Splash Screen

1. Splash Screen

2. Chapter Introduction Section 1: The Economics of Government Spending Section 2: Federal, State, and Local Government Expenditures Section 3: Deficits, Surpluses, and the National Debt Visual Summary Chapter Menu

3. Have you ever wondered what the government does with the money withheld from your paycheck? As you travel from home to school over the next three days, list all the examples you see of goods and services provided by federal, state, or local government. Try to determine which level of government funded them and who benefits from them the most. Share your list with the class. Chapter Intro 1

4. All levels of government use tax revenue to provide essential goods and services. Chapter Intro 2

5. Chapter Intro-End

6. Section Preview In this section, you will learn that the role of the federal government has grown, making it a vital player in the economy. Section 1-Preview

7. Content Vocabulary • pork • public sector • private sector • transfer payment • grant-in-aid • subsidy • distribution of income Academic Vocabulary • constituents • reluctant Section 1-Key Terms

8. A B Does government spending impact your everyday life? A. Yes B. No Section 1

9. The Economics of Government Spending • Pork is a popular trend used by politicians to satisfy their constituents. • Taxpayers generally would not approve of projects otherwise. Section 1

10. Government Spending in Perspective The government spends its revenues on goods, services, and transfer payments. Section 1

11. Government Spending in Perspective (cont.) • Spending by the public sector has increased sharply since the Great Depression. • Change in public opinion gave government a larger role in daily economic affairs. • Massive government spending funded the U.S. involvement in World War II. Section 1

12. Government Spending in Perspective (cont.) • Some question which goods and services government should provide versus what the private sectorshould provide. Section 1

13. Government Spending in Perspective (cont.) • Government makes two kinds of broad expenditures: • Purchase of goods and services • Transfer payment • Grant-in-aid Government Spending Section 1

14. A B C D Who would pay for the construction of a new public library? A.Grant-in-aid B. Private sector C. Transfer payment by U.S. Government D. Local taxpayers Section 1

15. Impact of Government Spending Government spending has a direct impact on our economy. Section 1

16. Impact of Government Spending (cont.) • Government spending influences • Resource allocation—if government withdraws subsidies to farmers, resources become available to other industries. • Distribution of income • Production in the private sector • Tax burden increases Section 1

17. A B C How do government spending decisions affect how resources are allocated? A.Directly B.Indirectly C.Both directly and indirectly Section 1

18. Section 1-End

19. Section Preview In this section, you will learn that governments provide money for many services and programs. Section 2-Preview

20. Content Vocabulary • federal budget • fiscal year • appropriations bill • budget deficit • budget surplus • mandatory spending • discretionary spending • Medicare • Medicaid • balanced budget amendment • intergovernmental expenditures Academic Vocabulary • ambiguity • coincide Section 2-Key Terms

21. A B C There is a lot of talk about a national health-care system. Would you be in favor of this if your taxes had to increase drastically to pay for it? A. Yes B. No C.Possibly Section 2

22. Federal, State, and Local Government Expenditures • The federal budget contains a fair amount of ambiguity. • Economy’s growth, slow down, or any unanticipated spending has an impact on the rough estimate of revenues and expenditures contained in the federal budget. Section 2

23. Federal Government Expenditures The federal government establishes a budget and allocates funds accordingly. Section 2

24. Federal Government Expenditures (cont.) • The federal budget spans a fiscal year beginning each October 1st. • Office of Management and Budget (OMB) prepares federal budget. • Budget forwarded to House of Representatives—reviewed by specific house committees • House subcommittees prepare appropriations bills. Section 2

25. Federal Government Expenditures (cont.) • After hearings and debates, appropriations bills are voted on. • Eventually forwarded to entire House for a vote • Senate acts on bill after House has approved it. • Senate may approve as is or draft own version. Section 2

26. Federal Government Expenditures (cont.) • Joint House and Senate conference committee works out compromises. • Compromised bill, approved by House and Senate, is forwarded to president for signature. • If budget bill was altered too much, president can veto it and congress rewrites. • If approved, budget becomes official for next fiscal year. Section 2

