chap05lecture notes

chap05lecture notes - CHAPTER FIVE THE MIXED ECONOMY...

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CHAPTER FIVE THE MIXED ECONOMY: PRIVATE AND PUBLIC SECTORS INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Define, explain, and give relative importance of the four shares in the functional distribution of income. 2. Define and explain the personal distribution of income, and state the relative shares going to the top 20 percent compared to the bottom 20 percent (or one-fifth). 3. State the three major categories of household spending or income disposition and relative shares of each. 4. Explain the terms durable goods, nondurable goods, and services. 5. Explain the difference between a plant, a firm, and an industry. 6. State the advantages and disadvantages of the three legal forms of business in comparative terms. 7. Describe the principal-agent problem. 8. Give two ways in which government enhances the operation of the market system. 9. Explain how government alters income distribution. 10. Define and explain the effects of spillover benefits and spillover costs. 11. Describe how the government can correct the effects of spillover costs and benefits. 12. Explain what is meant by a public good and why government must provide these goods and services. 13. Explain the methods government can use to reduce unemployment and inflation. 14. Recognize the circular flow model with the addition of the government sector. 15. Differentiate between government purchases and transfer payments and the relative importance of each. 16. Identify the major categories of federal spending and the major sources of federal revenue. 17. Differentiate between marginal and average tax rates. 18. Identify the major categories of spending for state and local governments and the major sources of revenue for each. 19. Define and identify terms and concepts listed at the end of the chapter. LECTURE NOTES I. Goals of Chapter A. To describe household and business components of the private sector economy. B. To describe the public (or government) sector in the U.S. economy. II. Households as Income Receivers 54
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The Mixed Economy: Private and Public Sectors A. Functional distribution of income is shown in Figure 5-1. Page 78 (This figure is based on NI—National Income.) 1. Wages and salaries are over 70 percent of total. (Were do these wages and salaries come from?) 2. Proprietors’ income (income to self-employed business owners, doctors, lawyers, etc.) is under 10 percent of total. (This is a combination of wage and profit income.) 3. Capitalist income—corporation profits, rent, interest—is less than one-fifth of total. (Note: rent is negative because of the depreciation charged against rental income.) B. Personal distribution of income is shown in Figure 5-2 . Page 78 (This figure is based on PI—Personal Income.) 1. It is often described by dividing the population into quintiles or five numerically equal parts. 2.
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This note was uploaded on 07/09/2008 for the course ECON 102 taught by Professor Hewit during the Summer '07 term at Philadelphia Biblical.

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chap05lecture notes - CHAPTER FIVE THE MIXED ECONOMY...

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