Module4Lecture3Notes

# Module4Lecture3Notes - UGBA 10 Module 4 Lecture 3 Notes 3...

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UGBA 10 Module 4 Lecture 3 Notes 3/ 23 Accounting and Finance Parable Assume that you mom gave you \$1,000 for next semester's tuition, because she didn't want it hanging around the house and wanted you to keep it safe. You put it in a tin box in your dorm room. Version 1: Your roommate is going to Cancun, which is a prepaid Spring Break trip but he wants extra cash on him for entertainment purposes. He asks you for \$500. You agree, and make him sign an IOU. In Cancun, he dies of an accident. His parents come back to his dorm room to collect his belongings. You tell them he owes you \$500. Because they are nice people, they pay you off. Version2: You are the one going to Cancun for Spring Break. You write yourself an IOU for \$500, and leave. When you come back, you have spent all of the \$1,000 meant for tuition. Your mom calls The treasury bill is like the IOU in the Tin Box Statistics Taxes in the U.S. are not high In the U.S., taxes in terms of GDP is 25.6% Compare with Sweden, which is 50.6% Half of U.S. government funds come from income taxes , and 34% come from payroll taxes Remember, the government is overspending by \$2 billion a day Federal Budget Deficit Rough Graph based on the one he showed in class: We're spending more, but we have less Federal Government Graph as % GDP NOW CLINTON REAGAN Year Debt in billions of dollars 0

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How bad is overspending? EU has a 3% limit UK has 6%, US has 16% "Federal Income" includes Social Security "Surplus" We're way ahead in the amount of Social Security Taxes we Collect Social Security Trust Fund is the Tin Box in Desk A. Graph on PowerPoint Where the Surplus Goes “FICA” Taxes are used to pay grandma and add to the surplus This money is used to buy treasury bonds This is good Problem: government spends the money this year When we retire, there is an IOU in the box. How are treasury bonds being paid back?
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• Spring '08
• XuanmingSu
• Federal Insurance Contributions Act tax, Cancun, tin box

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