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expansion phase. If aggregate demand were to decrease, the aggregate demand curve would shift to the left (AD3). This would result in a lower equilibrium real GDP (Q3)—in other words, an economic contraction. Shifts in aggregate supply affect real GDP in a similar way, as you can see in Figure 12.10. An increase in ag... |
they reduce the number of hours worked at their compact disc manufacturing facilities. Some workers get laid off, others work shorter hours. In a related move, the recording businesses cut back on their investment in new CD manufacturing equipment. That decision will lead to a decrease in the demand for machinery, whi... |
rates are low, people are inclined to purchase housing rather than rent, so housing sales and all related economic activities increase, contributing to an economic expansion. When interest rates rise, the high cost of loans limits mortgage eligibility, so more people rent. Housing sales slow down, contributing to an e... |
GDP changes. Examples include new building permits, orders for capital goods and consumer goods, consumer expectations, average manufacturing workweek, stock prices, and the money supply. Economists look for trends in these indicators that last several months before they predict a change. • Coincident indicators are m... |
thought was a Christmas greeting from his boss. Instead, it was the blue slip telling him he no longer had a job. The memory of him sitting there holding that slip of paper and then saying in a half whisper, ‘That’s quite a Christmas present’ –it will stay with me as long as I live.” Millions of people who lived throu... |
since the Great Depression. The recessions have been less severe and have occurred less often than those before the 1930s. However, the contraction of the mid-1970s was an especially difficult time, triggered in part by the Oil Embargo of 1973. The unemployment rate rose from an average of 5.4 percent in the first hal... |
Great Depression and the recession in the 1970s? 8. Solving Economic Problems Did President Roosevelt’s New Deal focus on generating aggregate demand, or was its main focus on increasing aggregate supply? Explain. 9. Analyzing Cause and Effect Are the components that are considered leading economic indicators causes o... |
S In Section 2 you learned about the business cycle, the pattern of expansion and contraction in a nation’s economy. In this section you will learn more about economic growth, as measured by changes in real gross domestic product (GDP). Gauging Economic Growth Before Adam Smith (whom you learned about in Chapter 1, Se... |
economists use a measure called real GDP per capita, which is real GDP divided by total population. Real GDP per capita reflects each person’s share of real GDP. In terms of the potluck dinner, if each person brings more than one dish to the next potluck, the amount of food per person will have increased. Real GDP per... |
few natural resources, the strength of Japan’s economy is second only to that of the United States. GDP per capita is about $30,000 (in U.S. dollars). What Nigeria lacks, but Japan has, are the basic structures of a free market economy—private ownership, the profit motive, an effective government, and economic competi... |
deepening. Sewing machines, for example, allowed clothing manufacturers to make more clothing per worker than if the workers had been sewing by hand. QUICK REFERENCE Capital deepening is an increase in the ratio of capital to labor. FACT OR 4 Technology and Innovation Technology and innovation are also important facto... |
FERENCE Multifactor productivity is the ratio between the amount of output produced by an industry or business sector and the amount of inputs used. To measure the productivity of a single business, you would compare the inputs to the outputs. Using the bookshelf example, you would compare the amount of capital and num... |
page 369, which shows real per capita GDP. How closely is economic growth related to productivity? How Are Productivity and Growth Related? Economic growth is a measure of change in production. It does not consider how much effort or how many resources it took to produce that quantity of production. Productivity, on t... |
People could not accept that the rosy future they had imagined might not come to pass. Malthus and his essay were widely attacked and criticized—but no one could ignore his argument. Malthus’s estimates turned out to be flawed. Human population increased at a slower pace than he predicted. World population was about 1... |
