1. Government and the U.S. Economy

2. Consumer (you) pay taxes.. What do you get out of these?

3. How Big is Government? Are businesses and individuals better off when decisions are made through voluntary exchange in markets or when government intervenes to make sure the publics best interests are served?

4. Important roles of government in the economy To enforce private property rights Monitor external costs and benefits Make sure there is market competition - controls establishment of monopolies - controls predatory pricing

5. 4 Key Anti-Trust Act Sherman Anti-trust Act of 1890 illegal to create a monopoly, or restrain trade, fixed prices, rig bids Clayton Act of 1914 prohibits giving special rates to certain customers if practice lessens competition or creates a monopoly

6. Antitrust Act Federal Trade Commission Act of 1914 - protects public against false or misleading advertising.

7. Federal Trade commission Act of 1914 Protects public against false or misleading advertising

8. Celler Kefauver Act of 1950 Broaders Clayton Act to include mergers

9. Roles Continued 4.) Protect Consumers Comply with certain standards and rules when producing goods and services

10. Government as a Manager Establishment of the Economy: 1.) Fiscal policy Government spending and taxation 2.) Monetary Policy Regulating the money supply

11. Economics Security by the government Entitlements: Unemployment, food stamps, subsidies for housing, medicare, medicaid, social security, WIC, CHIP, Leap Laws that provide for educational opportunities Job Corp, SWAP, dell grants

12. Government as public sector Service providers -Veterans hospital -National Security -business regulations -Environmental Protection Agency -Interstate highway system Public goods provider -once provided, is available to anyone without additional cost Private business does provide goods and services for government

13. Federal Government Spending 64.5% of budget transfers money directly to individuals -healthcare -medicare -Income security -Social security

14. Federal Government Taxation Income taxes account for 56.2% of total receipts FICA represents the taxes people pay for social security and medicare

15. Thoughts on the role of Government Paul Samuelson: The marketplace has external costs which are not subjected to law of supply and demand. Government needs to establish goals and regulations Milton Friedman: Keep hands off and let the market do it’s job. Examples: -Endorsed minimum wage -Endorsed government sponsored programs such as public housing and food stamps Examples: -did not endorse minimum wage -give low income families additional income to allow them to decide how to use funds -suggested “Negative income tax” -sliding scale of payments to those whose income from work falls below a stated minimum

16. Financing State and Local Government Sales Tax Individual income tax Property tax Services they provide highways, hospitals, public welfare, community housing, sewage and waste management, public safety Education accounts for 30% of spending

17. Taxation Purposes of Taxes: 1.) Pay the cost of government 2.) Discourage activities deemed harmful 3.) Used to encourage certain activities 4.) Used to alter level of economic activity (fiscal policy)

19. Principals of Taxation 1.) Benefit- received principle Taxing people who benefit from the goods and services 2.) Ability to pay principle Taxing people for their ability to pay

20. Types of Taxes 1.) Proportional tax Percentage of income paid in taxes is the same for all income levels (flat tax) 2.) Progressive tax Take a higher proportion of income from high income earners 3.) Regressive Tax Percentage of income paid in taxes decreases as income increases

21. Debt and Deficits National Debt: Includes all of the federal government borrowing used to finance the annual deficits. Money owed to U.S. citizens and business Foreign leaders Money it owes itself Gross debt (Total IOU’s) Publicly held debt (gross debt-investments in government securities)

22. When is Debt Acceptable? Wartime Slow economy National disaster

23. Criticism of Federal Deficits Interest payment of national debt are growing Lead to higher interest rates When government borrows it crowds out consumers and business Inflation (printing money) Gross debt as a percentage of GDP