Presentation on theme: "Individuals and Government"— Presentation transcript:
1 Individuals and Government Chapter 1Individuals and Government
2 Public FinancePublic finance is the field of economics that studies government activities and the alternative means of financing government expenditures.
3 Figure 1.1 A Production-Possibility Frontier Government Goods andServices per YearPrivate Goods and Services per YearCMG2BX2G1AX1
4 Distribution of Government Goods and Services Nonmarket rationing:Prices and willingness to pay those prices are not applicable to goods like national defense.
5 The Mixed Economy: Markets and Politics Pure Market EconomyVirtually all goods and services are supplied by for-profit private firms.Supply and demand determine price.Mixed EconomyA mixed economy is one in which government supplies a considerable amount of goods and services and regulates private economic activity.
7 Government Expenditures in the United States Government purchases oflaborlandcapitalGovernment Transfer PaymentsWelfareSocial Security
8 Growth in Government Expenditures Growth in Government ExpendituresTable 1.1 (abbreviated)YearGDPFederal GovernmentStateand Local GovernmentTotalGovernmentPercentageof GDP193091.32.57.510.010.951945223.084.78.593.241.791960527.485.834.1119.922.7319751635.2345.4152.1497.530.4220022073.91050.93124.829.93
9 International Comparisons CountryGovernment Current Expenditures as a Percentage of GDP 2001Denmark49.1France48.8Germany45.1United Kingdom39.4Japan38.1Canada36.7United States31.9
14 State Budget Crunch of 200237 states were forced to reduce their budgets.Revenues were typically 10% less than anticipated.States with the most severe deficits:AK, AZ, CA, NY, NC, OK, OR, VA, and WACausesCuts in taxes on business and individuals in the 1990sNo sales tax collections on servicesGrowth in costs of Medicaid
15 Implications of a Graying America Social SecurityIn 2008 baby-boomers start to retire and collectThe ratio of workers to retiree fallsMedicareHealth care inflation is substantially higher than overall inflationMedicaidIncreased use of long-term care for baby-boomers