2 The Economics of Government Spending PagesESSENTIAL QUESTION:What is the impact of government spending on the U.S. economy?What are the kinds of government spending?What factors affect the government’s spending decisions?
3 The Economics of Government Spending Pages 255-258 GPS STANDARDS:SSEMA3- Explain how the government uses fiscal policy to promote…. [price stability, full employment, economic growth & social goals]b.) Explain the government’s…spending decisions
4 Economics 10-1The Economics of Government SpendingPagesThe role of the federal government has grown, making it a vital player in the economy.Government is now big business in America.In fact, all levels of government in the United States spend more than all privately owned businesses combined.Government is a major player in our economy due to its enormous expenditures.
5 Economics 10-1The Economics of Government SpendingPagesBetween 1962 and 1993, federal transfer payments to people eligible for benefits because of poverty rose from under 1 percent of the nation’s Gross Domestic Product (GDP) to just about 2.5 percent.In contrast, at the height of World War II (the early 1940s), federal spending on defense was 40 percent of GDP.
6 The Economics of Government Spending Pages 255-258 In 2001 the total government expenditures at all levels amounted to about 30 percent of GDP.Total government expenditures at all levels was almost $3 trillion in 2003—about $10,300 for every American.
7 The Economics of Government Spending Pages 255-258 Government spending did not begin to increase until the 1940s for three reasons:the high costs of World War II;the Great Depression changed public opinion about the government assisting in everyday economic affairs and in improving Americans’ economic welfareand the success of large-scale public works projects.
8 The Economics of Government Spending Pages 255-258 Debate continues over the role government should play in the economy.Government promotes the broad social and economic goals of Americans, but the benefits of a government policy should outweigh its costs.
9 The Economics of Government Spending Pages 255-258 Government spending is for the purchase of goods and services and payments to disadvantaged Americans.Goods and services that the government buys includes everything from tanks for the nation’s defense to paper and soap for its employees.
10 The Economics of Government Spending Pages 255-258 Transfer payments include:Social Securitywelfareunemployment compensation
11 The Economics of Government Spending Pages 255-258 Two kinds of transfer payments exist:If the payment is made from one level of government to another, it is called a grant-in-aidSubsidies are payments made to individuals or entire industries to encourage or protect a certain economic activity.