Chapter 5 PowerPoint Presentations (746.0K)

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Chapter 5 PowerPoint Presentations (746.0K)

  1. 1. The U. S. Economy: Private and Public Sectors 5 C H A P T E R
  2. 2. WAGES RENT INTEREST PROFIT/LOSS PERSONAL DISTRIBUTION SHOWS ALLOCATION OF INCOME AMONG INDIVIDUAL HOUSEHOLDS FUNCTIONAL DISTRIBUTION HOUSEHOLDS AS INCOME RECEIVERS
  3. 3. WAGES $5,977 Billion 72% PROPRIETOR’S 757 Billion 9% INCOME CORPORATE 787 Billion 9% PROFITS INTEREST 684 Billion 8% RENTS 142 Billion 2% FUNCTIONAL DISTRIBUTION 2002 DATA HOUSEHOLDS AS INCOME RECEIVERS
  4. 4. PERSONAL DISTRIBUTION Personal Income (Percent) 3.5% 8.7% 14.6% 23.0% 50.2% Lowest 20% Income Group Second 20% Income Group Middle 20% Income Group 2002 DATA Fourth 20% Income Group Highest 20% Income Group HOUSEHOLDS AS INCOME RECEIVERS
  5. 5. 3% to personal saving WHERE DOES OUR INCOME GO? HOUSEHOLDS AS SPENDERS $291 Billion 2002 DATA
  6. 6. 3% to personal taxes 13% WHERE DOES OUR INCOME GO? HOUSEHOLDS AS SPENDERS $291 Billion $1,114 Billion 2002 DATA
  7. 7. 3% to personal consumption 13% 84% WHERE DOES OUR INCOME GO? HOUSEHOLDS AS SPENDERS $291 Billion $7,304 Billion $1,114 Billion 2002 DATA
  8. 8. HOUSEHOLDS AS SPENDERS COMPOSITION OF CONSUMER EXPENDITURES, 2002 Services $4,317 billion (59%) Nondurable Goods $2,115 billion (29%) Durable Goods $872 billion (12%)
  9. 9. THE BUSINESS POPULATION <ul><li>Plant </li></ul><ul><li>Firm </li></ul><ul><ul><li>Multiplant Firms </li></ul></ul><ul><ul><li>Vertical Integration </li></ul></ul><ul><ul><li>Conglomerates </li></ul></ul><ul><li>Industry </li></ul>
  10. 10. THE BUSINESS POPULATION Business Shares of Domestic Output Corporations 20% Partnerships 8% Sole Proprietorships 72% Partnerships 9% Sole Proprietorships 4% Corporations 87% Percentage of Firms Percentage of Sales
  11. 11. LEGAL FORMS OF BUSINESSES Sole Proprietorship <ul><li>Easy to Organize </li></ul><ul><li>Proprietor is Own “Boss” </li></ul>Advantages Disadvantages <ul><li>Limited Resources </li></ul><ul><li>No Help With Decision Making </li></ul><ul><li>Unlimited Liability </li></ul>
  12. 12. LEGAL FORMS OF BUSINESSES Partnership <ul><li>Easy to Organize </li></ul><ul><li>More Management Skills </li></ul><ul><li>Greater Resources Available </li></ul>Advantages Disadvantages <ul><li>Difficulty Making Decisions </li></ul><ul><li>Possibly Limited Financial Resources </li></ul><ul><li>Partnership Continuity Problems </li></ul><ul><li>Unlimited Liability </li></ul>
  13. 13. LEGAL FORMS OF BUSINESSES Corporation <ul><li>Most Effective Raising Capital - Stocks, Bonds </li></ul><ul><li>Limited Liability </li></ul><ul><li>Easy Expansion of Size & Scope </li></ul><ul><li>Infinite Life </li></ul>Advantages Disadvantages <ul><li>Corporate Regulations & Legal Expenses </li></ul><ul><li>Some Unscrupulous Practices </li></ul><ul><li>Double Taxation </li></ul><ul><li>Separation of Ownership & Control </li></ul>
  14. 14. LEGAL FORMS OF BUSINESSES <ul><li>Hybrid Structures </li></ul><ul><ul><li>Limited-Liability Company (LLC) </li></ul></ul><ul><ul><li>S-Corporation </li></ul></ul><ul><li>Principal-Agent Problem </li></ul>
  15. 15. 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>Antitrust </li></ul></ul><ul><ul><li>Regulated Monopolies </li></ul></ul><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>
  16. 16. <ul><li>Reallocating Resources </li></ul><ul><ul><li>Market Failure </li></ul></ul><ul><ul><li>Spillovers or Externalities </li></ul></ul><ul><ul><ul><li>Spillover Costs </li></ul></ul></ul><ul><ul><ul><ul><li>Legislation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Specific Taxes </li></ul></ul></ul></ul><ul><ul><ul><li>Spillover Benefits </li></ul></ul></ul><ul><ul><ul><ul><li>Subsidize Consumers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Subsidize Suppliers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Government Provision </li></ul></ul></ul></ul>PUBLIC SECTOR: GOVERNMENT’S ROLE