and about 800 million of those people did not have enough to eat. By 2050, the world’s population is expected to grow to about 9 billion. What steps should we take now to avoid having more than 1 billion people without enough to eat by 2050? Employ the ideas you learned about in this section in formulating your soluti... |
, a city in southwest Poland, offers one example of the country’s success through embracing global capitalism. This article describes that phenomenon. Wroclaw, Poland: Europe’s Next Appliance Capital? Appliance Manufacturers Pour into Southwest Poland Money and companies are pouring in—not just the prestige nameplates ... |
3.4 billion) from the EU 2.5 billion [ budget, or roughly twice what it paid in, according to the newspaper Rzeczpospolita. Rural incomes have risen by one-third for small farmers and two-thirds for big ones, reversing eight years of stagnation and decline, thanks to munificent EU subsidies and an influx of foreign buy... |
Low points in the economy are usually self-correcting, but in times of a 7, such as the one that happened in the 1930s, government intervention may be needed. Several factors influence 8, including an increase in capital. 9, an increase in the ratio between capital and labor, increases productivity, helping the econom... |
.7 1.7 3.4 6.4 1.2 2.2 3.7 4.8 –0.5 –1.4 2.4 7.2 7.3 2.1 1.6 0.2 3.6 Source: U.S. Bureau of Economic Analysis.0 6.0 4.0 2.0 0 –2.0 1999 2000 2001 2002 2003 Year and quarter 10. Analyzing and Interpreting Data Which year had the highest growth? The lowest? 11. Analyzing Cause and Effect The government enacted tax cuts a... |
�poor”). Divide by the total number of students and multiply by 100. Add the result from all three questions together, and then divide by three. That will yield an overall comfort level. A level of 100 would mean everyone is satisfied with everything. A level of 100 would mean that everyone felt negatively about everyt... |
like the one below to record and organize what you learn about unemployment. Use the Graphic Organizer at Interactive Review @ ClassZone.com Unemployment Measuring Unemployment Measuring Unemployment KEY CONCEPT S In November 2005, General Motors Corporation announced that it would close or scale back about a dozen pl... |
or those who work at a job below their skill level. These include recently laid-off workers who may be in a temporary, lower-paying job. Full Employment Despite its name, full employment does not mean a zero unemployment rate. Instead, it means a level of unemployment in which none of the unemployment is caused by dec... |
-time job. Frictional unemployment is a reflection of workers’ freedom to find the work best suited for them at the highest possible wage. Economists consider frictional unemployment normal and not a threat to economic stability. TYPE 2 Seasonal Unemployment Demand for some jobs changes dramatically from season to seas... |
ING ACROSS THE GLOBE 1. Synthesizing Economic Information Explain how outsourcing might change the American economy. 2. Evaluating What career do you want to pursue? Explain whether it has the potential to be outsourced. out of work. A change in consumer demand—from compact discs to computer music files, for example—ca... |
2 0 25 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 and older 20 18 16 14 12 10 8 6 4 2 0 Black Hispanic White Asian Source: U.S. Bureau of Labor Statistics, 2005 data Source: U.S. Bureau of Labor Statistics, 2005 data ANALYZE GRAPHS 1. Which group, either age or race, has the highest rate of unemployme... |
when you are finished with your education. Do you think it is more likely or less likely than others to be affected by each of the various types of unemployment? Explain each of your answers. Identifying Types of Unemployment Read the following descriptions of unemployment scenarios. Categorize Economic Information De... |
income needed for the basic necessities of life in the United States. The Poverty Threshold The poverty threshold, also called the poverty line, is the amount of income the government has determined to be necessary for meeting basic expenses. People with incomes below that threshold are considered to live in poverty. ... |
1980 1985 1990 1995 2000 2005 Source: U.S. Census Bureau ANALYZE GRAPHS 1. From 1959 to 2004, when was the poverty rate the highest? When was it lowest? 2. What decade saw the largest drop in the rate of poverty? AP P LI CATION Drawing Conclusions A. Why is the poverty rate based on the entire population, while the un... |
to earn lower wages than similarly skilled workers in manufacturing. Income Distribution The United States has one of the highest median family incomes in the world, yet millions of Americans live below the poverty line. This disparity is reflected in the country’s income distribution, the way income is divided among ... |
