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Government Policy
Ch 20, 21, &22
Taxing and Spending
Ch 20
Taxes as a Source of Revenue
Individual income taxes are the government’s
largest source of revenue.

The income tax is progressive, that is, it is based on
ability to pay.

April 15 each year is the deadline for filing income tax
returns.

The Internal Revenue Service (IRS) collects taxes
during the year through its regional centers.
Corporations, too, pay income taxes on income
they earn beyond their expenses and deductions.
Taxes as a Source of Revenue
Excise taxes are federal taxes on the manufacture,
transportation, sale, and consumption of goods
like gasoline, tires, oil, liquor, and cigarettes, and
the performance of services.
Customs duties are levied on goods imported into
the United States.
The federal government collects an estate tax on
the property and money above a set amount when
someone dies.
Borrowing for Revenue
In addition to collecting taxes, the federal
government borrows to raise money by
selling federal securities, such as bonds,
notes, and certificates, on which it
pays interest.
The accumulated moneys the government
borrows is the national debt.
Where the Money Goes
Most of the federal government’s annual $2
trillion in spending goes to direct benefits for
individuals, national defense, discretionary
spending, and interest on the national debt.
Spending for Social Security, social-welfare, and
health-care programs is one of the biggest items in
the federal budget.
Spending for defense has increased since 2000
after decreasing during the 1990s.
Federal grants to state and local governments help
to pay for public housing, road repairs, school
lunch programs, flood insurance, and other
services.
Fiscal and Monetary Policy
Beginning with the Great Depression of the 1930s,
the federal government’s role in managing the
nation’s economy has expanded.
The federal government influences the direction of
the nation’s economy by its fiscal policy, the
governments spending and taxing to influence the
economy.
The government also uses monetary policy, the
controlling of the money supply and credit, to
influence the direction of the economy.
The Federal Reserve System
The Federal Reserve System’s 12 Federal Reserve
Districts make up the central banking system of
the United States.
A seven-member Board of Governors, which
supervises the Fed, is appointed to four-year terms
by the president but is independent of both
Congress and the president.
The Board of Governors supervises the operations
of the Federal Reserve Banks and determines the
money and credit policies of the nation.
The Federal Reserve System
The Board of Governors controls monetary
policy through three ways:

1) fixes the discount rate

2) raises or lowers the reserve requirement

3) puts money into the economy through open
market operations.
Trade
Government promotes or discourages
trade by placing tariffs on imports.
The North American Free Trade
Agreement (NAFTA) – eliminated trade
restrictions between the US, Canada,
and Mexico.
The government also restricts some
imports through quotas, limits on the
number that can be imported.
Foreign Policy and
Defense
Ch 22
Goals of Foreign Policy
Foreign policy guides the nation’s relations with other
countries.
Principal goals of American foreign policy:
1) preserve the security of the United States;
2) maintain trade and preserve access to natural
resources;
3) work for world peace;
4) aid democratic nations and help create
democracies;
5) provide help for victims of natural disasters.
Development of Foreign
Policy
Isolationism – the idea that the United
States should stay out of international
entanglements.

The US practiced isolationism a great deal
in the past, in the years leading up to World
War I
Development of Foreign
Policy
After World War II the United States struggled with
the Soviet Union in the Cold War, leading to a costly
arms race between the two superpowers.
The United States adopted a policy known as
containment to keep Soviet communism from
expanding its power.
The United States fought two wars that were the
consequence of containment: the Korean War (1950–
1953) and the Vietnam War (1964–1973).
In 1989 the Soviet Union collapsed, splitting into
Russia and 14 other separate nations; this ended the
Cold War and changed the political environment of
the world.
Development of Foreign
Policy
In the years after the Cold War, the United
States sent troops to Iraq, Somalia, Haiti, and
the former Yugoslavia in order to protect
American trade interests, encourage
democracy, and advance human rights.
In the Persian Gulf War, the United States
defended Kuwait against Iraq, protected
American oil interests in the Middle East, and
began programs aimed at preventing Iraq
from developing weapons of mass
destruction.
Development of Foreign
Policy
The September 11, 2001, terrorist
attacks on the United States led to
President George W. Bush’s war on
terrorism and the preemptive invasion of
Iraq.
After the initial military deployment, the
United States kept a large number of
troops in Iraq and pledged long-term aid
toward the development of a stable
democratic government there.
The Department of
The secretary of State
state, head of the
Department of State, advises the president on
foreign policy.
The Department of State has four main duties:
1) to keep the president informed about
international issues,
2) to maintain diplomatic relations with
foreign governments,
3) to negotiate treaties, and
4) to protect the interests of U.S. citizens
abroad.
The United States maintains embassies in the
capitals of136 foreign countries where U.S.
ambassadors and their staffs reside.
The Department of
Defense
The Department of Defense (DOD)
supervises the armed forces of the
United States and ensures that those
forces are strong enough to defend its
interests.
The Department of Defense is the
largest executive department, with more
than 700,000 civilian employees and
about 1 million military personnel.
Economic Sanctions
The United States sometimes denies
benefits to nations that follow policies
it dislikes. Sanctions include withholding
loans, arms, or economic aid, or
embargos.
Most Favored Nations
Most Favored Nation Status – a status
given to nations that allows them
special trading privileges with the United
States.