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 GovernmentGovernments are organizations formed to exercise authority over the actions of persons who live together in a society and to provide and finance essential services.
4 Political Institutions Political Institutions are rules and generally accepted procedures that evolve for determining what government does and how government outlays are financed.
5 Examples of Political Institutions Majority ruleRepresentative government
6 The Allocation between Private and Government Resources FoodHousingCarsClothingGovernmentNational DefensePublic SchoolsPolice
7 Figure 1.1 A Production-Possibility Frontier Government Goods andServices per YearPrivate Goods and Services per YearCMG2BX2G1AX1
8 Distribution of Government Goods and Services Nonmarket rationing:Prices and willingness to pay those prices are not applicable to goods like national defense.
9 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.
11 Government Expenditures in the United States Government purchases oflaborlandcapitalGovernment Transfer PaymentsWelfareSocial Security
12 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
13 International Comparisons CountryGovernment Current Expenditures as a Percentage of GDP 2001Denmark49.1France48.8Germany45.1United Kingdom39.4Japan38.1Canada36.7United States31.9
14 Figure 1.3 Total Government Expenditure as a Percentage of GDP 1929-2002
15 Structure of Federal Government Expenditures Purchases of Goods and ServicesTransfer PaymentsGrants in Aid to State and Local GovernmentsNet Interest Paid
16 Federal Expenditure by Category, 2002 Table 1.2CategoryPercentage of Total Federal ExpendituresTransfer Payments44.9Purchases28.2Interest14.7Grants to State and Local10.0Other2.2
17 Figure 1.4 The Distribution of Federal Expenditure, 1966-2002
19 The Structure of State and Local Government Expenditures in the United States EducationCivilian SafetyTransportationExecutive, Legislative, and JudicialIncome SecurityHealth and HospitalsRecreational and Cultural Activities
24 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
25 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
26 How Much Government is Enough? The question of how much government is enough is an important one in any society. It is the tradeoff between public and private goods. When government gets bigger, its increased involvement comes at the expense of less private consumption.