Transcript Econ - Ch 14 15 16 PPx

Ch. 14 - Taxes & Govt. Spending
Sect. 1 - What are Taxes
Tax -
Payments to the govt. that allow the govt. to operate
The Power to Tax Article 1, Section 8 of the U.S. Constitution
“The Congress shall have Power To lay and collect Taxes…”
“All Bills for raising Revenue shall originate in the House of
Representatives”
Progressive Tax Percentage of taxes paid increases as income increases
Ex: Income Tax
Progressive Tax
Progressive Tax Percentage of taxes paid increases as income increases
Ex: Income Tax
Proportional Tax Percentage of income paid in taxes remains the same at all
income levels
Ex: Sales Tax
Regressive Tax Percentage of income paid in taxes decreases as income
increases
Ex: Sales Tax
Tax Base What is going to be taxed? Income, real estate, goods,
Corporate Income?
A Good Tax Simplicity - Should be easily understood by taxpayers
Efficiency - Easy for government to assess and collect
Certainty - Clear to taxpayer how much is due and when
Equity - Fair, no one pays too much or too little
Sect. 2 - Federal Taxes
Individual Income Tax Single largest source of government revenue
- approx. 45% of annual revenue - paid through withholding
Tax Brackets Tax rate that increases as your taxable income increases
Sect. 2 - Federal Taxes
Individual Income Tax Single largest source of government revenue
- approx. 45% of annual revenue - paid through withholding
Tax Brackets Tax rate that increases as your taxable income increases
Corporate Income Tax Taxes on the profits that corporations make - also a
progressive tax - approx. 10% of annual govt. revenue
Excise Tax Often called a luxury tax - on goods like tobacco, alcohol,
phone service, etc.
Estate Tax Tax on the total value of the money and property of one who
has died
Gift Tax Tax on money or property given from one person to another
- on value of over $12,000 per year
Tariff Tax on imported goods - used to protect U.S. industries by
raising the price of foreign goods
Tariff Tax on imported goods - used to protect U.S. industries by
raising the price of foreign goods
Tax Incentive Used to encourage certain behavior from individuals or
businesses
- tax credit for using solar energy, hybrid cars, building a factory
Tariff Tax on imported goods - used to protect U.S. industries by
raising the price of foreign goods
Tax Incentive Used to encourage certain behavior from individuals or
businesses
- tax credit for using solar energy, hybrid cars, building a factory
Sect. 3 - Federal Spending
Mandatory Spending Money that the govt. is required to spend on certain programs
- Cannot be used for other things
Entitlement Programs Programs that people are “entitled to” benefit from if they meet
eligibility requirements
Ex: Social Security, Medicare/Medicaid, Food Stamps, etc.
Discretionary Spending -
Congress decides what to spend taxes on
- Military makes up abut 50% of discretionary spending
- Education, all Fed. Govt. employees, etc.
Sect. 3 - Federal Spending
Mandatory Spending Money that the govt. is required to spend on certain programs
- Cannot be used for other things
Entitlement Programs Programs that people are “entitled to” benefit from if they meet
eligibility requirements
Ex: Social Security, Medicare/Medicaid, Food Stamps, etc.
Discretionary Spending -
Congress decides what to spend taxes on
- Military makes up abut 50% of discretionary spending
- Education, all Fed. Govt. employees, etc.
Federal Aid to State & Local Govt. Appxt. $400 billion a year goes to states for education,
highways, healthcare, disaster relief, grants, etc.
Federal Spending
Federal Aid to State & Local Govt. Appxt. $400 billion a year goes to states for education,
highways, healthcare, disaster relief, etc.
Ch. 15 - Fiscal Policy
Sect. 1 - Understanding Fiscal Policy
Fiscal Policy The use of govt. taxing and spending to influence the economy
- used to expand or slow economic growth - control business cycle
Federal Budget Plan for annual spending between President and Congress for
the Fiscal Year (Oct. 1st - Sept. 30th)
Fiscal Policy
Federal Aid to State & Local Govt. Appxt. $400 billion a year goes to states for education,
highways, healthcare, disaster relief, etc.
