1. Splash Screen

2. Chapter Menu Chapter Introduction Section 1:Section 1:The Economics of Government Spending Section 2:Section 2:Federal, State, and Local Government Expenditures Section 3:Section 3:Deficits, Surpluses, and the National Debt Visual Summary

3. Chapter Intro 1 Have you ever wondered what the government does with the money withheld from your paycheck? As you travel from home to school over the next three days, list all the examples you see of goods and services provided by federal, state, or local government. Try to determine which level of government funded them and who benefits from them the most. Share your list with the class.

4. Chapter Intro 2 All levels of government use tax revenue to provide essential goods and services.

5. Chapter Intro-End

6. Section 1-Preview Section Preview In this section, you will learn that the role of the federal government has grown, making it a vital player in the economy.

7. Section 1-Key Terms Content Vocabulary pork public sector private sector transfer paymenttransfer payment grant-in-aid Academic Vocabulary constituents reluctant subsidy distribution of incomedistribution of income

8. A.A B.B Section 1 Does government spending impact your everyday life? A.Yes B.No

9. Section 1 The Economics of Government Spending Pork is a popular trend used by politicians to satisfy their constituents.Pork Taxpayers generally would not approve of projects otherwise.

10. Section 1 Government Spending in Perspective The government spends its revenues on goods, services, and transfer payments.

11. Section 1 Government Spending in Perspective (cont.) Spending by the public sector has increased sharply since the Great Depression.public sector –Change in public opinion gave government a larger role in daily economic affairs. –Massive government spending funded the U.S. involvement in World War II.

12. Section 1 Government Spending in Perspective (cont.) Some question which goods and services government should provide versus what the private sector should provide.private sector

13. Section 1 Government Spending in Perspective (cont.) Government makes two kinds of broad expenditures: –Purchase of goods and services –Transfer paymentTransfer payment Grant-in-aid Government Spending

14. A.A B.B C.C D.D Section 1 Who would pay for the construction of a new public library? A.Grant-in-aid B. Private sector C. Transfer payment by U.S. Government D. Local taxpayers

15. Section 1 Impact of Government Spending Government spending has a direct impact on our economy.

16. Section 1 Government spending influences –Resource allocation—if government withdraws subsidies to farmers, resources become available to other industries.subsidies –Distribution of incomeDistribution of income –Production in the private sector –Tax burden increases Impact of Government Spending (cont.)

17. A.A B.B C.C Section 1 How do government spending decisions affect how resources are allocated? A.Directly B.Indirectly C.Both directly and indirectly

18. Section 1-End

19. Section 2-Preview Section Preview In this section, you will learn that governments provide money for many services and programs.

20. Section 2-Key Terms Content Vocabulary federal budget fiscal year appropriations billappropriations bill budget deficit budget surplus mandatory spendingmandatory spending discretionary spendingdiscretionary spending Medicare Academic Vocabulary ambiguity coincide Medicaid balanced budget amendmentbalanced budget amendment intergovernmental expendituresintergovernmental expenditures

21. A.A B.B C.C Section 2 There is a lot of talk about a national health-care system. Would you be in favor of this if your taxes had to increase drastically to pay for it? A.Yes B.No C.Possibly

22. Section 2 Federal, State, and Local Government Expenditures The federal budget contains a fair amount of ambiguity.federal budget Economy’s growth, slow down, or any unanticipated spending has an impact on the rough estimate of revenues and expenditures contained in the federal budget.

23. Section 2 Federal Government Expenditures The federal government establishes a budget and allocates funds accordingly.

24. Section 2 Federal Government Expenditures (cont.) The federal budget spans a fiscal year beginning each October 1st.fiscal year Office of Management and Budget (OMB) prepares federal budget. Budget forwarded to House of Representatives—reviewed by specific house committees House subcommittees prepare appropriations bills. appropriations bills

25. Section 2 Federal Government Expenditures (cont.) After hearings and debates, appropriations bills are voted on. Eventually forwarded to entire House for a vote Senate acts on bill after House has approved it. Senate may approve as is or draft own version.

26. Section 2 Federal Government Expenditures (cont.) Joint House and Senate conference committee works out compromises. Compromised bill, approved by House and Senate, is forwarded to president for signature. If budget bill was altered too much, president can veto it and congress rewrites. If approved, budget becomes official for next fiscal year.

