Define the following terms and explain their importance to the study of economics:
a. regressive tax
b. proportional tax
c. progressive tax
d. direct tax
e. indirect tax
What will be an ideal response?
a. A regressive tax is one in which the average tax rate falls as income rises. A regressive tax violates the vertical equity principle of taxes.b. A proportional tax is one in which the average tax rate is the same at all income levels. The payroll tax has the appearance of being a proportional tax, although in reality it is regressive. A flat-rate income tax is a proportional tax if there are no loopholes or exemptions.c. A progressive tax is one in which the average tax rate paid by an individual rises as income rises. Progressive taxation is an important element of vertical equity in taxes.d. A direct tax is levied directly on people or corporate entities. Direct taxes include the personal income tax, corporate profits taxes, and inheritance taxes. The incidence of a direct tax generally cannot be shifted.e. Indirect taxes are levied on an economic activity. Examples of indirect taxes include excise taxes and sales taxes. The incidence of indirect taxes is often shifted from the producer, or seller of a good or service, to the consumer.
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Suppose the Fed buys $1 billion worth of bonds and the required reserve ratio is 20%. In the theoretical limit, the money supply could
A) decrease by $1 billion. B) increase by $1 billion. C) increase by $5 billion. D) decrease by $5 billion.
Which of the following would be likely to shift a nation's production possibilities curve outward?
a. a decrease in the production of capital goods b. an increase in the production of consumer goods c. an increase in the number of retired workers d. none of the above
When impoverished peasants in South America and Asia cannot be convinced to stop growing crops for drug production, their situation demonstrates how poverty
a. lowers worker productivity. b. leads to environmental problems. c. supports transnational crime. d. creates health threats.
GDP excludes important factors that affect people's well-being, such as the value of:
A. leisure time. B. goods produced domestically but sold to foreigners. C. services purchased by households. D. government purchases of goods and services.