, the greater the level of income inequality. In the United States, the income gap between the lower 80 percent of the population and the top 20 percent grew steadily throughout the late 1900s. In 1970, the richest 20 percent of Americans earned on average 9 times more than the poorest. By 1997, they were earning 15 ti... |
about 27 million. In 2005, almost 26 million people participated in the program. The Medicaid program is another antipoverty measure for low-income households. Medicaid offers health care for the poor and is funded by both the federal and state governments. The expense to each state is often as much as 25 percent of t... |
and at the same time boost the economy of a struggling neighborhood is through Empowerment Zones. The government tries to attract businesses to these specially designated neighborhoods by not charging them certain taxes. Businesses that operate in Empowerment Zones provide needed services and offer employment opportun... |
the assets of the world’s poor add up to about $10 trillion. He argues that until legal systems change to accommodate the poor, they will continue to prefer to operate in the informal economy—at the cost of lost economic opportunity for everyone. If the resources of the poor could be brought into the formal economy an... |
completed summary chart. What Is Poverty? Use the Graphic Organizer at Interactive Review @ ClassZone.com. Making Inferences and Drawing Conclusions A number of antipoverty programs are targeted specifically at children: • State Children’s Health Insurance Program (SCHIP) provides health insurance to low income childr... |
price index (PPI), p. 397 inflation rate, p. 397 hyperinflation, p. 398 deflation, p. 398 demand-pull inflation, p. 399 cost-push inflation, p. 399 wage-price spiral, p. 400 As you read Section 3, complete a cluster diagram like the one below to record what you learn about inflation. Use the Graphic Organizer at Inter... |
to 1984. Those numbers are given the value of 100. See the Connect to Math sidebar for more information. Find an update about the U.S. consumer price index at ClassZone.com FIGURE 13.7 U. S. CONSUMER PRICE I NDE X 200 180 160 140 120 100 80 60 40 20 ) 1970 1975 1980 1985 1990 1995 2000 2005 Source: U.S. Bureau of Labo... |
milk, bread, and juice. The table shows that the prices of milk and bread increased from Year B to Year C, but the price of juice decreased. To see the general trend in prices, you must look at the total price of the market basket of milk, bread, and juice. The steps below show how to use this simplified market basket... |
flation is a rapid, uncontrolled rate of inflation in excess of 50 percent per month. Deflation is a decrease in the general price level. 398 Chapter 13 QUICK REFERENCE Demand-pull inflation results when total demand rises faster than the production of goods and services. Cost-push inflation results when increases in t... |
rising prices leads to inflation. Cost-push inflation is often the result of supply shocks—sharp increases in prices of raw materials or energy. For example, in 1973 and 1974, many members of the Organization of Petroleum Exporting Countries (OPEC) limited the amount of oil they sold to the United States and other Wes... |
1 Decreasing Value of the Dollar With inflation, today’s dollar buys less than last year’s. The consumer price index, illustrated in Figure 13.7, shows that the real value of a dollar has declined steadily. The rising index represents the declining value of the dollar. Consider how this declining value affects people ... |
rates are high, businesses are less likely to borrow to expand or to make capital improvements. Consumers are less likely to make purchases of high-priced items that they would need to finance. People carrying debt on credit cards have to make higher monthly payments as their rates rise. EFFECT 3 Decreasing Real Retur... |
? Refer to your completed cluster diagram and provide specific examples. How Is Inflation Measured? Inflation Use the Graphic Organizer at Interactive Review @ ClassZone.com. Analyzing Cause and Effect Why would producers tend to experience inflation before consumers? What type of inflation would the producers experien... |
s? Study these sources to discover what it was like to live with a high rate of inflation. A. Economic Analysis In the late 1960s, the rate of inflation began rising in many countries. This article explains inflation’s effects on the U.S. economy. The Industrialized World and Infl ation How inflation affected the U.S. e... |
