Lecture27_Econ100B (1) - ECONOMICS 100B Professor Steven...

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ECONOMICS 100B Professor Steven Wood 04/26/11 Lecture 27 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Problem Set #6 is due in class this Thursday, April 28 th . LECTURE Today’s lecture focuses on Fiscal Policy and the Government Budget. GOVERNMENT BUDGET The government budget consists of outlays (government spending) and receipts (tax revenues). Major components of government spending include: 1.) Government purchases, G, which consist of: 1.) Government consumption, G C 2.) Government investment, G I 2.) Transfer payments, TRANSFERS: this includes Social security, Medicare, and Medicaid. 3.) Grants-in-aid to state and local governments: this is spending by the federal government essentially in the form of transfer payments to state and local governments. 4.) Net Interest Payments, INTEREST: this is the interest on national debt and includes payments to people who lent money to the government. Major components of receipts (TAXES) include: 1.) Personal taxes: wages and salaries. 2.) Contributions for social insurance: this includes contributions to social security made by both employers and employees. 3.) Taxes on production and imports, 4.) Corporate taxes: taxes on business profits, and 5.) Grants-in-aid to state and local governments: these grants count as receipts for state and local governments, but as expenditures for federal government. Therefore, the net effect of grants- in-aid is zero. Diagram of the Government Budget: As the above diagram illustrates, less than 30% of total government spending is used for purchases of goods and services, while about 50% is used for
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ECONOMICS 100B ASUC Lecture Notes Online: Approved by the UC Board of Regents 04/26/11 D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. 2 transfer payments. The biggest category of government purchases is defense spending. Diagram of Final Government Consumption Expenditures for Various Countries: The above diagram indicates that the U.S. is 25 th on the list. Thus, in terms of government spending as a share of GDP, the U.S. is in the middle to lower half of the national rankings. GOVERNMENT DEFICIT The government budget deficit is given by: Deficit = outlays – receipts, so Deficit = (G + TRANSFERS + INTEREST) – TAXES Since we are looking at the deficit in terms of spending minus taxes, if spending exceeds taxes, the deficit comes out as a positive number. Government outlays must be financed by:
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Lecture27_Econ100B (1) - ECONOMICS 100B Professor Steven...

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