- 1. Unit 14 Please use this to complete your mastery
assignments!Using this will ensure mastery!
2. The Budget
- AFederal Budgetis a plan for government expenditures and
revenues for a specified period, usually a year
- Thebudgetis how the government decides to spend and raise
money.
- ABudget Resolutionis an agreement within congress abouttotals
revenues and spending for the year.It sets targets for how much
will be spent in various categories
3. The Budget Continued
- A governmentsbudget deficitis when a government spends more
than it collects.It isthe difference between what is spent and
collected in taxes.
- Debtis money that has been borrowed but has not been paid
back.
- Balanced Budget - When spending equals revenue, this is known
as a balanced budget (Revenue=Spending)
4. Fiscal Policy
- Fiscal policy deals with changes in government spending and
taxation. Remember government expendituresandtaxes =fiscal
policy
- Fiscal policyis carried out by the legislative and executive
branches .
- The government collects taxes in order to finance expenditures
on a number ofpublic goods and services for example, highways and
national defense.
- Appropriations Billsare money bills passed through Congress
that authorize government spending.
5. # 1Government Expense
- The main government expense isSocial Security.
- Social Securitygives money to retired persons and the
disabled.
- Largest government expenditure due to the number of old people
growing:retirement age 65.
- This makes it difficult to cut the budget because the money is
going to help the disadvantaged such as the elderly and the
poor.
- Another large expense if government healthcare in the form
ofMedicare/Medicaid .Medicareis healthcare for the elderly
.Medicaidis healthcare for the poor.These are guaranteed benefits
for those who qualify under government transfer programs.
6. Other Top 3 Federal Expenditures
- 2. National Defense:Government has to pay for military bases,
FBI, CIA, NSA, Secret Service, military salaries.
- 3. Income Security:Government subsidies to veterans, railroad,
and coal workers.
- 4. Healthcare: Medicare/MedicaidHealthcare assistance to
elderly and infants and low-income.
7. Revenue
- Top 4 sources of government revenue
- Individual income taxes and payroll taxesnow account for four
out of every five federal revenue dollars . Payroll taxesare
deducted from a worker's paycheck to fund Social Security and
Medicare.
- Corporate income taxescontribute another 12 percent.
- Intergovernmental revenueis money that one level of government
receives from another level such as when states receive money from
the federal government.
8. Taxes
- Income taxesare taxes a person pays on the income he or she
earns.Income taxes are graduated taxes meaning that the more you
make, the more tax you pay.
- Sales Taxesare taxes placed on purchases.States levy sales
taxes.
- Property taxesare taxes that people pay on the land and houses
that they own.Property taxes are assessedon value of the
property.Property Taxes are used to pay for government
administration and expensesfor things such as police officers,
firefighters, and paramedics.Property tax also helps pay for
services including community programs, parks, civic centers,
libraries and schools.School districts also receive a large portion
of property taxes.
9. Types of Taxes Government Can Implement
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- Increase in proportion to income
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- People/Businesses with higher income pay not only higher taxes,
but at a higher rate
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- Decrease in proportion to income
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- People/Businesses with higher income pay taxes at a decreased
percentage
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- Rate remains constant even if though the amount being taxed
increases
10. The Business Cycle
- Thebusiness cycleis the upward and downward movement of the
economy (growth and decline of the economy)
11. Phases of the Business Cycle
- Anexpansionis an upturn of the economy that lasts at least two
consecutive quarters of a year.
- During an expansion, production and employment are up.
- Apeakis the top of the business cycle.period of prosperity.
During a peak, production and employment are at their highest.
- Aboomis a very high peak, when things in the economy are at
their absolute best.
12. The phases explained (cont.)
- The economy as a whole is in decline during aContraction
.Production, employment and business activity starts to slow down
and decline.
- Acontractionis after the peak but before the trough.
- Arecessionoccurs if a contraction is severe. Recessions tend to
be shorter than expansions, with the average recession lasting
about a year.
