1. Unit 6
Chapters 14 & 16

2. Government Spending

3. Taxes can affect resource allocation – increase price of product=makes people buy less=company cutting back on production
Taxes can be used to encourage or discourage certain types of activities; liquor/tobacco (sin taxes)
Distribution of income affected by taxes
Taxes change incentives to save, invest, and work
The incidence of a tax—the person or company who actually pays it—is not necessarily the entity that is taxed (EX: if a utility is taxed, it may pass the burden of the tax on to its customers in the form of higher rates)
Main Ideas

4. Shifting Taxes

5. WRITE ONE PARAGRAPH, TO TURN IN TO BASKET, ANSWERING THE QUESTION ABOVE.

7. Federal Government Budget
The president’s Office of Management and Budget prepares federal budget sends it to House of Representatives.
Divided into 13 categories and sent to subcommittees that prepare and vote on appropriations bills for them.
Approved bills go to full Appropriations Committee then to House for vote.
After House approved budget, is sent to the Senate, which may approve the House’s bill or draft another version
The approved bill is sent to the president for signature or veto. If signed, the budget becomes official for the next fiscal year, starting on October 1.
Federal Government Budget

8. Federal Government Revenue Sources

9. Federal Budget 2014

10. Federal Government Spending

11. Assignment Work independently
Turn in to basket before you leave or it will be late work
Page 410, questions 1-7
Page 422, questions 1-8
Assignment

12. 1981, Reagan believed taxes were stumbling block, signed Economic-Recovery Tax Act-large tax reductions for individuals & businesses
1986, tax code favored rich (3000+ millionaires paid no income taxes in 1983), Congress passed tax reform -Alternative Minimum Tax people had to minimum of 20% tax regardless of loopholes
1993, driven by government deficit, two new tax brackets were added, and closure of more loopholes
2001, gov’t collected more taxes than it spent, Pres Bush backed $1.3 billion “temporary” 10 year tax cut
2003, those earning top 10% increased taxes slightly, child tax credit increased from $600-$1000, put gov’t back in deficit same as 1993
2013, economy grew slowly after Recession, two new tax brackets added
Tax Reforms

13. Impact of National Debt
We owe most of the debt to ourselves
Affects:
Purchasing Power- when public debt increases people have less money to spend
Reduction of Economic Incentives- if gov’t appears to spend money carelessly tax payers won’t want their money going to those departments
Crowding-Out- higher than normal interest rates caused by heavy borrowing
Impact of National Debt

14. States create budgets differently, most are loosely modeled after federal budget
Intergovernmental expenditures-transfer of money from one gov’t department to another (largest spending)
Public Welfare- cash assistance, medical care, welfare institutions (second largest spending)
State Spending

15. Mayor, city council, and county judge approve budgets
Revenue is collected from property taxes, city income taxes, and other local fees
Largest spending on elementary & secondary education
Second on utilities
Third on hospitals
Fourth on Police & fire protection
And other-street/hwy repair, public welfare, parks, corrections
Local Gov’t Spending

16. Question IN YOUR NOTES:
Should the rich pay higher taxes? Why or why not? Use facts to support your argument for or against.
Why pay your taxes video
Question

17. Responsibilities of the Fed

19. Fed led by 7 member board of governors, appt
Fed led by 7 member board of governors, appt. by president & approved by Senate to serve 14 year term
Federal Reserve District Banks-intended as 12 independent banks but work together more now
Federal Open Market Committee-primary monetary policy-making committee, has power to raise/lower interest
Advisory Committees-one rep from each of 12 banks meet 4 x per year
Structure of Fed

20. Fractional reserve system-banks are required to keep portion of total deposits in legal reserves (coins, currency, etc)
Size of reserve is determined by reserve requirement, percent of every deposit; bank can lend out the rest
Monetary Policy

21. Fractional Reserve Syst.

22. Conducting Monetary Policy
Changes in money supply that affect availability and cost of credit, affects interest rates & influences economic activity
Based on supply & demand
Changes interest rates by changing size of money supply
Expanding money supply = lower interest rates
Restricting money supply=higher interest rates
Fed uses three tools to conduct monetary policy
Reserve Requirement (Congress sets limits)
Open Market Operations (buying & selling of gov’t securities)
Discount Rate (interest charged on loans to other financial inst)
Conducting Monetary Policy
Banking Video

23. Federal Reserve

24. What effects do protection policies for banks have on the economy as a whole?
A: American taxpayers absorb the financial burden

25. Popularity of supply-side policies
Economy would grow faster if gov’t lowered taxes & reduced regulations
Not designed to deal with short-term fluctuations of business cycle
Promoted growth and economic efficiency
Had little to offer when Great Recession hit
Popularity of supply-side policies

26. Changing Nature of Economics
Great Recession of 2008 changed everything
Discretionary fiscal policies (action by Congress or president)
Popularity of fiscal policy declined after Reagan took office
Gridlock-when political parties in Congress oppose each other’s budget views
Ideology-belief that American economy needs structural change
Changing Nature of Economics

27. Economics & Politics Today
Great Recession showed U.S. needed combination of policies to work
“economic politics”-politicians concerned with the economic consequences of their decisions
Economists differ bc they don’t agree on which issues are most important
Council of Economic Advisors- 3 member group that reports on economic developments and propose strategies
Economics & Politics Today

28. Create and fill in the chart-IN YOUR NOTES. Use the book to answer.