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next generation the responsibility for paying off this debt? Defining Terms
a. national debt
b. budget deficit
c. budget surplus Reviewing Facts and
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
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
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
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
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
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
1. A(n) ______ exists when government spending
is greater than tax revenues.
2. A proportional tax is sometimes called a(n)
3. A tax rate that falls as income rises is a(n)
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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- Winter '14