 The Federal government  collects money (revenue) and  spends money (expenditures)  The government is important in our economy.

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

Budget building process president congress Due: October 1 Back to the president

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

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 Security Income Security Medicare Medicaid 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 Spending NATIONAL 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

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 SSI HUD housing

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: Prisons Parks Roads Snow removal

Elementary/Secondary Education Public Health and Safety Police fire Other Roads Snow removal Salt for icy roads Utilities: Traffic lights Street lights Water Gas 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

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