for someone. It certainly isn’t good for me, or my friends, or my relatives. Everyone is complaining, but the experts are satisfied. I have a family of meat eaters.... Long ago I discovered a marvelous cut of meat called skirt steak. It used to cost 89 cents a pound. It has inched its way up and has recently taken a l... |
payments. 7, a rise in the general level of prices, is another economic challenge. To monitor it, government economists developed the 8, which tracks what consumers pay for a market basket of items, and the 9, which tracks prices from the producers’ point of view. They monitor the 10 using these indices. 406 Chapter 1... |
to the middle quintile • 25.3 percent had moved to the second highest quintile • 14.4 percent of those who started in the lowest quintile had moved into the highest quintile Create a bar graph that illustrates these facts about income mobility in the United States. Use to complete this activity. @ ClassZone.com 10. An... |
of Government in the Economy Government Spending Government funds pay for national parks such as the Grand Canyon National Park. Government raises the money for such services through taxation. 408 CHAPTER 14 SECTION 1 How Taxes Work SECTION 2 Federal Taxes SECTION 3 Federal Government Spending SECTION 4 State and Loca... |
Government Revenue KEY CONCEPT S QUICK REFERENCE A tax is a mandatory payment to a government. Revenue is government income from taxes and other sources. Governments provide certain public goods that generally are not provided by the market, such as street lighting, highways, law enforcement, and the court system. Gov... |
principle of taxation holds that people who benefit directly from public goods should pay for them in proportion to the amount of benefits received. One example of this principle is the financing of road construction and maintenance through taxes on gasoline. However, it is difficult for governments to assess exactly ... |
criterion of efficiency. AP P LI CATION Drawing Conclusions A. Businesses and homeowners both benefit from police protection. How does this state- ment show the limitations of the benefits-received principle of taxation? Simplicity One criticism of the U. S. tax code is that it is too complicated. Find an update on ta... |
inks because there is less wealth for the government to tax. Tax Structures The way in which taxes are imposed on the different tax bases gives rise to three different tax structures. These tax structures are distinguished from one another based on the percentage of income that a particular tax takes. A proportional ta... |
total tax for a taxable of income of $40,000. The total tax on $40,000 of taxable income is $6,500. More Calculations Repeat calculations for taxable incomes of $25,000 and $45,000. Income in bracket Marginal tax rate Marginal tax $10,000 $20,000 $10,000 10% 15% 25% $1,000 $3,000 $2,500 Total tax: $6,500 NEED HELP? Ma... |
falls as income rises. ANALYZE CHARTS Look again at the description of the various tax bases on page 412. Consider which kind of tax structure applies to each of these tax bases. Write a brief paragraph explaining your choices. Regressive Tax With a regressive tax, the percentage of income paid in taxes decreases as i... |
Elasticity on Taxes Suppose that the government imposes a $1 tax on a product. Demand elasticity influences the incidence of this tax. If a product has elastic demand, the seller pays more of the tax, because the seller faces decreased quantity demanded if prices rise. If the product has inelastic demand, the consumer... |
go up. This shift will likely result in a shift in resources. Recall what you learned about tax incidence earlier. If a supplier is not able to pass increased costs along to the consumer in the form of higher prices, the supplier may choose to shift production to another good that will be more profitable. For example,... |
this chapter.) So-called sin taxes are often imposed on products or activities considered to be unhealthful or damaging to society, such as gambling, alcohol, and cigarettes. These taxes are generally levied on products or activities for which there is relatively inelastic demand, so that the incidence of the tax will... |
.S. Department of the Treasury T HINKING ECONOMICALLY Using the Internet 1. Why do you think the student used the phrase “taxation without representation”? (If you are unfamiliar with the phrase, use a search engine to research its origin.) 2. How might you navigate this page of the U. S. Department of the Treasury Web... |
