, and eliminated the estate tax on the wealthiest 2 percent of taxpayers by 2010. • In 2003, the government accelerated many of the 2001 reforms and reduced the capital gains tax bracket. • In 2013, Democrats added two top tax brackets.

29. Why is resource allocation affected by taxes on products and services? • A.People buy less of a product or use a service less, so companies allocate less to production. • B.People buy more of a product or use a service more, so companies allocate more to production. • C.People buy less of a product but use services more, so companies allocate more to providing services. • D.People buy more of a product but use services less, so companies allocate more to production.

30. What is a “sin” tax? • A.It is a tax designed to reduce consumption of products that people need. • B.It is a tax designed to reduce consumption of products that people use infrequently. • C.It is a tax designed to reduce consumption of products that are socially undesirable. • D.It is a tax designed to reduce consumption of products that are socially desirable.

31. What is the incidence of a tax? • A.The sum of a tax and a product’s price • B.The final burden of a tax • C.The levying of a tax on consumers • D.The ratio of a tax to a product’s price

32. What are the criteria for effective taxes? • A.Ability, efficiency, and equity • B.Constancy, simplicity, and efficiency • C.Simplicity, efficiency, and equity • D.Ability, constancy, and efficiency

33. What is the benefit principle of taxation? • A.People pay a tax according to their ability to pay for a product or service. • B.People pay a tax according to how much they use a product or service. • C.People pay a tax equally for a product or service. • D.People pay a tax according to the price for a product or service.

34. What type of tax is Medicare? • A.A proportional tax • B.A progressive tax • C.A marginal tax • D.A regressive tax

35. What is the average tax rate? • A.Total taxable income multiplied by total taxes paid • B.Total taxes paid divided by the total taxable income • C.Tax rate multiplied by the next dollar of taxable income • D.Tax rate divided by the next dollar of taxable income

36. When is VAT added to a product’s price? • A.At the first stage of production • B.At the point of sale • C.At every stage of production • D.At the last stage of production

37. What is the alternative minimum tax? • A.A tax rate that the poorest people pay • B.A tax rate that only the richest people pay • C.A tax rate that applies when taxes paid fall below a certain amount • D.A tax rate that applies when taxes paid go above a certain amount

38. What effect did the tax cuts of 2003 have? • A.They caused the government to have a bigger deficit. • B.They caused the government to have a surplus. • C.They caused the budget to be balanced. • D.They caused the government to call for more tax cuts.

39. Establishing the Federal Budget • The president’s Office of Management and Budget prepares the federal budget and sends it to the House of Representatives. • There, it is divided into 13 categories and sent to subcommittees that prepare and vote on appropriations bills for them. • Approved bills go to the full Appropriations Committee and then to the entire House for a vote. • After the House has approved the budget, it is sent to the Senate, which may approve the House’s bill or draft another version; differences are worked out to create a compromise bill. • The approved bill is sent to the president for signature or veto. If signed, the budget becomes official for the next fiscal year, starting on October 1. • The size of the budget deficit or surplus changes significantly throughout the year due to unforeseen events.

40. Federal Government Revenue Sources • Our current income tax did not come about until the Sixteenth Amendment to the Constitution in 1913. • Income tax accounts for about one-third of all federal government revenue. • Borrowing by the federal government is a large source of revenue. • Payroll tax, or FICA, is levied on employers and employees equally to pay for Social Security and Medicare; this is another large source of income for the federal government. • The fourth-largest source of income is the corporate income tax. • Excise taxes are the fifth-largest source of federal revenue. • Estate and gift taxes account for a small fraction of total federal government revenue. • Other revenue sources include customs duties and miscellaneous fees such as user fees.

41. Federal Government Expenditures • Social Security payments make up the largest category of expenditures in the federal budget. • National defense spending is now the second-largest category of expenditures. • Income security includes transfer payments—payments for which the government receives neither goods nor services in return—for programs such as unemployment assistance, welfare, aid for people with disabilities, child care, foster care, Supplemental Security Income (SSI), subsidized housing, federal child support, Temporary Assistance for Needy Families (TANF), food stamps, and retirement benefits for federal civilian and military employees. • Medicare and Medicaid expenditures have risen dramatically as the population has aged and the cost of caring for the elderly has gone up.

42. From Deficits to Debt • Deficit spending is annual government spending in excess of revenues collected. • When the federal government has a deficit, it must finance the revenue shortage by borrowing, which creates the national debt. • The national debt has grown almost continuously since 1900. • Differences between public (national) and private debt include: • We owe most of the national debt to ourselves. • Instead of repaying debt, the government issues new bonds to pay off the old bonds. • The government does not give up purchasing power, except for the 34 percent of the public debt owed to foreigners.

43. Impact of the National Debt • National debt can cause a transfer of purchasing power from the private sector to the public sector. • Purchasing power is transferred from one generation to another when the government borrows today and leaves repayment to future taxpayers. • Careless government spending can reduce private economic incentives. • When the government competes with businesses and individuals for the supply of available loan funds, it can cause a crowding-out effect that results in higher-than-normal interest rates caused by heavy government borrowing.

44. Reducing Deficits and the Debt • There have been many failed attempts to reduce the deficit or balance the budget. • Another way to reduce a deficit is to raise revenues. • The 2001 terrorist attacks increased spending on homeland security and wars in Iraq and Afghanistan, resulting in record deficits in 2002. • Federal entitlements make spending difficult to reduce. • In 2011, the government agreed to a sequester that would start in 2013, requiring automatic and arbitrary budget cuts if Congress could not agree on significant reductions before then, which they did not. • The debt ceiling is the total amount of money the federal government is allowed to borrow; in 2013, an attempt to enforce the debt ceiling failed.

45. What is a fiscal year? • A.12-month financial planning period that always coincides with the calendar year • B.12-month financial planning period that may or may not coincide with the calendar year • C.12-month financial planning period that cannot coincide with the calendar year • D.12-month calendar reserved for the government

46. ach House subcommittee prepares a(n) ___________, authorizing spending for certain purposes. • A.appropriations bill • B.continuing budget resolution • C.line-item veto • D.sequester

47. If I have more _____ than _____, I have a ______. • A.revenues; expenditures; balanced budget • B.expenditures; revenues; surplus • C.revenues; expenditures; deficit • D.expenditures; revenues; deficit

48. What is the primary source of revenue for the government? • A.Social Security payroll taxes • B.Individual income taxes • C.Borrowing • D.Customs duties

49. Expenditures for what government program are considered mandatory spending? • A.Social Security • B.Earmarks • C.National defense • D.Transfer payments

50. What is the relationship between the national debt and the budget of the federal government? • A.The national debt shrinks whenever the government runs a deficit. The debt grows when the government runs a surplus. • B.The national debt grows whenever the government runs a deficit. The debt shrinks when the government runs a surplus. • C.The national debt only changes when the government runs a deficit. • D.The national debt only changes when the government runs a surplus.