27. Section 2 Federal Government Expenditures (cont.) Federal budget leads to a budget deficit or a budget surplus.budget deficitbudget surplus The Federal Budget for Fiscal Year 2007

28. Section 2 Federal Government Expenditures (cont.) Federal budget expenditures include –Social Security—considered mandatory spendingmandatory spending –National defense—considered discretionary spending discretionary spending –Income security –MedicareMedicare

29. Section 2 Federal Government Expenditures (cont.) Federal budget expenditures include –Health—MedicaidMedicaid –Net interest on debt –Other expenditure categories Profiles in Economics: Alice Rivlin

30. A.A B.B C.C D.D Section 2 Which is not an expenditure of income security? A.Food stamps B. Education C. Foster care and adoption assistance D. Mental health services

31. Section 2 State Government Expenditures At the state level, expenditures include public welfare and higher education.

32. Section 2 Unlike the federal government, some states have a balanced budget amendment.balanced budget amendment States must cut spending when revenues drop. State Government Expenditures (cont.)

33. Section 2 State government expenditures include –Intergovernmental expendituresIntergovernmental expenditures –Public welfare –Insurance trust and retirement –Higher education –Other expenditures State Government Expenditures (cont.) State and Local Expenditures

34. A.A B.B C.C D.D Section 2 Which category accounts for expenditures related to operating a state prison? A.Public welfare B. Insurance trust C. Intergovernmental expenditures D. Other expenditures

35. Section 2 Local Expenditures Local governments spend money mainly on education, utilities, and public safety.

36. Section 2 Local governments’ expenditures are Local Expenditures (cont.) –Elementary and secondary education –Utilities –Public safety and health –Other expenditures The Global Economy & YOU: International Education Spending

37. A.A B.B C.C D.D Section 2 Schools account for how much of all local government spending? A.10% B.23% C.33% D.55%

38. Section 2-End

39. Section 3-Preview Section Preview In this section, you will learn that deficit spending has helped create a national debt.

40. Section 3-Key Terms Content Vocabulary deficit spendingdeficit spending national debt balanced budgetbalanced budget trust funds per capita crowding-out effectcrowding-out effect “pay-as-you-go” provision“pay-as-you-go” provision Academic Vocabulary mandate instituted line-item veto spending cap entitlement

41. A.A B.B Section 3 With the staggering number of individuals who want government services, is it really possible to have a balanced budget? A.Yes B.No

42. Section 3 From Deficits to Debts Because of deficit spending, the national debt has increased dramatically.

43. Section 3 From Deficits to Debts (cont.) Typically, deficit spending is a result of the government forced to spend more than it collects because of unexpected developments causing a drop in revenues or a rise in expenditures.deficit spending The Federal Deficit and the National Debt

44. Section 3 From Deficits to Debts (cont.) When the federal government runs a deficit, it must finance the revenue shortage by selling U.S. Treasury notes and other securities to the public. The national debt is equal to all outstanding federal notes, bonds, and other debt obligations.national debt A balanced budget does not change the national debt.balanced budget

45. Section 3 From Deficits to Debts (cont.) A portion of the national debt is money the government owes itself as in trust funds.trust funds Two alternative views of the total national debt –Debt as a percentage of GDP –National debt computed on a per capita basisper capita

46. Section 3 From Deficits to Debts (cont.) Differences between public and private debt –Country can never go bankrupt—most of debt is owed to itself. –Repayment—new bonds are issued to pay off old bonds. –Little purchasing power is given up.

47. A.A B.B C.C D.D Section 3 Who is ultimately responsible for the growing deficit? A.Members of Congress B.President C.Taxpayers D.Future generations

48. Section 3 Impact of the National Debt The national debt affects the distribution of income and transfers purchasing power from the private to the public sector.

49. Section 3 The national debt, although mostly owed to ourselves, still affects the economy by Impact of the National Debt (cont.) –Transferring purchasing power from private sector to public sector –Reducing economic incentives –Causing a crowding-out effectcrowding-out effect –Redistributing income Two Views of the National Debt

50. A.A B.B C.C Section 3 The government’s borrowing of money can cause A.Interest rates to increase B. Interest rates to decrease C. Interest rates to remain the same

51. Section 3 Reducing Debts and the Debt Congress has tried a number of measures to reduce deficits and the national debt.

