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What is a barter economy?

a moneyless economy that relies on trade.

Around the Civil War, states made _________ (type of money) and the US government mades ___________ (type of money) because of what the Constitution says.

states make paper money
US government makes coins

With the gold standard, each currency unit is equal to a specific amount of ________.

gold

What are the advantages of the gold standard?

security
prevents government from printing too much money

What are the disadvantages of the gold standard?

not enough gold to keep up with a growing economy, people may suddenly convert money to gold, price of gold may change, government failure

Inconvertible Fiat Money Standard

gold standard abandoned during the Great Depression because people and governments were all trying to cash in their money for gold.

Resource Allocation

tax placed on a good or service at the factory

To raise the cost of production means that-

supply cure shifts to the left
if demand does not change, then the equilibrium price goes up

What is a sin tax?

a relatively high tax designed to raise money and reduce use of an undesirable product. (ex. raising the price of tobacco in Canada)

What are the criteria for effective taxes?

Fairness, Simplicity, Efficiency

What is the Benefit Principle?

Those who benefit from government goods and services should pay in proportion to the amount of benefits received.

What is the First Limitation?

Government services provide the greatest benefit to those who can least afford to pay them.

What is the Second Limitation?

The benefits are often hard to measure.

What is the Ability-to-Pay-Principle?

The belief that people should be taxed according to their ability to pay, regardless of the benefits they receive.

Factor One

recognizes that societies cannot always measure the benefits derived from government spending.

Factor Two

it assumes that people with higher incomes suffer less discomfort paying taxes than people with lower incomes.

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