  17. 17. <ul><li>Reallocating Resources </li></ul><ul><ul><li>Market Failure </li></ul></ul><ul><ul><li>Spillovers or Externalities </li></ul></ul><ul><ul><ul><li>Private Goods - Rivalry </li></ul></ul></ul><ul><ul><ul><ul><li>Excludability </li></ul></ul></ul></ul><ul><ul><ul><li>Public Goods and Services </li></ul></ul></ul><ul><ul><ul><ul><li>Nonrivalry </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Nonexcludability </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Free-Rider Problem </li></ul></ul></ul></ul><ul><ul><ul><li>Quasi-Public Goods </li></ul></ul></ul>PUBLIC SECTOR: GOVERNMENT’S ROLE
  18. 18. <ul><li>Promoting Stability </li></ul><ul><ul><li>Unemployment </li></ul></ul><ul><ul><li>Inflation </li></ul></ul><ul><li>Circular Flow Revisited </li></ul><ul><li>Adding the Government Sector </li></ul>PUBLIC SECTOR: GOVERNMENT’S ROLE
  19. 19. BUSINESSES HOUSEHOLDS RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE GOVERNMENT RESOURCE MARKET PUBLIC SECTOR: GOVERNMENT’S ROLE NET TAXES FLOW TO GOVERNMENT FROM BUSINESSES GOVERNMENT GOODS & SERVICES FLOW TO BUSINESSES
  20. 20. BUSINESSES HOUSEHOLDS RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE GOVERNMENT RESOURCE MARKET PUBLIC SECTOR: GOVERNMENT’S ROLE NET TAXES FLOW TO GOVERNMENT FROM HOUSEHOLDS GOODS & SERVICES FLOW TO HOUSEHOLDS FROM GOVERNMENT
  21. 21. BUSINESSES HOUSEHOLDS RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE GOVERNMENT RESOURCE MARKET PUBLIC SECTOR: GOVERNMENT’S ROLE EXPENDITURES FLOW TO ACQUIRE RESOURCES RESOURCES FLOW TO GOVERNMENT
  22. 22. PUBLIC SECTOR: GOVERNMENT’S ROLE BUSINESSES HOUSEHOLDS RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE GOVERNMENT RESOURCE MARKET GOVERNMENT EXPENDITURES FLOW TO PRODUCT MARKET GOODS & SERVICES FLOW TO GOVERNMENT
  23. 23. GOVERNMENT FINANCE Purchases & Transfers <ul><li>Transfer Payments </li></ul><ul><ul><li>Nonexhaustive </li></ul></ul><ul><li>Government Purchases </li></ul><ul><ul><li>Exhaustive </li></ul></ul>35 30 25 20 15 10 5 0 1960 2002 Percent of U.S. Output 2002 Data 12% ~ 18% ~ 5% ~ 22% ~
  24. 24. FEDERAL FINANCE Federal Expenditures Pensions and Income Security National Defense Health Interest on Public Debt Pensions & Income Security 38% National Defense 17% Health 21% All Other 15% Interest 9% 2002 Data Total Expenditures $2,011 Billion
  25. 25. FEDERAL FINANCE Federal Tax Revenues Personal Income Tax 46% <ul><li>Personal Income Tax </li></ul><ul><ul><li>Marginal Tax Rate </li></ul></ul><ul><ul><li>Average Tax Rate </li></ul></ul>2002 Data
  26. 26. FEDERAL FINANCE Federal Tax Revenues Personal Income Tax 46% Payroll Taxes 38% Corporate Income Tax 8% All Other 4% Excise Taxes 4% Personal Income Tax Payroll Tax Corporate Income Taxes Excise Taxes 2002 Data Total Tax Revenues $1,853 Billion
  27. 27. STATE AND LOCAL FINANCE State Revenues Sales & Excise Taxes ~ 47% State Income Taxes ~ 36% Corporate Income Taxes License Fees Lotteries Intergovernmental Grants ~ 22% State Owned Utilities/Stores
  28. 28. STATE AND LOCAL FINANCE State Expenditures Education ~ 36% Public Welfare ~ 25% Health and Hospitals ~ 8% Highways ~ 8% Public Safety ~ 5%
  29. 29. STATE AND LOCAL FINANCE Local Revenues Property Taxes 72% Sales & Excise Taxes 17% Education 44% Welfare, Health, and Hospitals 12% Public Safety 11% Housing, Parks, and Sewerage 8% Highways 5% Local Expenditures
  30. 30. STATE AND LOCAL FINANCE Local Revenues Property Taxes 72% Sales & Excise Taxes 17% Education 44% Welfare, Health, and Hospitals 12% Public Safety 11% Housing, Parks, and Sewerage 8% Highways 5% Local Expenditures Sources of Proprietary Incomes
  31. 31. FISCAL TRANSFERS Intergovernmental Grants Federal Transfers & Grants State Grants to Local Governments
  32. 32. functional distribution of income personal distribution of income durable goods non-durable goods services plant firm industry sole proprietorship partnership corporation stocks bonds limited liability double taxation principal-agent problem monopoly spillover costs spillover benefits public goods free-rider problem quasi-public goods government purchases transfer payments personal income tax marginal tax rate average tax rate payroll taxes corporate income tax sales & excise taxes property taxes Copyright McGraw-Hill/Irwin 2005 Key Terms BACK END
  33. 33. Next: The United States in the Global Economy Chapter 6

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