1. Government Spends, Collects, and Owes
Economics Chapter 16
Government Spends, Collects, and Owes

2. Section 1: Growth in the Size of Government
Mixed economy- Private and Government forces.
Government Growth
1929-present, 7 times as many Gov’t workers
1960’s Federal spent more then state and local
Public-work projects- schools and highways
70’s State and local spending increased

3. Why Has Government Grown
The Great Depression
WWII
Wealthier nation, demands for services to even out inequities.
Government accounts for 19% of the GDP
The True Size of Government
What the Federal government spends on health
State guidelines to employers.

4. Section 2: the function of Government
Providing Public Goods
Street lights, parks
Shared payment- legal assistance for example
Merit goods- deemed socially desirable, museums, ballets. Pay less than full market price.
Demerit goods- deemed socially undesirable, alcohol and tobacco. Taxing and regulations

5. Promoting the General Welfare
Income redistribution- to the aged, the ill and the poor.
Social-Insurance Programs- for retired, disabled workers, and unemployed.
Social Security-checks and Medicare available
Workers’ compensation- payment for injured workers if it happened on the job.

6. Promoting the General Welfare
Public-Assistance Programs or Welfare
Based on need, not taxes paid
Supplemental Security Income- aged, blind and disabled. Basic necessities. (Federal)
Temporary Assistance for Needy Families (State run)
Medicaid- Health care costs, low income and disabled. Federal and State

7. Regulation and Economic Stability
Regulating Economic Activity
Protecting consumers
Supervising labor and management relations
Promoting competition
Regulating negative by-products of the production process- externalities
Ensuring economic Stability- stability through economic ups and downs.

8. Section 3: The Federal Budget and the National Debt
The Budget-Making Process
Fiscal Year- Oct 1 to Sept 30
OMB, Office of management and budget- Executive office
Agencies submit requests
President goes over proposed budget
Submit to Congress
Congressional Budget Office advises committees
Congress votes on, signed by the president

9. The National Debt Budget deficit- Spend more than they take in.
Borrow to meet expenses- deficit financing
Government sells bonds to private and foreign governments
National debt- total owed by the government
Budget surplus- spend less than taken in

10. Section 4: Taxation Two ways to justify taxes
Benefits-received principle- you use it you pay. Gas tax to pay for highways
Ability to pay principle- You make more you pay more.
Forms of taxation- Page 432
Proportional tax
Progressive tax
Regressive tax