Download Chapter 20-21 review File

Economics
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Chapter 20 and 21 review
Under the type of tax, indicate whether it is progressive, regressive or
proportional and whether it is direct or indirect:
Personal income tax
a.
b.
Corporate income tax
a.
b.
Sales tax
a.
b.
Excise tax
a.
b.
Property tax
a.
b,
Social security tax
a.
b.
Estate and Gift tax
a.
b.
1. Which tax is the largest source of revenue for the federal government?
2. What is the benefits principle of taxation?
3. What is the ability to pay principle of taxation?
4. What are the tools of fiscal policy?
For each of the events listed below, tell whether you would use a restrictive fiscal
policy or an expansionary fiscal policy:
a. Consumer demand is stron and prices are rising:
b. Consumer confidence in the economy is falling and the purchase of major
products is being delayed:
c. Business research and development has slowed as huge inventories have
built up:
d. Business investment in new plants and equipment is expanding:
5. Do you believe that the growing national debt is a problem? Explain your answer!
6. As an economic advisor to the nation’s leaders, would you support the use of
monetary or fiscal policy for dealing with a growing recession? Why?
7. Should it be the policy of our government to use wage and price controls during
periods of inflation? Why or why not?
How do you feel about taxes? Read the following list of programs and efforts that
are supported by taxes. Rank the categories from 1-10 with 1 representing the
program you are most willing to fund with your tax dollars and 10 representing the
program you are least willing to fund.
____protecting the environment
____national defense
____medical research
____building and repairing highways
____health care for senior citizens (Medicare)
____health care for people who are poor (Medicaid)
____increasing teacher salaries and funding for education
____paying off the national debt
____funding programs in the arts and humanities
Comments:
Rate where you stand on the following statements about balancing the federal
budget. First, read each statement carefully. Then, write the number of that
statement in the place on the continuum that indicates how much you agree or
disagree with it. When you have ranked all ten statements, compare your responses
with a classmate’s. Discuss with that partner why you feel the way you do about
these methods
agree
1. all taxes should be raised to help cut the budget deficit
2. certain kinds of taxes should be raised to help cut the budget deficit
3. funding for arts programs should be eliminated
4. prices should be raised at national parks
disagree
5. wealthier people should not be eligible for the same level of Medicare and Social
Security benefits as poorer people
6. salaries for federal workers, including government officials should be frozen
7. military spending should be reduced significantly
8. spending for welfare benefits should be reduced, and welfare payments should
be limited
9. Social Security taxes paid by working people should be raised to help keep the
system solvent
10. spending for the nation’s infrastructure (highways, bridges, buildings and so on)
should be reduced
Problem solving: Read the following scenario and then answer the questions:
1. John and Abdul were good friends, although they frequently had heated political
discussions. John supported the flat tax which would tax all incomes at a
proportinal rate of 18%. “It’s only fair”, exclaimed John. “Why should successful
people who earn high incomes pay a higher percentage of their income in taxes?
Having high tax rates on higher incomes discourages people from earning money.
That hinders our economic growth.”
“That’s an outrageous proposal!” countered Abdul. “You just want the wealthy
to get off the hook. Wealthier people should pay a higher percentage. The amount
you pay in taxes isn’t as important to them as it is to a poorer person. All you care
about is economic growth. I say economic justice is more important! Keep the
progressive income tax.”
Who do you agree with?
1. Is the personal income tax considered a progressive or regressive tax? Why?
2. Identify tow reasons John favors a proportional tax?
3. Do you think high progressive tax rates would affect people’s decisions to take
risk to earn a lot of money? Explain your answer.
Solving the problem:
Explain why you agree or disagree that $2,000 taken from a person earning
$20,000 a year means more than $4,000 in taxes taken from a person earning
$40,000 a year. Do you agree with John or Abdul? Explain your answer.
Problem 2:
Representative McNeal faced a difficult decision. The economy was experiencing
moderate inflation, and this year the government was continuing its budget deficit,
which would further increase the national debt. Yet, there was a spending bill
before the House of Representatives to reduce the unemployment rate currently
at 7%. The bill would provide funds for public construction projects. Leaders of
his party, who were very concerned abut unemployment, were pressuring him to
vote for this bill. He wasn’t so sure he should. He thought sooner or later someone
had to take a stand and reduce government spending. Wouldn’t it be better in the
long run to cut back on government spending and not support this bill? He wasn’t
sure what to do, but he had to make a decsion quickly because the vote was
tomorrow. How, do you think, should Representative McNeal vote?
1. In your own words, restate the dilemma facing Representative McNeal.
2. What is the difference between a budge deficit and the national debt?
3. What political incentive does Representative McNeal have to vote for the bill?
What political incentive does he have not to vote for it?
Solve the problem:
If you were a union leader, why would you most likely support this legislation?
What assurances are there that the expansionary fiscal policies of the bill would
actually reduce employment? If you were Representative McNeal, how would you
vote? Explain why.