- Atroughis the lowest point of the business cycle. (the bottom).
It occurs when real GDP levels off and slowing begins to
increase.
- In atrough , the production and employment are at their
lowest.
- A deep trough is called a slump or a depression.A depression is
a large recession and is the worst part of the business cycle for
the economy.
13. Economic Indicators
- Economic indicatorsare economic statistics that tell the
government how well the economy is doing and how it will do in the
future. (Measuring the Economy)
14. Top Economic Indicators
- M2 Money Supplymoney in circulation
- CPI-Consumer Price Index (Inflation)
- Consumer Confidence Survey
15. Unemployment
- Unemploymentare those within the civilian labor force who arent
working.
- Civilian Labor Force- -all civilians 16 years old or older who
are either working or looking for work.
- The percentage of people in the civilian labor force who are
not working but are looking for jobs make up theunemployment
rate.
- When people lose their jobs, they are personallyimpactedby
unemployment.People are forced to cut back on luxuries as well as
basic needs such as health care.
- Government programs such asWorkforceprovide services for the
unemployed such as job training.In exchange for
benefits,Workforcerequires welfare recipients to exchange some of
their labor to get benefits.
- TheEqual Pay Act of 1963was passed by Congress to stop
employers from discrimination by paying less income due to gender
or race.
16. Inflation
- Inflationis an increase in the general level of prices.
- TheCPI (consumer price index)tracks inflation.
- With theCPI,the government samples prices every month for about
400 products commonly used by consumers to keep track of
inflation.
17. GDP
- Gross Domestic Product (GDP)
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- A measure of the economys output.The dollar value of all final
goods and services produced in a country in a year.
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- Shows an economys production after the distortions of price
increases have been removed.
- Balance of trade isthe difference between the value of a
nation's exports and its imports.
18. Stocks and Bonds
- Stocksrepresent shares of a company. These shares give part of
the ownership of the company to you, the share-holder. Your stake
in that company is defined by the amount of shares that you, the
investor, own.
- Bondsare loans to a company, corporation or the government.You
purchase the bond and that institution gives you a receipt (bond)
for your loan with a promise to repay you with interest over a
period of time in the future.Bonds are bought and sold on the open
market
19. Common Stock vs Preferred Stock
- Common stockis ownership in a companystocks traded on the open
market.
- Those who own these stocks earn adividendfrom their share of
the company profits.Some companies such as Microsoft don't pay
dividends, and never have any intentions of doing so.
- The obvious risk with common stock is that the price may fall
and you risk losing what you have invested. A good thing about
common stock is that you can not lose more than your initial
investment.
- Preferred Stocksold by companies and is then traded among
investors on the secondary market. Preferred stock is less risky
than common stock, therefore investors can expect less reward.
- Like Bonds (which give interest payments to the owner),
preferred stocks give regular dividends for a period of time.There
is no hope for making big money (large capital gains) but these are
also less risky than common
20. Mergers
- AMergeris a combination of two or more companies into one.
- Mergers threaten competition so the government tries to limit
them.
- Vertical Mergers(AKA Vertical Integration)This is whenfirms at
different stages in the production chain merge (such as Oil
companies)
- Horizontal Mergers(AKA Horizontal Integration)-where competing
firms in the same industry merge (Sprint merges with AT&T)
21. Monopoly
- Monopoly- --when a market is controlled by a sole provider of a
good or service andthere is no competition
- Competitionis maintained by the government by controlling
monopolies.
- Congress has tried tocontrol monopolies and their powersby
creating anti-trust laws.These laws are put in to ban monopolies
and keep industries competitive.
- Two examples of anti-trust laws:the Sherman Antitrust Act and
the Clayton Act.
- A type of monopoly that exist because there are high fixed
costs in a particular industry is known as aNatural Monopoly
.Because it is economically sensible to have certain natural
monopolies, governments often regulate those in operation, ensuring
that consumers get a fair deal.
- Examples ofnatural monopoliesinclude the telephone companies,
water companies, and gas companies.