Taxes, Deficit Spending, And The Government
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Taxes, Deficit Spending, And The Government






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Taxes, Deficit Spending, And The Government Taxes, Deficit Spending, And The Government Presentation Transcript

  • Taxes, Deficit Spending, and the Government
  • Federal Tax System
    • Payroll withholding system- automatic deductions from wages into the tax system
      • Ensures that individuals (who are working legally) pay their taxes
    • File returns to adjust the withheld amount (up or down)
  • $4,220 plus 25% of the amount over 30,650 $74,200 $30,650 $755 plus 15% of the amount over $7,550 $30,650 $7,550 10% of the amount over 0 $7,550 $0 The tax is: But not over If taxable income is over View slide
  • Government Spending
    • Allocation of resources
      • Who gets what
      • Who are the winners and who are the losers?
    • Distribution of Income
      • How money is spread out among the people
      • Redistribution programs
    • Competition with Private Sector
      • Produce goods or services that compete with private companies (US Postal Services vs. Fed Ex)
    View slide
  • Deficit Spending
    • Government Spends more than it takes in
      • Who do we owe the public debt to?
        • OURSELVES
        • New bonds used to retire old bonds
      • Private debt is owed to others
        • Paying back a loan decreases your purchasing power
  • Deficit Spending and Income Distribution
    • Nation borrows from the rich
      • Needs to pay interest
      • Raises taxes
        • Middle class and poor
      • Redistributes money to the rich in the form of interest payments
  • Economic Instability
    • What is economic instability?
    • What could cause this to occur?
  • Activity: Read pgs 418-421 and answer the following questions
    • Define: Stagflation, GDP Gap, Misery Index
    • What are the social costs of economic instability?
  • Economic Instability
    • Stagflation- period of stagnant growth and inflation
    • GDP Gap- difference between the actual GDP and the potential GDP
      • Draw the PPF that would symbolize a GDP Gap
    • Misery Index/ Discomfort index- Inflation+ unemployment rate (currently 8%)
  • Social Costs of Economic Instability
    • Wasted Resources
      • Unemployment
    • Political instability
      • Throw the rascals out!
    • Crime and Family Values
  • How do we measure the Economy of a nation?
    • How do we measure a product or an industry?
      • Supply and demand!
    • Very Large supply and demand curve for the entire country
  • Measuring the Economy
    • Aggregate Supply curve- real level of GDP that could be produced at various price levels
    The flat area represents the unused resources that would occur at those price levels. When prices are low, less people are willing to produce. This is called the LAW OF SUPPLY
  • Aggregate Supply
    • Read Increase in Aggregate Supply and Decrease in Aggregate Supply on pgs 422 and 423. Identify what would cause a change in each direction, and list at least 3 examples.
  • Increase in Supply
    • Shift to the Right
    • Cost decreases for all firms
    • Discovery of less expensive natural resources
    • Lower prices for oil
    • New technologies
    • More immigrants (labor costs decline)
    • Lower taxes
  • Decrease in Supply
    • Shift to the Left
    • Higer prices of inputs
    • Higher INTEREST RATES (why?)
    • Taxes
  • Aggregate Demand
    • Aggregate Demand Curve- quantity of real GDP that would be purchased at each possible price level in the economy
    • Aggregate demand= C+I+G
    Why does the demand curve slope down and to the right? Read pg 424 to find out!
  • Aggregate Demand
    • Slopes downward to the right because
      • Only one money supply exists at any given time
      • Purchasing power of this money supply is fixed in the short run
      • Curve shows the purchasing power of the supply at each price level
  • Aggregate Demand
    • Read Increase in Aggregate Demand and Decrease in Aggregate Demand on pgs 424 and 425. Identify what would cause a change in each direction, and list at least 3 examples.
  • Increase in Demand
    • Shift to the right
    • Change in the amount of money people save
      • The more they save the less they spend
    • Economic forecasts
    • Increase in transfer payments
    • Reduction in taxes
  • Decrease in Demand
    • Shift to the left
    • Increased savings
    • Forecasts negative
    • Increased taxes
    • Decreased transfer payments
  • Equilibrium
    • Draw and correctly label an aggregate equilibrium.
    • What does this equilibrium point tell you?
  • Aggregate Equilibrium
  • Demand-Side Policies
    • Increase or decrease total demand in the economy by shifting the aggregate demand
    • Fiscal Policy
      • The use of government spending and taxing to influence economic activities
  • Keynesian Economics
    • A set of actions designed to lower unemployment by stimulating aggregate demand
    • GDP=C+I+G+F
      • Can ignore the Foreign sector because net impact is so small
      • Government usually stable
      • Consumption can be determined using the consumption function
      • It’s the INVESTMENT sector that is to blame!
  • Keynesian Economics
    • Investment sector unstable
    • Multiplier
      • The investment sector also effected the other sectors on a larger magnitude than the original decrease
    • Accelerator
      • Speeds up the trend in the Investment sector
  • Keynesian Economics
    • Government must use Fiscal Policy to keep the changes in the Investment Sector from effecting the overall economy
      • Taxes - indirect
      • Spending - direct
  • Supply-Side Economics
    • Read pgs 431-433
    • Identify the major assumptions of supply side
    • What are the limitations on supply side economics
    • How does supply side economics differ from Demand side?
    • Who is responsible for the adjusting of the economy in supply side?
  • Review Questions
    • What is aggregate supply?
    • What is aggregate demand?
    • What is the sector to blame for all disturbances in Keynesian economics?
    • What tools are available to the government to offset these disturbances?
    • What two effects does the government try to stop or slow?
  • Supply Side Assumptions
    • Multiplier and Accelerator effect
    • Government has the duty and ability to check unemployment and inflation
    • Government needs to deregulate to make production easier
    • Higher Taxes produce lower returns for the government
  • Limitations to Supply-Side Economics
    • Belief that the market should take a larger role
      • Hands off as much as possible
      • Less direct role
      • Use incentives to get production up
    • Lack of experience and hard data to understand and implement
  • Differences
    • Smaller role of government
    • Laffer Curve
      • Higher taxes take away incentive to work harder
      • Considered invalid today
  • Who is responsible ?
    • The government (same as demand side)
      • Different tactics to accomplish the same goals