1. The Economics of Government Spending
Chapter 10 Section 1
The Economics of Government Spending

2. Government Spending in Perspective
Per Capita – per person
in 2003, the U.S. per capita expenditures was $10,300
Public Sector – the part of the economy made up of federal, state, and local governments

3. Reasons for Expanding the Public Sector by 1940
Expenses of WWII
Change in public opinion – they felt government should play a larger role in everyday economic affairs
Success of large-scale public works projects ( roads, social security )

4. Over time, people started to question how much the government should become involved
Private Sector – the part of the economy made up of private individuals and privately-owned businesses

5. Two Kinds of Spending
1. Goods and services – tanks, planes, land, schools
2. Transfer Payments – a payment for which the government receives neither goods nor services in return
Social security, welfare

6. Federal Government Expenditures
Section 2
Federal Government Expenditures

7. The federal budget is for a fiscal year – a 12 month planning period
Every year the government creates a federal budget – an annual plan for the revenues and expenditures
The federal budget is for a fiscal year – a 12 month planning period
(Oct. 1 – Sept. 30)

9. Steps to Make a Federal Budget
President creates budget guidelines
Federal Budget Deficit – excess of expenditures over revenue (spending more than taken in with taxes)
2. Approval by the House
3. Approval by the Senate

10. Major Government Spending
Social Security
National Defense
Medicare – government healthcare for senior citizens
Medicaid – government healthcare for low income individuals

12. Medicaid Usage

13. State and Local Government Expenditures
Section 3
State and Local Government Expenditures

14. States must get approval before spending revenue dollars
Balanced Budget Amendment – requires annual spending to not exceed revenues brought in
States cut spending when revenues drop; unlike federal government

15. State Expenditures Major types of state expenditures:
Intergovernmental expenditures
Higher education
Public welfare

16. Local Government Expenditures
Local governments have a responsibility for:
elementary and secondary education
police forces
highways

17. Deficits, Surpluses, and the National Debt
Section 4
Deficits, Surpluses, and the National Debt

18. The National Debt
Deficit spending – spending in excess of revenues collected (spending more than tax money coming in)

19. Deficits Add to the Debt
When the federal government runs a deficit, it makes up for the shortage of money by borrowing from others
Federal Debt – the total amount borrowed from investors to finance the government’s deficit spending

20. Federal Debt: Nixon to Obama

21. **if the federal government generates a surplus, the federal debt will become smaller***

22. National Debt Some of the debt is money the government owes to itself
Trust Funds – special accounts used to fund specific types of expenditures
Social Security and Medicare

23. Public Vs. Private Debt The difference…
When private citizens borrow money they make plans to repay by a specific date, and have a debt collector to answer to
The government does not have a specific date to pay things off, or anyone else to answer to

24. Impact of the National Debt
Affects the distribution of income within the economy
Causes a transfer of power from the private to public sector
High taxes needed to pay off the debt can reduce the incentives to work, save, and invest

25. Taming the Deficit Budget Enforcement Act of 1990
“Pay-as-you-go” Provision – a requirement that new spending proposals or tax cuts must be offset by reductions elsewhere
Balanced Budget Agreement of 1997
Spending Caps – legal limits on annual spending