52. Section 3 Concern over deficit spending led to attempts to control it. Reducing Debts and the Debt (cont.) –Congress mandated a balanced budget. –“Pay-as-you-go” provision“Pay-as-you-go” provision –Line-item veto and spending capsLine-item vetospending caps –Raising revenues –Reduced spending—difficult because of entitlements entitlements

53. Section 3 Action to reduce budget deficits and the national debt will depend on the willpower of Congress to make unpopular and difficult choices. Reducing Debts and the Debt (cont.) The Size of the National Debt

54. A.A B.B C.C D.D Section 3 What factors must change in order to get a grip on the national debt? A.Attitudes on entitlement must change. B.Politicians must stop favoring their pork projects and think of everyone’s welfare. C.Society must engage in a savings philosophy instead of a spending philosophy. D. Taxes must increase.

55. Section 3-End

56. Federal Budget Process Each year, the president sends a federal budget to Congress. The budget undergoes a lengthy approval process until it is signed into law. VS 1

57. VS 2 Major Budget Categories The major budget categories vary for federal, state, and local governments. The focus of the federal government is on nationwide programs and expenditures. States pass on much of their budget to local governments and spend the rest on state-level programs. Local governments focus their expenditures on local needs.

58. VS 3 Surpluses, Deficits, and Debt When revenues exceed expenditures, governments enjoy a budget surplus. If revenues are less than expenditures, governments are faced with a budget deficit. They then have to borrow money to meet expenditures and incur debt.

59. VS-End

60. Figure 1

61. Figure 2

62. Figure 3

63. Figure 4

64. Figure 5

65. Figure 6

66. Figure 7

67. Profile Alice Rivlin (1931– ) founding director of the Congressional Budget Office director of the White House Office of Management and Budget vice chair of the Federal Reserve Board

68. DFS Trans 1

69. DFS Trans 2

70. DFS Trans 3

71. Vocab1 pork a line-item budget expenditure that circumvents normal budget procedures and benefits a small number of people or businesses

72. Vocab2 public sector that part of the economy made up of local, state, and federal governments

73. Vocab3 private sector that part of the economy made up of private individuals and businesses

74. Vocab4 transfer payment payment for which the government receives neither goods nor services in return

75. Vocab5 grant-in-aid transfer payment from one level of government to another that does not involve compensation

76. Vocab6 subsidy government payment to encourage or protect a certain economic activity

77. Vocab7 distribution of income way in which the nation’s income is divided among families, individuals, or other designated groups

78. Vocab8 constituents persons who are represented by an elected official

79. Vocab9 reluctant hesitant or unwilling

80. Vocab10 federal budget annual plan outlining proposed expenditures and anticipated revenues

81. Vocab11 fiscal year 12-month financial planning period that may not coincide with the calendar year

82. Vocab12 appropriations bill legislation authorizing spending for certain purposes

83. Vocab13 budget deficit a negative balance after expenditures are subtracted from revenues

84. Vocab14 budget surplus a positive balance after expenditures are subtracted from revenues

85. Vocab15 mandatory spending federal spending authorized by law that continues without the need for annual approvals by Congress

86. Vocab16 discretionary spending spending for federal programs that must receive annual authorization

87. Vocab17 Medicare federal health-care program for senior citizens, regardless of income

88. Vocab18 Medicaid joint federal-state medical insurance program for low-income people

89. Vocab19 balanced budget amendment constitutional amendment requiring government to spend no more than it collects in taxes and other revenues, excluding borrowing

90. Vocab20 intergovernmental expenditures funds that one level of government transfers to another level for spending

91. Vocab21 ambiguity uncertainty about meaning or value

92. Vocab22 coincide to happen or exist at the same time or in the same position

93. Vocab23 deficit spending annual government spending in excess of taxes and other revenues

94. Vocab24 national debt total amount borrowed from investors to finance the government’s deficit spending

95. Vocab25 balanced budget annual budget in which expenditures equal revenues

96. Vocab26 trust fund special account used to hold revenues designated for a specific expenditure such as Social Security, Medicare, or highways

97. Vocab27 per capita per person basis; total divided by population

98. Vocab28 crowding-out effect higher than normal interest rates and diminished access to financial capital faced by private borrowers when they compete with government borrowing in financial markets

99. Vocab29 “pay-as-you-go” provision requirement that new spending proposals or tax cuts must be offset by reductions elsewhere

100. Vocab30 line-item veto power to cancel specific budget items without rejecting the entire budget

101. Vocab31 spending cap limits on annual discretionary spending

102. Vocab32 entitlement program or benefit using established eligibility requirements to provide health, nutritional, or income supplements to individuals

103. Vocab33 mandate to order or require

104. Vocab34 instituted put into action

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