Economics Test Review

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 ________.
What are the advantages of the gold standard?
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.