Budget deficit c budget surplus reviewing facts and

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Unformatted text preview: e next generation the responsibility for paying off this debt? Defining Terms 1. Define: a. national debt b. budget deficit c. budget surplus Reviewing Facts and Concepts 2. How does the federal government spend its tax revenues? 3. How are current budget deficits linked to higher taxes in the future? 4. What was the public debt equal to on June 22, 2005? Critical Thinking 5. What do people mean when they say that it is better to balance the economy than to balance the budget? Applying Economic Concepts 6. Suppose the Fed were to create enough money to pay off the entire public debt. What would happen to prices? Explain your answer. Section 2 The Budget: Deficits and Debt 385 14 (364-389) EMC Chap 14 5/8/06 5:02 PM Page 386 Economics Vocabulary Chapter Summary Be sure you know and remember the following key points from the chapter sections. Section 1 The three main forms of federal taxes are personal income tax, corporate income tax, and Social Security tax. Personal income tax is the tax a person pays on his or her income. The tax corporations pay on their profits is the corporate income tax. The Social Security tax is a tax placed on income generated from employment. With a proportional income tax, everyone pays taxes at the same rate, whatever the income level. With a progressive income tax, the form of income tax used in the United States, people pay at a higher rate as their income levels rise. With a regressive income tax, people pay taxes at a lower rate as their income levels rise. Section 2 The federal government breaks down its spending according to categories. The major categories include national defense; income security, retirement, and disability; Social Security and Medicare; and interest on the national debt. According to economists, a government spending program is not worth pursuing unless the benefits of that program outweigh the costs; but the system of voting to decide on spending means costs of approved projects are sometimes greater than the benefits. The government prepares a budget that indicates how it will spend its tax revenues. Budget deficits occur when government expenditures exceed tax revenues; budget surpluses occur when revenues are greater than expenditures. When the government borrows money to pay for excess spending, it has to borrow that money from people who will have to be repaid. 386 Chapter 14 Taxing and Spending To reinforce your knowledge of the key terms in this chapter, fill in the following blanks on a separate piece of paper with the appropriate word or phrase. 1. A(n) ______ exists when government spending is greater than tax revenues. 2. A proportional tax is sometimes called a(n) ______ tax. 3. A tax rate that falls as income rises is a(n) ______ tax. 4. The ______ is the idea that each person should pay taxes according to his or her ability to pay. 5. The ______ is the idea that each person should pay taxes according to the benefits that he or she receives from government expenditures. 6. A gas tax is consist...
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