exempt from taxation. Pennsylvania has no similar individual tax exemptions. Is one state’s tax more progressive than the other? Why or why not? (You’ll learn more about tax exemptions in Section 2.) Fee for driver’s license Sales tax Flat rate income tax Progressive income tax Highway tolls Property tax Corporate inc... |
and developing sound economic plans for the future would be almost 420 Chapter 14 impossible. Therefore, to make it easier for taxpayers and the government, a payroll tax—a tax that is taken from a worker’s paycheck—is collected. The payroll tax is deducted from a paycheck as withholding, or money taken from a worker’... |
is money taken from pay before the worker receives it. Taxable income is the portion of income subject to taxation. A tax return is a form used to report income and taxes owed to government. FIGURE 14.6 SELECTED ITEMIZED DEDUCTIONS ON INDIVIDUAL INCOME TAX RETURNS Deduction Number of Returns Amount Claimed (in $) Inte... |
.50 ($755 + $67.50) or about 10.3 percent of his income. Indexing is a revision of tax brackets to prevent workers from paying more taxes due to inflation. For example, suppose Scott’s taxable income rises from $8,000 to $8,320—a 4 percent increase—due to inflation. Without indexing, $770 of his income is taxed at the ... |
the first $7,000 earned by an employee and, for the most part, is paid only by employers. QUICK REFERENCE FICA is the Federal Insurance Contributions Act. Social Security is a federal program to aid older citizens, children who have lost a parent, and the disabled. Medicare is a national health insurance program mainl... |
Revenue As Percentage of GDP 1950–59 1960–69 1970–79 1980–89 1990–99 2000–09* 185,406 262,891 437,564 675,358 1,434,246 2,189,162 Source: The Budget of the United States, FY 2007 *Reflects government budget estimates for 2006–2009 27.5 21.3 15.0 9.3 10.5 10.0 4.8 3.8 2.7 1.7 1.9 1.8 ANALYZE GRAPHS 1. What overall tren... |
tax on the production or sale of a specific good or service. Customs duty is a tax on goods imported into the United States. A user fee is money charged for the use of a good or service. FIGURE 14.8 SOURCES OF FEDERAL TAX REVENUE 1% 1% 2% 3% 11% 37% Individual income taxes account for almost half of federal tax revenu... |
, MacGuineas suggests that the income tax should be simplified by ending most tax deductions and exemptions. This, she says, would also make the system more equitable, since taxpayers in higher marginal tax brackets gain the greatest benefit from these measures. In part for reasons of efficiency, MacGuineas believes th... |
is 6.2 percent, and the Medicare tax rate is 1.45 percent. Are both parts of the FICA tax proportional? Give reasons for your answer. 9. Drawing Conclusions Study these two statements about tax payments for the 2005 tax year: • On average, an individual with $100,000 in taxable income paid about 29.5 percent in combin... |
by law. Discretionary spending has to be authorized each year. Entitlements are social welfare programs with specific requirements. As you have seen, the federal government takes in a huge amount of money in taxes. The programs and services the federal government funds with this revenue are divided into two categories... |
. Originally, Medicare provided hospital insurance, funded by a payroll tax, for people over 65, as well as optional medical coverage for items such as doctor bills. This part of Medicare is funded by premiums paid by those choosing the coverage and by general tax revenues. Because of increasing numbers of retirees and... |
up about 50 percent of the total discretionary budget. National defense includes a large amount of the nation’s military spending, including the salaries of military personnel, weapons, and the construction and maintenance of military bases. Not all national defense spending is discretionary. Some spending on homeland... |
fiscal year is a 12-month period for which an organization plans its expenditures. Appropriations are specific amounts of money set aside for specific purposes. FIGURE 14.9 THE FEDERAL BUDGET a 9% 3% 21% 10% b 11% c 14% 15% Source: The Budget of the United States, FY 2007 Social Security National Defense Medicare Inco... |
Similarly, money spent on weapons systems for the military cannot be spent on some other program, such as environmental protection. Income Redistribution Government spending affects the incomes of families, individuals, and businesses. Transfer payments for health care, retirement, and Food Stamp benefits, for example... |
• medical care for elderly park rangers 9. Challenge Molly’s grandmother was born in 1943. If she retires in 2005, she’ll receive $750 per month in Social Security benefits. If she waits until 2009, she will receive $1,000, and if she waits until 2010, her monthly benefit increases to $1,080. Why do you think Congress... |
