CHAPTER 5 notes - The Mixed Economy Private and Public...

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The Mixed Economy: Private and Public Sectors CHAPTER FIVE THE U.S. ECONOMY: PRIVATE AND PUBLIC SECTORS LECTURE NOTES I. Goals of Chapter A. To acquire basic, factual information about the household and business components of the private sector economy. B. To acquire basic, factual information about the public (or government) sector of the U.S. economy. C. To understand the role of the public sector of the U.S. economy. II. Households as Income Receivers A. Functional distribution of income is shown in Figure 5-1. (This figure is based on NI— National Income.) 1. Wages and salaries are 72 percent of the total. 2. Proprietors’ income (income to self-employed business owners, doctors, lawyers, etc.) is under 10 percent of the total. (This is a combination of wage and profit income.) 3. Capitalist income—corporation profits, rent, interest—is less than one-fifth of the total. (Note: rent may be negative because of the depreciation charged against rental income.) B. Personal distribution of income is shown in Figure 5-2. (This figure is based on PI—Personal Income.) 1. It is often described by dividing the population into quintiles or five numerically equal parts, sorted by income levels. 2. Proportions of total income going to each quintile are then compared. 3. Comparison shows unequal distribution of income. For example, see how many times greater the share of income going to the top quintile is relative to the bottom quintile. (Key Question 2) III. Households As Spenders (Figure 5-3) (Figure is based on PI—Personal Income) A. Use Figure 5.3 or most recent data from Survey of Current Business, January issue of current year, to describe the following. B. How do households dispose of their income? 1. Personal taxes, of which Federal personal income tax is the major component, has fallen from 16% in 2000 to 13% in 2002. 2. Saving (dissaving if spending exceeds income) is the smallest fraction of personal income disposition, around 3% in 2002. 3. Most of household income goes to consumer spending (Figure 5.3). There are several spending categories (Figure 5.4): a. Durable goods are those with a life of three or more years. b. Nondurable goods include things such as food and clothing. c. Services are today more than one-half of all consumer spending, which demonstrates that ours is a service-oriented economy. IV. The Business Population A. Related definitions 73
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The Mixed Economy: Private and Public Sectors 1. Plant: physical establishment where production or distribution takes place (factory, farm, store). 2. Firm: business organization that owns and operates the plants. (The legal entity.) 3. Industry: a group of related firms, producing the same or similar products. a. Examples include the automobile industry or the tobacco industry. b. Confusion often occurs because many businesses are multiproduct firms.
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