Economics 101Chapter16

Economics 101Chapter16 - 1 Objectives for Chapter 16:...

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Objectives for Chapter 16: Government Spending At the end of Chapter 16, you will be able to answer the following: 1. What is the largest purchase and what is the largest transfer in the federal budget? What is the difference between a purchase and a transfer? 2. How has the composition of the federal budget changed over time ? 3. What is the trend of federal purchases as a percent of GDP, transfers as a percent of GDP, and state/local purchases as a percent of GDP over time? 4. What is the difference between discretionary spending and mandatory spending . 5. What is the OMB ? What is the CBO ? 6. What is a "balanced budget"? a "budget deficit"? a "budget surplus" ? (Review) 7. What is the "fiscal year" ? 8. Briefly explain the budget process. What is a budget resolution ? What is an appropriations bill ? What is “pay as you go (PAYGO)” ? 9. How does government spending in the United States compare to other countries? In what areas do other governments spend that are not found in the United States? 10. What are the main areas of spending for state governments and for local governments ? 11. Explain the basic characteristics of the Social Security System . What problems is the Social Security System likely to face in the coming years? Why? What remedies have been proposed to solve these problems? 12. Explain the basic characteristics of the Medicare program. What problems is the Medicare system likely to face? 1
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Chapter 16: Government Spending (latest revision June 2008) 1. Introduction The purpose of this section of the course is to analyze Keynesian economics. Remember that, according to Keynes, if there were recessionary gaps and nothing is done about them, they would not disappear. In his view, government needs to use fiscal policy to eliminate recessionary gaps. Fiscal policy involves government spending and tax policy . The next four chapters will analyze fiscal policy. Chapter 16 examines the spending of the federal government. Chapter 17 examines American tax policy. And then Chapters 18 and 19 will analyze fiscal policy --- the effects of changes in government spending or in taxes on the American economy. For FY2008, the federal government plans to spend $2,931 billion. This represented 20.5% of the GDP. The government operates on a year different from the calendar year, called the fiscal year (FY) . The fiscal year of the federal government runs from October 1 to September 30 . So, between October 1, 2007 and September 30, 2008, the federal government of the United States spent $2,931 billion. There are two ways we can categorize this spending. One categorization is that government spending is either a purchase or a transfer. With a purchase, the federal government actually buys a product from a private business or person. With a transfer, the government takes incomes from one person and transfers it to another person . The government does not actually buy a product . In 2006, the largest purchase by the federal government was for defense. The federal government plans to spend $607.2 billion (20.7% of its budget) for
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Economics 101Chapter16 - 1 Objectives for Chapter 16:...

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