Economics Chapter 16 Government Spends, Collects, and Owes

Section 1: Growth in the Size of Government Mixed economy- Private and Government forces. Government Growth – 1929-present, 7 times as many Gov’t workers – 1960’s Federal spent more then state and local – Public-work projects- schools and highways – 70’s State and local spending increased

Why Has Government Grown The Great Depression WWII Wealthier nation, demands for services to even out inequities. Government accounts for 19% of the GDP The True Size of Government – What the Federal government spends on health – State guidelines to employers.

Section 2: the function of Government Providing Public Goods – Street lights, parks – Shared payment- legal assistance for example – Merit goods- deemed socially desirable, museums, ballets. Pay less than full market price. – Demerit goods- deemed socially undesirable, alcohol and tobacco. Taxing and regulations

Promoting the General Welfare Income redistribution- to the aged, the ill and the poor. Social-Insurance Programs- for retired, disabled workers, and unemployed. – Social Security-checks and Medicare available – Workers’ compensation- payment for injured workers if it happened on the job.

Promoting the General Welfare Public-Assistance Programs or Welfare – Based on need, not taxes paid – Supplemental Security Income- aged, blind and disabled. Basic necessities. (Federal) – Temporary Assistance for Needy Families (State run) – Medicaid- Health care costs, low income and disabled. Federal and State

Regulation and Economic Stability Regulating Economic Activity – Protecting consumers – Supervising labor and management relations – Promoting competition – Regulating negative by-products of the production process- externalities Ensuring economic Stability- stability through economic ups and downs.

Section 3: The Federal Budget and the National Debt The Budget-Making Process – Fiscal Year- Oct 1 to Sept 30 – OMB, Office of management and budget- Executive office – Agencies submit requests – President goes over proposed budget – Submit to Congress – Congressional Budget Office advises committees – Congress votes on, signed by the president

The National Debt Budget deficit- Spend more than they take in. Borrow to meet expenses- deficit financing Government sells bonds to private and foreign governments National debt- total owed by the government Budget surplus- spend less than taken in

Section 4: Taxation Two ways to justify taxes – Benefits-received principle- you use it you pay. Gas tax to pay for highways – Ability to pay principle- You make more you pay more. Forms of taxation- Page 432 – Proportional tax – Progressive tax – Regressive tax