PUP 3002 FSU EXAM 3 STUDY GUIDE
(Key Terms) QUESTIONS AND
ANSWERS
Monetary Policy - ANSWER-government policy that attempts to manage the
economy by controlling the money supply and thus interest rates
Regulation - ANSWER-the use of governmental authority to control or change some
practice in the private sector
Federal Reserve Board (the Fed) - ANSWER-the body responsible for deciding the
monetary policies and the supply of money in the United States
Progressive taxation - ANSWER-the tax as a percentage of income increases as
income increases, aka tax the rich
Flat tax - ANSWER-a tax system in which all people pay the same percentage of
their income
Regressive taxation - ANSWER-the tax as a percentage of income decreases as
income increases
Tax incidence - ANSWER-the actual division of the burden of a tax between buyers
and sellers in a market
Price setting - ANSWER-a regulation tactic where an outside source such as the
government fixes the prices at which goods and services will be sold; can create
price ceilings or floors
Entry restrictions - ANSWER-another form of entry regulation that serves as a form
of economic protection for a trade (i.e. franchises, certificates of need, and license
fees)
Barrier to entry - ANSWER-any factor that makes it difficult for a new firm to enter a
market
Supply-side Economics (a.k.a trickle-down economics) - ANSWER-An economic
philosophy that holds that sharply cutting taxes will increase people's incentive to
work, save, and invest; favors tax cuts
Trickle-down Economics - ANSWER-economic theory that holds that money lent to
banks and businesses will trickle down to consumers
, Progressive taxation - ANSWER-the tax as a percentage of income increases as
income increases
Laffer Curve - ANSWER-there is a relationship between tax rates and tax revenues
that illustrates that high tax rates could lead to lower tax revenues if economic
activity is severely discouraged
Tax deductions - ANSWER-a variable amount that taxpayers may subtract from their
gross income
Tax expenditures - ANSWER-revenue losses due to special exemptions, exclusions,
and deductions.
Unemployment - ANSWER-the number of people who are actively looking for work
but aren't currently employed
Veil of Ignorance (Rawls) - ANSWER-making decisions with a blind eye to
extraneous factors that could affect the decision
Income Inequality - ANSWER-the unequal distribution of household or individual
income across the various participants in an economy
Redistribution - ANSWER-taking from the people who have income and giving it to
the people who do not have income
Cash transfer - ANSWER-The direct provision of cash (in forms including checks,
debit cards, and tax breaks) to eligible individuals or to providers of goods or
services to eligible individuals
Social security - ANSWER-federal program of disability and retirement benefits that
covers most working people
Social insurance - ANSWER-Programs in which eligibility is based on prior
contributions to government, usually in the form of payroll taxes
Redistributive - ANSWER-policies that shift resources from middle and upper-class
taxpayers to disadvantaged citizens
Means-tested programs - ANSWER-officials determining whether individuals have
income low enough to qualify for benefits
Block Grant - ANSWER-a large grant given to a state by the federal government with
only general spending guidelines
Categorical grant - ANSWER-grant that appropriates federal funds to states for a
specific purpose
earned income tax credit (EITC) - ANSWER-a form of "negative income tax" in which
people are given tax credits as an inducement to work
(Key Terms) QUESTIONS AND
ANSWERS
Monetary Policy - ANSWER-government policy that attempts to manage the
economy by controlling the money supply and thus interest rates
Regulation - ANSWER-the use of governmental authority to control or change some
practice in the private sector
Federal Reserve Board (the Fed) - ANSWER-the body responsible for deciding the
monetary policies and the supply of money in the United States
Progressive taxation - ANSWER-the tax as a percentage of income increases as
income increases, aka tax the rich
Flat tax - ANSWER-a tax system in which all people pay the same percentage of
their income
Regressive taxation - ANSWER-the tax as a percentage of income decreases as
income increases
Tax incidence - ANSWER-the actual division of the burden of a tax between buyers
and sellers in a market
Price setting - ANSWER-a regulation tactic where an outside source such as the
government fixes the prices at which goods and services will be sold; can create
price ceilings or floors
Entry restrictions - ANSWER-another form of entry regulation that serves as a form
of economic protection for a trade (i.e. franchises, certificates of need, and license
fees)
Barrier to entry - ANSWER-any factor that makes it difficult for a new firm to enter a
market
Supply-side Economics (a.k.a trickle-down economics) - ANSWER-An economic
philosophy that holds that sharply cutting taxes will increase people's incentive to
work, save, and invest; favors tax cuts
Trickle-down Economics - ANSWER-economic theory that holds that money lent to
banks and businesses will trickle down to consumers
, Progressive taxation - ANSWER-the tax as a percentage of income increases as
income increases
Laffer Curve - ANSWER-there is a relationship between tax rates and tax revenues
that illustrates that high tax rates could lead to lower tax revenues if economic
activity is severely discouraged
Tax deductions - ANSWER-a variable amount that taxpayers may subtract from their
gross income
Tax expenditures - ANSWER-revenue losses due to special exemptions, exclusions,
and deductions.
Unemployment - ANSWER-the number of people who are actively looking for work
but aren't currently employed
Veil of Ignorance (Rawls) - ANSWER-making decisions with a blind eye to
extraneous factors that could affect the decision
Income Inequality - ANSWER-the unequal distribution of household or individual
income across the various participants in an economy
Redistribution - ANSWER-taking from the people who have income and giving it to
the people who do not have income
Cash transfer - ANSWER-The direct provision of cash (in forms including checks,
debit cards, and tax breaks) to eligible individuals or to providers of goods or
services to eligible individuals
Social security - ANSWER-federal program of disability and retirement benefits that
covers most working people
Social insurance - ANSWER-Programs in which eligibility is based on prior
contributions to government, usually in the form of payroll taxes
Redistributive - ANSWER-policies that shift resources from middle and upper-class
taxpayers to disadvantaged citizens
Means-tested programs - ANSWER-officials determining whether individuals have
income low enough to qualify for benefits
Block Grant - ANSWER-a large grant given to a state by the federal government with
only general spending guidelines
Categorical grant - ANSWER-grant that appropriates federal funds to states for a
specific purpose
earned income tax credit (EITC) - ANSWER-a form of "negative income tax" in which
people are given tax credits as an inducement to work
