Chapter 10 Chapter 10 Government Government SpendingSpendingBy Mr. PillsburyBy Mr. Pillsbury

The Economics of Government Spending The Economics of Government Spending

Section 1Section 1 AS: How much money does the government AS: How much money does the government

give out in welfare/veterans pensions? (base it give out in welfare/veterans pensions? (base it on a $50,000 salary with a 30% tax bracket)on a $50,000 salary with a 30% tax bracket)

Answer: Well that depends on how you Answer: Well that depends on how you file. The answer is actually 1%.file. The answer is actually 1%.

2 KINDS of SPENDING2 KINDS of SPENDING

1. 1. Goods or servicesGoods or services: Tanks, Offices, : Tanks, Offices, Land, Paper Clips, Soap, Gas.Land, Paper Clips, Soap, Gas.

2. 2. Transfer paymentTransfer payment: Support incomes of : Support incomes of disadvantaged Americans. IE: Social disadvantaged Americans. IE: Social Security, welfare, unemployment, Security, welfare, unemployment, compensation. compensation.

Impact of Government Spending:Impact of Government Spending: 1. 1. Affecting resource allocationAffecting resource allocation: If you choose to spend your money on : If you choose to spend your money on

missiles that will affect welfare. missiles that will affect welfare.

IE: Our decision to support the prices of milk, and grains keeps the prices IE: Our decision to support the prices of milk, and grains keeps the prices stable and farmers working. stable and farmers working.

2. 2. Redistribution IncomeRedistribution Income: Government spending directly affects families. : Government spending directly affects families.

IE:If the government buys something from one factory and not another IE:If the government buys something from one factory and not another peoples lives are impacted. Think about the El Toro airbase closure, did that peoples lives are impacted. Think about the El Toro airbase closure, did that impact people?impact people?

3. 3. Competing with the Private sectorCompeting with the Private sector: Sometimes the government indirectly : Sometimes the government indirectly competes with the private sector. competes with the private sector.

IE: Hospitals that are veteran hospitals compete with private sector hospitals.IE: Hospitals that are veteran hospitals compete with private sector hospitals.

Federal Government ExpendituresFederal Government Expenditures Section 2Section 2

Government year begins Government year begins Sep 30-Oct 1 Sep 30-Oct 1 Budget done by Budget done by Jan 3Jan 3 Congress has power to modify or disapproveCongress has power to modify or disapprove It goes to the house firstIt goes to the house first House assigns appropriations bills, sets fed. $ House assigns appropriations bills, sets fed. $

aside for a specific purposeaside for a specific purpose After House/ Senate approves or disapproves After House/ Senate approves or disapproves

the bill President signs and we are all done!the bill President signs and we are all done!

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State and Local Government State and Local Government ExpendituresExpendituresSection 3 turn to pg. 263Section 3 turn to pg. 263

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What are the categories:What are the categories:

National DefenseNational Defense Social SecuritySocial Security Income SecurityIncome Security MedicareMedicare HealthHealth EducationEducation Veterans BenefitsVeterans Benefits TransportationTransportation Natural ResourcesNatural Resources AgricultureAgriculture

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Deficits, Surpluses and the Deficits, Surpluses and the National DebtNational DebtSection 4Section 4

It has grown:It has grown: 1900 (1.3 billion)1900 (1.3 billion) 1929 16.9 billion1929 16.9 billion 1940 50.7 billion1940 50.7 billion 1980 908.5 billion1980 908.5 billion 2001 5.7 trillion2001 5.7 trillion 2009 6 trillion 2009 6 trillion GoGo here here

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Impact of Deficit Impact of Deficit SpendingSpendingPublic vs. Private Public vs. Private

Public : Debt we owe ourselves.(federal debt)Public : Debt we owe ourselves.(federal debt) Private: Is money we owe others.Private: Is money we owe others.

Public:Public: No plans to pay back No plans to pay back Private:Private: When they borrow money they usually When they borrow money they usually

makes plans to pay backmakes plans to pay back

Public:Public: No loss of purchasing power because more No loss of purchasing power because more taxes will be collected.taxes will be collected.

Private:Private: Loss of purchasing power Loss of purchasing power

Here is the Problem Here is the Problem . . .. . . 1. The federal debt can have a significant impact on 1. The federal debt can have a significant impact on the distribution of income within the economy. If the the distribution of income within the economy. If the government borrows money from the wealthy, and if government borrows money from the wealthy, and if the burden of taxes falls on the middle class and the the burden of taxes falls on the middle class and the poor, taxes would be transferred to the rich in the poor, taxes would be transferred to the rich in the form of interest payments on the debt. form of interest payments on the debt.

2. The larger the debt the larger the interest 2. The larger the debt the larger the interest payments and the more taxes we need! payments and the more taxes we need!

GOOD TIMES! I am not really that motivated to work GOOD TIMES! I am not really that motivated to work for debt that I had no part of. for debt that I had no part of.

THE END THE END How does government raise money?How does government raise money? Taxes, license fees, traffic violations, and of Taxes, license fees, traffic violations, and of

course bonds.course bonds.

BondsBonds- Must be over 18 with a SS number. - Must be over 18 with a SS number. Minimum purchase-25.00Minimum purchase-25.00 Maximum purchase-30,000Maximum purchase-30,000 Min/max time: 12 months-30 yearsMin/max time: 12 months-30 years Average return: 2.15%Average return: 2.15%