Ch. 15 - Fiscal Policy
Sect. 1 - Understanding Fiscal Policy
Fiscal Policy The use of govt. taxing and spending to influence the economy
- used to expand or slow economic growth - control business cycle
Federal Budget Plan for annual spending between President and Congress for
the Fiscal Year (Oct. 1st - Sept. 30th)
Appropriation Bill Once agreement is reached, Congress passes Bill for annual
spending and submits to president to sign
If agreement can’t be reached Govt. could shut down
Expansionary Policy -
Attempt to encourage economic growth, through
increased spending or tax cuts
Expansionary Policy
Appropriation Bill Once agreement is reached, Congress passes Bill for annual
spending and submits to president to sign
If agreement can’t be reached Govt. could shut down
Expansionary Policy -
Attempt to encourage economic growth, through
increased spending or tax cuts
Contractionary Policy -
Reduce economic growth through decreased spending
or higher taxes
Contractionary Policy
Appropriation Bill Once agreement is reached, Congress passes Bill for annual
spending and submits to president to sign
If agreement can’t be reached Govt. could shut down
Expansionary Policy -
Attempt to encourage economic growth, through
increased spending or tax cuts
Contractionary Policy -
Reduce economic growth through decreased spending
or higher taxes
Sect. 2 - Fiscal Policy Options
Classical Economics - (Laissez Faire)
A free market regulates itself (Adam Smith)
- supply and demand will return to equilibrium on their own
The Great Depression challenged this theory
Keynesian Economics - (John Maynard Keynes - 1936)
Only increased demand will bring the economy out of
recession (demand-side economics)
The govt. should get involved if consumer demand is not sufficient
Sect. 2 - Fiscal Policy Options
Classical Economics - (Laissez Faire)
A free market regulates itself (Adam Smith)
- supply and demand will return to equilibrium on their own
The Great Depression challenged this theory
Keynesian Economics - (John Maynard Keynes - 1936)
Only increased demand will bring the economy out of
recession (demand-side economics)
The govt. should get involved if consumer demand is not sufficient
Multiplier Effect Every one dollar change in fiscal policy (increase in spending
or decrease in taxes) creates a change greater than one dollar in
the economy
Supply Side Economics Theory that the supply of goods drives the economy - opposite
of Keynesian theory
- Reducing taxes increases profits, employment, and production
Laffer Curve Graph showing the relationship between tax rate and total
taxes collected - suggests that higher tax rate brings in less
revenue if it reduces economic production
Laffer Curve
Multiplier Effect Every one dollar change in fiscal policy (increase in spending
or decrease in taxes) creates a change greater than one dollar in
the economy
Supply Side Economics Theory that the supply of goods drive the economy - opposite
of Keynesian theory
- Reducing taxes increases profits, employment, and production
Laffer Curve Graph showing the relationship between tax rate and total
taxes collected - suggests that higher tax rate brings in less
revenue if it reduces economic production
Sect. 3 - Budget Deficit & National Debt
Budget Deficit - (one year)
When budget spending exceeds budget revenue
- If govt. increases spending or cuts taxes without doing anything
else it will result in a deficit
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Sect. 3 - Budget Deficit & National Debt
Budget Deficit - (one year)
When budget spending exceeds budget revenue
- If govt. increases spending or cuts taxes without doing anything
else it will result in a deficit
Budget Surplus -
Situation in which budget revenue exceeds budget spending
Borrowing Money Govt. does not print more money to cover deficit - it borrows
Sect. 3 - Budget Deficit & National Debt
Budget Deficit - (one year)
When budget spending exceeds budget revenue
- If govt. increases spending or cuts taxes without doing anything
else it will result in a deficit
Budget Surplus -
Situation in which budget revenue exceeds budget spending
Borrowing Money Govt. does not print more money to cover deficit - it borrows
National Debt Total amount of debt from all yearly deficits
- Appxt. $17 trillion - Appxt. $250 billion in annual interest
National Debt
http://www.usdebtclock.org/
Ch. 16 - The Federal Reserve & Monetary Policy
Sect. 1 - The Federal Reserve System
Monetary Policy -
The actions the Federal Reserve takes to control the money
supply and influence the economy
Federal Reserve Act of 1913 Created the Federal Reserve System
- 12 regional Federal Reserve Banks
- Board of Governors in Washington appointed by the President
- Federal Reserve Chairman appointed by the President
Ben Bernanke until 2014
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Federal Reserve
Ch. 16 - The Federal Reserve & Monetary Policy
Sect. 1 - The Federal Reserve System
Monetary Policy -
The actions the Federal Reserve takes to control the money
supply and influence the economy
Federal Reserve Act of 1913 Created the Federal Reserve System
- 12 regional Federal Reserve Banks
- Board of Governors in Washington appointed by the President
- Federal Reserve Chairman appointed by the President
Ben Bernanke until 2014
Sect. 2 - Federal Reserve Functions
Bank for U.S. Govt. Provides banking services for the Federal Govt. and public
banks throughout the U.S.
Issuing Currency Prints and issues paper currency (Federal Reserve Notes)
- also replaces worn currency
Check Clearing Processes all checks issued by banks
- (appxt. 18 billion checks annually)
Discount Rate The interest rate that the Federal Reserve charges
banks for loans - sets the interest rate banks charge to customers
Sect. 3 - Monetary Policy Tools
Required Reserve Ratio Percentage of bank deposits that must be held with the
Federal Reserve - not available to loan out
Money Multiplier Formula for calculating the amount of money added to the
money supply from an initial deposit or purchase
initial cash deposit x (1 / RRR) = Increase in money supply
Ex: $1000 x (1/.10) = 10 x $1000 = $10,000
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Discount Rate The interest rate that the Federal Reserve charges
banks for loans - sets the interest rate banks charge to customers
Sect. 3 - Monetary Policy Tools
Required Reserve Ratio Percentage of bank deposits that must be held with the
Federal Reserve - not available to loan out
Money Multiplier Formula for calculating the amount of money added to the
money supply from an initial deposit or purchase
initial cash deposit x (1 / RRR) = Increase in money supply
Ex: $1000 x (1/.10) = 10 x $1000 = $10,000
Open Market Operations The buying and selling of government securities to alter the
supply of money
- the most commonly used monetary policy action
- Buying govt. securities increases the money supply
- Selling govt. securities reduces the money supply
The End
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