27. Federal Government Expenditures (cont.) • Federal budget leads to a budget deficitor a budget surplus. The Federal Budget for Fiscal Year 2007 Section 2

28. Federal Government Expenditures (cont.) • Federal budget expenditures include • Social Security—considered mandatory spending • National defense—considered discretionary spending • Income security • Medicare Section 2

29. Federal Government Expenditures (cont.) • Federal budget expenditures include • Health—Medicaid • Net interest on debt • Other expenditure categories Profiles in Economics:Alice Rivlin Section 2

30. A B C D Which is not an expenditure of income security? A.Food stamps B. Education C. Foster care and adoption assistance D. Mental health services Section 2

31. State Government Expenditures At the state level, expenditures include public welfare and higher education. Section 2

32. State Government Expenditures (cont.) • Unlike the federal government, some states have a balanced budget amendment. • States must cut spending when revenues drop. Section 2

33. State Government Expenditures (cont.) • State government expenditures include • Intergovernmental expenditures • Public welfare • Insurance trust and retirement • Higher education • Other expenditures State and Local Expenditures Section 2

34. A B C D Which category accounts for expenditures related to operating a state prison? A.Public welfare B. Insurance trust C. Intergovernmental expenditures D. Other expenditures Section 2

35. Local Expenditures Local governments spend money mainly on education, utilities, and public safety. Section 2

36. Local Expenditures (cont.) • Local governments’ expenditures are • Elementary and secondary education • Utilities • Public safety and health • Other expenditures The Global Economy & YOU:International Education Spending Section 2

37. A B C D Schools account for how much of all local government spending? A.10% B.23% C.33% D. 55% Section 2

38. Section 2-End

39. Section Preview In this section, you will learn that deficit spending has helped create a national debt. Section 3-Preview

40. Content Vocabulary • deficit spending • national debt • balanced budget • trust funds • per capita • crowding-out effect • “pay-as-you-go” provision • line-item veto • spending cap • entitlement Academic Vocabulary • mandate • instituted Section 3-Key Terms

41. A B With the staggering number of individuals who want government services, is it really possible to have a balanced budget? A. Yes B. No Section 3

42. From Deficits to Debts Because of deficit spending, the national debt has increased dramatically. Section 3

43. From Deficits to Debts (cont.) • Typically, deficit spendingis a result of the government forced to spend more than it collects because of unexpected developments causing a drop in revenues or a rise in expenditures. The Federal Deficit and the National Debt Section 3

44. From Deficits to Debts (cont.) • When the federal government runs a deficit, it must finance the revenue shortage by selling U.S. Treasury notes and other securities to the public. • Thenational debt is equal to all outstanding federal notes, bonds, and other debt obligations. • A balanced budget does not change the national debt. Section 3

45. From Deficits to Debts (cont.) • A portion of the national debt is money the government owes itself as in trust funds. • Two alternative views of the total national debt • Debt as a percentage of GDP • National debt computed on a per capita basis Section 3

46. From Deficits to Debts (cont.) • Differences between public and private debt • Country can never go bankrupt—most of debt is owed to itself. • Repayment—new bonds are issued to pay off old bonds. • Little purchasing power is given up. Section 3

47. A B C D Who is ultimately responsible for the growing deficit? A. Members of Congress B. President C. Taxpayers D. Future generations Section 3

48. Impact of the National Debt The national debt affects the distribution of income and transfers purchasing power from the private to the public sector. Section 3

49. Impact of the National Debt (cont.) • The national debt, although mostly owed to ourselves, still affects the economy by • Transferring purchasing power from private sector to public sector • Reducing economic incentives • Causing a crowding-out effect • Redistributing income Two Views of the National Debt Section 3

50. A B C The government’s borrowing of money can cause A.Interest rates to increase B. Interest rates to decrease C. Interest rates to remain the same Section 3