TYPE 1 Sales and Excise Taxes All states except Alaska, Delaware, New Hampshire, Montana, and Oregon levy a state sales tax. Rates range from 2.9 percent in Colorado to 7.25 percent in California. These taxes generally are applied to most goods and services sold within the state. However, many states exempt food and p... |
and incentives for businesses to promote economic development. However, states receive benefits from these tax practices in the increased economic activity that development brings. States also raise revenue from several other sources. Many of these sources, including estate taxes and user fees, are the same as those u... |
aterun hospitals as well as cash assistance and medical care payments to the needy. States also fund programs that help citizens with problems related to housing, disability, unemployment, and job training. Other expenses include state government administration, retirement funds for state employees, natural resources, ... |
local governments? 2. Which type of government gets a larger percentage of its revenue from sales and excise taxes? Government Revenue and Spending 437 Local Spending Local governments provide most of the direct services that citizens receive. To deliver these services, local governments employ almost three times the ... |
3. How is an operating budget related to a balanced budget? 4. What is the largest revenue source for state governments? What is the largest source for local governments? 5. Why do local governments need tax assessors? State Government Local Government Revenue Spending Revenue Spending 6. Using Your Notes What kinds o... |
, with shoppers buying everything from computers to airplane tickets. Many online shoppers fail to realize that they are required to pay sales tax for Internet purchases at their home state’s rate. To date, most states have tried to collect Internet sales tax on a voluntary basis. Needless to say, results have been poo... |
. This newspaper editorial describes one multistate project to facilitate the collection of the tax. Internet Sales Tax Eighteen states agree to establish uniform sales tax rules. Last week, 18 state tax collectors met in Chicago to announce an interstate agreement establishing uniform sales tax rules. Starting in Octo... |
-income people. The 8 is the final burden of tax. 9 is money taken from a worker’s pay before the worker receives it. 10 is a revision of tax brackets to prevent workers from paying more taxes due to inflation. Social Security is an example of an 11, a social welfare program with specific requirements. Such programs ma... |
: gasoline, ice cream, local telephone service, and sports cars. For each good or service create supply and demand curves showing the supply curve before the tax and how the supply curve shifts after the tax. Under each graph, write a caption explaining who will pay more of the tax— the consumer or the producer—and why... |
class. Compare your budgets, noting areas of agreement and disagreement. Negotiate to develop a single budget proposal for your group. Step 3 Present your group’s budget proposal to the class. Include a list of reasons to support your budget choices. Step 4 As a class, decide on a final recommendation that resolves an... |
Advisers, p. 452 As you read Section 1, complete a cluster diagram that organizes the main ideas about fiscal policy. Use the Graphic Organizer at Interactive Review @ ClassZone.com Fiscal Policy Fiscal Policy Tools KEY CONCEPT S QUICK REFERENCE Fiscal refers to government revenue, spending, and debt. Fiscal policy us... |
, but they work automatically rather than through active policy choices. QUICK REFERENCE Policy features called automatic stabilizers work automatically to steady the economy. Public Transfer Payments As you recall from Chapter 14, public transfer payments include programs such as unemployment compensation, food stamps... |
to control inflation. POLICY 1 Expansionary Fiscal Policy Government may use expansionary policy to increase the level of aggregate demand so that growth occurs in the economy. As you recall from Chapter 13, increased aggregate demand causes prices to rise, providing incentives for businesses to expand and causing GDP... |
2 EFFECTS OF FISCAL POLICY FIGURE 15.1 EFFECTS OF EXPANSIONARY FISCAL POLICY FIGURE 15.2 EFFECTS OF CONTRACTIONARY FISCAL POLICY P2 P1 AS AS P1 P3 AD2 AD1 b AD1 Y1 Y2 Real GDP AD3 Y3 Y1 Real GDP a As Figure 15.1 shows, expansionary fiscal policy causes aggregate demand (AD1) to shift to the right to AD2, or increase. b... |
