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