Download Do we spend more than we take in?

What should be the role of
government in our economy?
• Discuss this with a partner.
• Come up with 3 things
Basic goals of an economy
• Full employment
• Low inflation (price stability)
• Economic growth
There are 2 basic ways for the
government to affect the economy
1. Monetary Policy
This is the Federal Reserve
controlling the supply of money.
2. Fiscal Policy
This is the GOVERNMENT actions of
TAXING and
SPENDING.
How Can Fiscal Policy Influence the
Economy?
Meet John Maynard Keynes
(1883-1964)
When the facts change, I change my
mind – what do you do, sir?”
Keynes’ Radical Idea:
Govs. should reduce taxes and/or increase gov. spending
during recessions to stimulate the economy.
Prices/
Income
Market for all goods and services in an economy
Aggregate Supply
= All goods in the
economy
During recessions, demand for
goods decreases and GDP
contracts
Aggregate Demand= All
demand (C+G+I+X)
Quantity (Real GDP)
To compensate for decreased Business Investment and
Consumer Spending…
the Government should increase demand in one of two ways…
Decrease Taxes (encouraging private spending) or Increase
government spending even if they must borrow the money.
Prices/
Income
AS
Notice what happens to real
GDP and Prices/Income
P
AD = (C+G+I+X)
Q
Quantity (Real GDP)
I’m glad you asked!
In times of economic
expansion,
government should
DECREASE Spending
and INCREASE Taxes!
Wait a second…do
Alright,
you
think fine,
a
but whenexists
does
government
that would
money get
that
paid back?
No
decrease
spending
duringfree
thelunch,
good
right?
times?
Massive Gov. spending
to fund WWII
And Taxes… what about TAXES ?
• 16th amendment passed in 1913.
• Prior to that our government had a surplus and
most people paid little to no taxes.
"In this world nothing can be said to be
certain but death and taxes."
--Benjamin Franklin (1706-1790), U.S.
statesman and scientist. Letter to JeanBaptiste Le Roy (November 13, 1789).
"There is no art which one government
sooner learns of another than that of
draining money from the pockets of the
people."
--Adam Smith (1723-1790), British
philosopher and economist. Wealth of
Nations (1776).
How do we tax?
There are 3 tax structures, which one
do we use?
1. Flat Tax-everyone pays the same
percentage of income
2. Progressive-people with higher
incomes pay a higher percentage
of their income
3. Regressive-people with lower
incomes pay a higher percentage
of their income
US- Progressive
Our Progressive Tax Brackets for 2013
Single
If taxable
income
is
over
But not over
$0
$8,925 -10%
$8,925
$36,250 -15%
$36,251
$87,850 -25%
$87,851
$183,250 -28%
$183,251
$398,350 -33%
$398,351
$400,000-35%
$401,000
no limit – 39.6
Married
If taxable
income is
over
But not over
$0
$17,850 -10%
$17,851
$72,500 -15%
$72,501
$146,400 -25%
$146,401
$223,050 -28%
$223,051
$398,350 -33%
$398,351
$ 450,000-35%
$450,001
no limit –39.6%
So, the money comes from the people’s
income taxes. Who pays the most?
• Do the rich pay their “fair share?”
• Does the middle class pay their share?
WHAT THE TOP 1%, 5%, 10%,
25% and 50% MAKE IN
AMERICA
Based on the Internal Revenue Service’s
2010 database below, here’s how much
the top Americans make:
Top 1%: $380,354
Top 5%: $159,619
Top 10%: $113,799
Top 25%: $67,280
Top 50%: >$33,048
For 2013…Total Tax Receipts
expected to be $ 2.8 Trillion
Do we spend more than we take in?
Total 2013 spending was$ 3.5 Trillion
That leaves a projected Budget
DEFICIT of …
$ 700 Billion or 4.5% of GDP
Where does it go?
http://www.usgovernmentspending.com/welfare_budget_201
0_4.html#usgs302
Debt vs. Deficit
•
•
•
•
•
What is the difference?
Deficit is the overspending of the government on
an annual basis. If we spend more than we take
in, we are creating a deficit
Debt is accumulated overspending
If we run a deficit for more than one year, the
total of the money we are overspending creates
a DEBT
For 2013 our deficit was $700 billion
Right now our debt is about $15.6 trillion
History of the debt?
Total Debt = $ 16.5 Trillion
US GDP = $ 15.6 Trillion
Source
U.S. Federal Reserve
Current
Total Debt
= 107% of
GDP
Who racks up more debt? Democrats or Republicans?
US Total Debt compared to other countries
•If we wanted to pay down a billion dollars of the US
debt, paying one dollar a second, it would take 31
years, 259 days, 1 hour, 46 minutes, and 40 seconds.
To pay off a trillion dollars of debt, at a dollar a
second, would take about 32,000 years.
•About a billion minutes ago, the Roman Empire was
in full swing. (One billion minutes is about 1,900
years.)
•How ‘bout a TRILLION?
•A million seconds is 12 days.
A billion seconds is 31 years.
A trillion seconds is 31,688 years.
Tomorrow you get your chance to
balance the federal budget!
Meet in the computer lab.