aggregate demand is decreasing. This decline in aggregate demand, in turn, helps control inflation. (The major fiscal policy tools, and their impact on the economy, are reviewed in Figure 15.3.) 15. 3 Effects of Fiscal Policy on the Economy?Fiscal Policy Tools Expansionary Effects Contractionary Effects • Economic act... |
4 illustrates. If the timing is bad, however, it could make matters worse. For example, if the economy is already moving out of a recession when an expansionary fiscal policy takes effect, the result could be inflation. FIGURE 15.4 FISCAL POLICY AND THE BUSINESS CYCLE B F Line B shows how the economy fluctuates during ... |
ON 5 Regional Issues Another limitation of the effectiveness of fiscal policy is related to geography. Not every state or region of the country may be experiencing the same economic issues. For example, the Gulf Coast region may be recovering from the economic effects of hurricane damage. At the same time, the West Coa... |
, identify the problem and decide whether the fiscal policy should be expansionary or contractionary. Economic Situation Problem/Fiscal Policy Needed Business investment spending declines for six straight months Consumer Price Index rises for four straight months Unemployment rate increases from 4% to 6.5% over six mon... |
in aggregate demand influence the business cycle, and he expressed this idea in an equation. His equation states that the GDP equals the total market value of all consumer goods (C), investment goods (I), government goods (G), and net exports (F). The equation looks like this: GDP = C + I + G + F. Keynes believed that... |
�s equation help him conclude that if investment declined, government needed to increase spending or cut taxes to stimulate aggregate demand? Using Fiscal Policy 455 ECO N O M I C S PAC ES E T T E R John Maynard Keynes: Architect of Demand-Side Policy Many Americans are accustomed to the idea that the government plays ... |
the new ideas, but in escaping from the old ones. Jobs: Lecturer in economics, Cambridge University; editor of the Economics Journal; positions with the British Treasury office during World Wars I and II Learn more about John Maynard Keynes at ClassZone.com 456 Chapter 15 Wartime Spending Massive government spending o... |
. Why are demand-side policies more effective against recession than against inflation? Using Fiscal Policy 457 Supply-Side Economics KEY CONCEPT S QUICK REFERENCE Supply-side fiscal policy provides incentives to producers to increase aggregate supply. Some economists believe that the best way to influence the economy ... |
economy? 458 Chapter 15 QUICK REFERENCE The Laffer Curve is a graph that illustrates the economist Arthur Laffer’s theory of how tax cuts affect tax revenues. The Laffer Curve Supply-side economists refer to the Laffer Curve, a graph developed by economist Arthur Laffer, to illustrate how tax cuts affect tax revenues ... |
rates substantially. For example, the top bracket went from 70 percent to around 30 percent. At the same time, federal government receipts from income taxes over the whole decade were about 13 percent higher than Using Fiscal Policy 459 they had been in the 1970s. Inflation and unemployment rates both fell during the ... |
C T I O N 2 Assessment ClassZone.com AC T I C E 1. Explain the relationship between the terms in each of these pairs. a. Keynesian economics b. supply-side fiscal policy demand-side fiscal policy Laffer Curve 2. How did the Great Depression influence Keynesian economics? 3. How is the spending multiplier effect relate... |
is it difficult to tell if a cut in individual income tax rates is the result of a demand-side or a supply-side policy? Using Fiscal Policy 461 S E C T I O N 3 Deficits and the National Debt TA K I N G N O T E S In Section 3, you will • examine the difference between the deficit and the debt • explain why national def... |
spending more than it takes in for a specific budget year. The national debt is the money that the government owes. 462 Chapter 15 Causes of the Deficit There are four main causes of deficit spending: national emergencies, a desire for more public goods, stabilization of the economy, and the role of government in soci... |
Raising Money for Deficit Spending When the federal government does not receive enough revenue from taxes to finance its spending, it can borrow money to expand the economy. In effect, the government pays for its present needs by borrowing money that it will have to repay at some future date. It does this by issuing g... |
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