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CH 7 Gov Spending
econ
| Term/Question | Answer |
|---|---|
| What is government spending? | Government spending is the purchase of goods and services by all levels of government in the United States. |
| What are the three levels of government in the United States? | Federal (National) State (e.g., Illinois) Local (e.g., Rock Island County, City of Moline) |
| What are the key functions of government in the economy? | Provide public goods and services Stabilization Economic regulation Redistribution of income |
| What are public goods? | : Public goods are goods and services that private companies cannot supply at a profit or that should be available to all, equally, in society. |
| Give examples of public goods. | Mass transportation (e.g., bus lines) National defense Public education (K-12) National parks |
| Why is public education considered a public good? | : Because it is necessary for all children to have access to education, and private schools cannot accommodate all children due to resource limitations. |
| How is the boundary between public and private goods defined? | The boundary can be unclear. Historically, there has been greater support for public goods, but some groups, like libertarians, advocate for reduced government involvement in providing these services. |
| What does government stabilization aim to do? | Government stabilization aims to keep inflation low, prevent major recessions, and avoid system breakdowns, particularly by moderating the business cycle. |
| Why was government intervention considered necessary after the Great Depression? | The Great Depression caused widespread suffering, and people supported extreme ideologies like fascism and communism. Governments intervened to prevent mass hunger and unemployment during recessions. |
| How does government stabilization contribute to long-term investment planning? | A stable society, maintained through government intervention, makes it easier and safer for businesses and individuals to plan for long-term investments. |
| What is economic regulation? | Economic regulation provides the rules and frameworks necessary for a functioning market economy, including enforcing contracts and ensuring fair practices. |
| Give examples of economic regulation. | Police, courts, and fire departments Patent systems to protect inventors Education systems to ensure job qualifications Enforcing business contracts |
| Why is enforcing business contracts important in a market economy? | Enforcing business contracts ensures that both parties uphold agreements, which is essential for the functioning of a market economy. |
| What does economic regulation also aim to reduce or abolish? | Economic regulation works to reduce or abolish actions that society does not approve of, such as child labor and air pollution. |
| What is the redistribution of income? | Redistribution of income involves transferring resources from wealthier individuals to those in need, often through programs like Social Security, food stamps, and welfare. |
| Why is the redistribution of income considered controversial? | It is debated because some believe it creates dependency and reduces incentives for self-reliance, while others argue it is necessary for reducing poverty and inequality. |
| What role does government play in the United States economy? | The government’s role is subject to political debate, with some conservatives advocating for a smaller role, while others argue for greater government involvement in economic matters. |
| What is the formula for calculating the Average Tax Rate (ATR)? | ATR= Taxable Income divided by Taxes Paid |
| What is the formula for calculating the Marginal Tax Rate (MTR)? | MTR= Additional Taxable Income Additional Taxes Paid |
| : What is the Incidence of Taxation? | The incidence of taxation refers to the true burden of a tax, focusing on who bears the cost, rather than just the amount of taxes paid. |
| What is a regressive tax? | A regressive tax is one where lower-income individuals or smaller businesses pay a higher percentage of their income in taxes than wealthier individuals or larger businesses. |
| What is a progressive tax? | A progressive tax is one where higher-income individuals or larger businesses pay a higher percentage of their income or profits in taxes compared to lower-income individuals or smaller businesses. |
| What are some examples of regressive taxes? | Sales Tax Excise Tax Payroll Tax User Fees |
| What are some examples of progressive taxes? | Personal Income Tax Estate Tax Corporate Income Tax (historically) |
| What type of tax is Personal Income Tax typically? | Progressive (though much less so today than in the past) |
| What type of tax is Payroll Tax? | Regressive. |
| What type of tax is Sales Tax? | Regressive, because lower-income people tend to spend a higher percentage of their income on taxed goods. |
| What type of tax is Excise Tax? | Regressive, because it impacts individuals equally regardless of income level, but affects lower-income people more in terms of percentage of income spent. |
| What is the incidence of a sales tax on four households with different income levels? | Lower-income households are more burdened by the sales tax because they spend a larger percentage of their income on taxed goods. |
| How do you calculate the sales tax burden for different households? | Assume incomes and spending amounts. Apply a sales tax rate (e.g., 5%). Compute the amount spent on taxes and the percentage of their income spent on taxes. |
| What is the excise tax and how does it impact households? | An excise tax is a tax on specific goods (e.g., gasoline). Lower-income households bear a higher burden of the tax relative to their income. |
| What are user fees and how are they regressive? | User fees are taxes for using specific products or services (e.g., tolls). They are regressive because they have a greater impact on lower-income people, though they can be avoided if not used. |
| What is a Property Tax and why is it controversial? | Property taxes are levies on property owned by individuals or businesses. They can be difficult to understand, seem arbitrary, and are susceptible to corruption. Historically, they were more progressive but have become less so. |
| What is a Corporate Income Tax and why is it controversial? | A tax on corporate profits. It was once progressive, but corporate lobbying has created loopholes, allowing large businesses to pay lower tax rates than individuals or small businesses. |
| Give an example of a large corporation avoiding taxes. | General Electric paid no taxes from 2008-2010 despite $10.46 billion in profits, and in fact, received a $4.7 billion rebate. |
| Give an example of a large corporation avoiding taxes. | Verizon reported $32.518 billion in profits for the years 2008-2010. – They received a $951 million rebate |
| What is the role of the Government in the economy? | The government’s functions include providing public goods and services, redistribution of income, stabilization of the economy, and economic regulation. |
| What are Public Goods and Services? | : Goods and services that private companies cannot provide profitably or that should be available to all equally. Examples include mass transportation, national defense, public education, and national parks. |
| Why is public education considered a public good? | Because it ensures access to education for all children, which private schools cannot accommodate due to resource limitations. |
| How has support for public goods and services changed over time? | Support for public goods has fluctuated, with some groups, such as libertarians, advocating for reduced government provision of these services. |
| What is the progressive nature of taxes? | Progressive taxes are those where wealthier individuals or larger businesses pay a higher percentage of their income or profits in taxes. |
| What are the functions of government in the economy? | Provide public goods and services Redistribution of income Stabilization of the economy Economic regulation |
Created by:
bellam08
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