23MeierPP04_18e - Chapter 4 Chapter The U.S. Economy:...

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Unformatted text preview: Chapter 4 Chapter The U.S. Economy: Private and Public Sectors PRIVATE SECTOR PRIVATE HOUSEHOLDS BUSINESSES PUBLIC SECTOR GOVERNMENT: GOVERNMENT: FEDERAL, STATE, LOCAL FEDERAL, FUNCTIONAL DISTRIBUTION FUNCTIONAL WAGES INTEREST INTEREST RENT PROFIT/LOSS PERSONAL DISTRIBUTION SHOWS ALLOCATION OF SHOWS INCOME AMONG INDIVIDUAL HOUSEHOLDS (RICH to POOR) HOUSEHOLDS FUNCTIONAL DISTRIBUTION WAGES $7,874 Billion WAGES $7,874 CORPORATE 1,595 Billion PROFITS PROPRIETOR’S 1043 Billion INCOME INTEREST 603 Billion RENTS 65 Billion 2007 DATA 71% 71% 14% 9% 5% 1% PERSONAL DISTRIBUTION Personal Income Received (Percent) Personal 3.4% Lowest 20% Income Group 8.6% Second 20% Income Group 14.5% Middle 20% Income Group Fourth 20% Income Group Highest 20% Income Group 2006 DATA 23.9% 50.5% HOUSEHOLD INCOME WHERE DOES OUR INCOME GO? Personal Savings taxes Consumption 1% 13% 86% 2007 DATA HOUSEHOLDS AS SPENDERS Spending on consumer goods Durable goods Non-durable goods Services 11% 29% 60% THE BUSINESS SECTOR Terminology.... 1.- FIRM The business organization: Sole proprietorship Partnership Corporation THE BUSINESS SECTOR Terminology.... 2.- PLANT The site where the product is The produced/offered for sale: produced/offered Factory Store Terminology.... 3.- INDUSTRY A group of firms selling like group products. Examples: products. Automobile industry Textile industry Fast food industry FIRMS… FIRMS… May have horizontal or vertical combinations of plants THE BUSINESS SECTOR Vertical Vertical Combinations Combinations Up the Up Production process Vertical Vertical Combinations Combinations Wheat Wheat Flour mill Bakery Bread store Horizontal Combinations At same At level of production Horizontal Combinations Just wheat Just Just flour mills Just bakeries Just bread stores Types: percentage of total Sole Proprietorships Partnerships Corporations 72% 8% 20% THE BUSINESS SECTOR Types: percentage of sales Sole Proprietorships Partnerships Corporations 5% 11% 84% BUSINESS ENTERPRISES Sole Proprietorship Sole Advantages... •Easy to Organize •Proprietor is Own “Boss” Disadvantages... •Limited Resources •No Help With Decision Making •Unlimited Liability BUSINESS ENTERPRISES Partnership Advantages... •Also Easy to Organize •More Management Skills •Greater Resources Available Disadvantages... •Difficulty Making Decisions •Possibly Limited Financial Resources •Unlimited Liability BUSINESS ENTERPRISES Corporation Advantages... •Raising Capital - Stocks, Bonds Raising •Limited Liability •Easy Expansion of Size & Scope Disadvantages... •Regulations & Legal Expenses •Double Taxation •Separation of Ownership & Control LEGAL LEGAL AND SOCIAL FRAMEWORK MAINTAINING MAINTAINING COMPETITION REDISTRIBUTION REDISTRIBUTION OF INCOME.... Transfer Payments Market Intervention Personal Income Tax REALLOCATION OF RESOURCES.... REALLOCATION Spillovers or Externalities Spillover costs: Overallocation of resources REALLOCATION OF RESOURCES.... REALLOCATION Correcting spillover costs •Legislation •Specific Taxes REALLOCATION OF RESOURCES.... REALLOCATION Spillovers / Externalities Spillover benefits: Underallocation of resources REALLOCATION OF RESOURCES.... REALLOCATION Correcting for spillover benefits.... • Increase demand • Increase supply • Government provision ECONOMIC FUNCTIONS OF GOVERNMENT STABILIZATION.... STABILIZATION.... •Unemployment •Inflation THE CIRCULAR FLOW REVISITED $ COSTS RESOURCE MARKET RESOURCES INPUTS $ INCOMES BUSINESSES GOVERNMENT HOUSEHOLDS GOODS & SERVICES PRODUCT MARKET $ REVENUE GOODS & SERVICES $ CONSUMPTION GOVERNMENT GROWTH GOVERNMENT Purchases & Transfers... •Government Purchases •Transfer Payments THE FEDERAL BUDGET Federal Expenditures Income Security Health National Defense Interest on Public Debt All Other 34% 24% 21% 9% 12% THE FEDERAL BUDGET Federal Receipts Personal Income Tax Payroll Taxes Corporate Income Tax Excise Taxes All Other 45% 34% 14% 3% 4% STATE FINANCE Major Expenditure Category Major Education Major Tax Receipts Sales and excise taxes 47% 36% LOCAL FINANCE Major Expenditure Category Major Education Major Tax Receipts Property taxes 72% 44% TYPES OF TAXES Progressive Regressive Proportional Average Tax Rate: Tax / Taxable Income Marginal Tax Rate: ∆ Tax / ∆ Taxable Income DEFINITIONS Progressive: rates increase when income increases Regressive: rates decrease when income increases Proportional: rates stay the same as income increases DEFINITIONS Progressive: rates decrease when income decreases Regressive: rates increase when income decreases Proportional: rates stay the same as income decreases EXAMPLES Progressive: personal income taxes Regressive: sales taxes, payroll taxes Proportional: corporate income taxes CALCULATIONS Average tax rate: if taxable income is $20,000 and tax is $2,000, then the average tax rate is 10% Marginal tax rate: if taxable income increases to $25,000 and tax increases to $3,000, then the marginal tax rate is 20% ...
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This note was uploaded on 02/22/2011 for the course ECON 2023 taught by Professor Meier during the Spring '11 term at St. Petersburg College.

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