chapter 4.ppt

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chapter 4.ppt

  1. 1. 4 The U.S. Economy: Public and Private Sectors
  2. 2. Chapter Objectives <ul><li>Important Facts About U.S. Households and U.S. Businesses </li></ul><ul><li>Corporate Form Domination in Sales and Profits </li></ul><ul><li>Principle and Agent Issues </li></ul><ul><li>Economic Role of Government in the Economy </li></ul><ul><li>Categories of Government Spending and the Sources of Government Revenues </li></ul>
  3. 3. Households as Income Receivers Functional Distribution of Income Source: Bureau of Economic Analysis Indicates how nation’s earned income is divided among wages, rents, interest, and profit.
  4. 4. Households as Income Receivers Functional Distribution of Income-2005 Wages & Salaries Rents Interest Proprietor’s Income Corporate Profits Income By Function Performed National Income Received (Percent) 0 10 20 30 40 50 60 70 71% 1% 5% 9% 14% Source: Bureau of Economic Analysis
  5. 5. Households as Income Receivers Personal Distribution of Income Source: Bureau of Economic Analysis Indicates how nation’s income is divided among individual households.
  6. 6. Households as Income Receivers Personal Distribution of Income-2004 Lowest 20% Second 20% Middle 20% Fourth 20% Highest 20% Income Group (Households) Personal Income Received (Percent) 0 10 20 30 40 50 60 3.4% 8.7% 14.7% 23.2% 50.1% Source: Bureau of the Census
  7. 7. The Business Population <ul><li>Plant </li></ul><ul><li>Firm </li></ul><ul><li>Multiplant Firms </li></ul><ul><ul><li>Vertically Integrated </li></ul></ul><ul><ul><li>Horizontally Integrated </li></ul></ul><ul><ul><li>Conglomerates </li></ul></ul><ul><li>Industry </li></ul>
  8. 8. Legal Forms of Business <ul><li>Sole Proprietorship </li></ul><ul><li>Partnership </li></ul><ul><li>Corporation </li></ul>Source: U. S. Census Bureau
  9. 9. Legal Forms of Business <ul><li>Corporate Securities </li></ul><ul><ul><li>Stock </li></ul></ul><ul><ul><li>Bond </li></ul></ul><ul><li>Limited Liability </li></ul><ul><li>Hiring of Specialists </li></ul><ul><li>Unlimited Lifetime </li></ul><ul><li>Principal-Agent Problem (disadvantage) </li></ul>Advantages of Corporations 4.1
  10. 10. The Public Sector: Government’s Role <ul><li>Providing the Legal Structure </li></ul><ul><li>Maintaining Competition </li></ul><ul><ul><li>Monopoly </li></ul></ul><ul><ul><li>Regulation </li></ul></ul><ul><ul><li>Regulated Monopolies </li></ul></ul><ul><ul><li>Antitrust Laws </li></ul></ul><ul><ul><li>Sherman Act 1890 </li></ul></ul>
  11. 11. The Public Sector: Government’s Role <ul><li>Redistributing Income </li></ul><ul><ul><li>Transfer Payments </li></ul></ul><ul><ul><li>Market Intervention </li></ul></ul><ul><ul><li>Taxation </li></ul></ul>
  12. 12. The Public Sector: Government’s Role <ul><li>Correcting for Negative Externalities </li></ul><ul><ul><li>Legislation </li></ul></ul><ul><ul><li>Specific Taxes </li></ul></ul><ul><li>Correcting for Positive Externalities </li></ul><ul><ul><li>Subsidize Consumers </li></ul></ul><ul><ul><li>Subsidize Suppliers </li></ul></ul><ul><ul><li>Provide Goods Via Government </li></ul></ul>
  13. 13. The Public Sector: Government’s Role <ul><li>Public Goods and Services </li></ul><ul><li>Private Goods </li></ul><ul><ul><li>Rivalry </li></ul></ul><ul><ul><li>Excludability </li></ul></ul><ul><li>Public Goods </li></ul><ul><ul><li>Nonrivalry </li></ul></ul><ul><ul><li>Nonexcludability </li></ul></ul><ul><ul><li>Free-Rider Problem </li></ul></ul><ul><li>Quasi-Public Goods </li></ul><ul><li>The Reallocation Process </li></ul>
  14. 14. The Public Sector: Government’s Role <ul><li>Promoting Stability </li></ul><ul><ul><li>Unemployment </li></ul></ul><ul><ul><li>Inflation </li></ul></ul>
  15. 15. Government Finance Total Tax Revenue – Selected Nations Percent of Total Output-2004 Sweden Denmark Norway Finland France Italy United Kingdom Germany Canada Australia United States Japan South Korea 10 20 30 40 50 Source: Organization for Economic Cooperation and Development 50.7 49.6 44.9 44.3 43.7 42.2 36.1 34.6 33.0 31.6 25.4 25.3 24.6 GLOBAL PERSPECTIVE
  16. 16. Federal Finance <ul><li>Progressive Tax Rates </li></ul><ul><ul><li>Brackets of Income </li></ul></ul><ul><li>Marginal Tax Rate </li></ul><ul><li>Average Tax Rate </li></ul>Federal Tax Revenues-2005
  17. 17. Federal Finance Federal Tax Revenues-2005 0 10 20 30 40 50 Personal Income Tax Payroll Taxes Corporate Income Taxes Excise Taxes Source: U. S. Office of Management and Budget 43% 37% 3% 4% All Other 13% Basic Revenue Sources
  18. 18. State Finance <ul><li>Primary Revenues </li></ul><ul><ul><li>Sales & Excise Taxes - 48% </li></ul></ul><ul><ul><li>Personal Income Taxes - 34% </li></ul></ul><ul><ul><li>Corporate Income Taxes & License Fees – Most of Balance </li></ul></ul><ul><li>Primary Expenditures </li></ul><ul><ul><li>Education – 35% </li></ul></ul><ul><ul><li>Public Welfare – 28% </li></ul></ul><ul><ul><li>Health & Hospitals – 7% </li></ul></ul><ul><ul><li>Highways – 7% </li></ul></ul><ul><ul><li>Public Safety – 4% </li></ul></ul><ul><ul><li>Other – 19% </li></ul></ul>State Finances
  19. 19. Local Finance <ul><li>Primary Revenues </li></ul><ul><ul><li>Property Taxes – 73% </li></ul></ul><ul><ul><li>Sales & Excise Taxes – 17% </li></ul></ul><ul><li>Primary Expenditures </li></ul><ul><ul><li>Education – 44% </li></ul></ul><ul><ul><li>Welfare, Health & Hospitals – 12% </li></ul></ul><ul><ul><li>Public Safety – 11% </li></ul></ul><ul><ul><li>Housing, Parks, & Sewers – 8% </li></ul></ul><ul><ul><li>Streets & Highways – 5% </li></ul></ul>Local Finances

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