Chapter 10:Economics of

Government Spending

The Federal government collects money (revenue) and spends money (expenditures)

The government is important in our economy.

Main Idea

Section 1

The circle graph shows that ALL LEVELS of government combined =1/3 GDP GROSS DOMESTIC PRODUCT

Money collected in taxes is called ____________________ Money used to pay for goods and services is called _______________

If revenue = 2416 billion Expenditures = 2700 billion Which? Budget deficit Budget surplus

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If revenue = 2700 billion Expenditures = 2750 billion Which? Budget deficit Budget surplus

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Budget

Budget building process president congress

Federal government not required to have a balanced budget

revenue = expenditures

Due: October 1

Back to the president

Two Types of Expenditures: Fed Govt

1. Goods and Services

2. Transfer Payments

• Planes, tanks, ships space shuttles

• office buildings

• land for parks

• capital goods for schools and libraries.

• Social Security

• welfare

• Unemployment compensation

• Medicare

Grant in Aid:Payment from one level of

government to another (ex. federal govt to state govt)

Example: interstate highways: Fed govt pays most and state pays rest

The government expenditures have grown since the 1940s◦ WWII◦ Change in public opinion that government should

have a large role in everyday economic affairs.◦ TVA, low cost electricity to people in the south in

the 1930s

Government Growth

Fiscal year: 12-month financial planning period October 1-September 30

2 TYPES OF GOVERNMENT SPENDING

1. Mandatory Spending

2. Discretionary Spending

Spending by law.Congress does not need to approve

Spending that needs to be approved each

year.

Social SecurityIncome Security

MedicareMedicaid

Net interest on debt

National Defense

The House discusses Spending on National Defense

is not part of the annual budget process, although Congress can deal with its separately.

Discretionary SpendingNATIONAL DEFENSE

Various committees in the House decide how to spend the money and propose appropriation bills. House votes on bill.

The budget is reassemble and voted on by the House and Senate.

Mandatory Spending

Mandatory Spending-voteand discussion not needed

Social Security-Money paid to retired workers

Medicare-Health care for senior citizens

Medicaid-Medical insurance

for low income people

Net interest on debt-

interest paid on $ government has

borrowed

Income Security-Food stamps

SSIHUD housing

State Budget process: must have a balanced budget: expenditures include:

Intergovernment expenditures:Ex. Sales tax $ given to local government

Insurance trust and retirement-

Retirement $ for police, teachers, highway workers

Higher education:colleges

Public welfare;Cash assistance to

the poor

Other:PrisonsParks Roads

Snow removal

Local Budget process: must have a balanced budget: expenditures include:

Elementary/Secondary Education

Public Health and SafetyPolice

fire

OtherRoads

Snow removalSalt for icy roads

Utilities:Traffic lightsStreet lights

WaterGas

electricity

Approving spending ◦ Some states have enacted a Balanced budget

Amendment, Which is a constitutional amendment that requires that annual spending not exceed revenue

◦ When revenue drops….NO MORE SPENDING◦ A reduction in revenues may occur if sales tax or

state income tax fall because of a decline in general level of economic activity

Section 3

https://www.youtube.com/watch?v=gkJnmWhin90

http://www.forbes.com/sites/realspin/2014/04/15/passage-of-the-data-act-is-a-major-advance-in-government-transparency/

Video & Article