taxes, deficit spending, and the government
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Taxes, Deficit Spending, Taxes, Deficit Spending, and the Government and the Government
Federal Tax System Federal Tax System
Payroll withholding system- Payroll withholding system- automatic deductions from wages automatic deductions from wages into the tax systeminto the tax system Ensures that individuals (who are Ensures that individuals (who are
working legally) pay their taxes working legally) pay their taxes File returns to adjust the withheld File returns to adjust the withheld
amount (up or down)amount (up or down)
If taxable If taxable income is income is overover
But not overBut not over The tax is:The tax is:
$0$0 $7,550$7,550 10% of the 10% of the amount over amount over 00
$7,550$7,550 $30,650$30,650 $755 plus $755 plus 15% of the 15% of the amount over amount over $7,550$7,550
$30,650$30,650 $74,200$74,200 $4,220 plus $4,220 plus 25% of the 25% of the amount over amount over 30,65030,650
Government SpendingGovernment Spending Allocation of resourcesAllocation of resources
Who gets whatWho gets what Who are the winners and who are the Who are the winners and who are the
losers?losers? Distribution of Income Distribution of Income
How money is spread out among the peopleHow money is spread out among the people Redistribution programs Redistribution programs
Competition with Private SectorCompetition with Private Sector Produce goods or services that compete Produce goods or services that compete
with private companies (US Postal Services with private companies (US Postal Services vs. Fed Ex)vs. Fed Ex)
Deficit Spending Deficit Spending
Government Spends more than it Government Spends more than it takes in takes in Who do we owe the public debt to?Who do we owe the public debt to?
OURSELVES OURSELVES New bonds used to retire old bonds New bonds used to retire old bonds
Private debt is owed to others Private debt is owed to others Paying back a loan decreases your Paying back a loan decreases your
purchasing power purchasing power
Deficit Spending and Income Deficit Spending and Income DistributionDistribution
Nation borrows from the rich Nation borrows from the rich Needs to pay interest Needs to pay interest Raises taxes Raises taxes
Middle class and poorMiddle class and poor Redistributes money to the rich in the Redistributes money to the rich in the
form of interest payments form of interest payments
Economic Instability Economic Instability
What is economic instability?What is economic instability?
What could cause this to occur?What could cause this to occur?
Activity: Read pgs 418-421 Activity: Read pgs 418-421 and answer the following and answer the following
questionsquestions Define: Stagflation, GDP Gap, Misery Define: Stagflation, GDP Gap, Misery
IndexIndex What are the social costs of What are the social costs of
economic instability?economic instability?
Economic Instability Economic Instability
Stagflation- period of stagnant growth and Stagflation- period of stagnant growth and inflation inflation
GDP Gap- difference between the actual GDP Gap- difference between the actual GDP and the potential GDP GDP and the potential GDP Draw the PPF that would symbolize a GDP GapDraw the PPF that would symbolize a GDP Gap
Misery Index/ Discomfort index- Inflation+ Misery Index/ Discomfort index- Inflation+ unemployment rate (currently 8%)unemployment rate (currently 8%)
www.miseryindex.uswww.miseryindex.us
Social Costs of Economic Social Costs of Economic Instability Instability
Wasted Resources Wasted Resources Unemployment Unemployment
Political instability Political instability Throw the rascals out!Throw the rascals out!
Crime and Family Values Crime and Family Values
How do we measure the How do we measure the Economy of a nation?Economy of a nation?
How do we measure a product or an How do we measure a product or an industry?industry? Supply and demand!Supply and demand!
Very Large supply and demand curve Very Large supply and demand curve for the entire country for the entire country
Measuring the EconomyMeasuring the Economy
Aggregate Supply curve- real level of Aggregate Supply curve- real level of GDP that could be produced at GDP that could be produced at various price levels various price levels
The flat area represents the unused resources that would occur at those price levels. When prices are low, less people are willing to produce. This is called the LAW OF SUPPLY
Aggregate SupplyAggregate Supply
Read Increase in Aggregate Supply Read Increase in Aggregate Supply and Decrease in Aggregate Supply and Decrease in Aggregate Supply on pgs 422 and 423. Identify what on pgs 422 and 423. Identify what would cause a change in each would cause a change in each direction, and list at least 3 direction, and list at least 3 examples.examples.
Increase in SupplyIncrease in Supply
Shift to the Right Shift to the Right Cost decreases for all firms Cost decreases for all firms Discovery of less expensive natural Discovery of less expensive natural
resources resources Lower prices for oilLower prices for oil New technologiesNew technologies More immigrants (labor costs decline)More immigrants (labor costs decline) Lower taxes Lower taxes
Decrease in Supply Decrease in Supply
Shift to the LeftShift to the Left Higer prices of inputsHiger prices of inputs Higher INTEREST RATES (why?)Higher INTEREST RATES (why?) TaxesTaxes
Aggregate DemandAggregate Demand
Aggregate Demand Curve- quantity Aggregate Demand Curve- quantity of real GDP that would be purchased of real GDP that would be purchased at each possible price level in the at each possible price level in the economyeconomy
Aggregate demand= C+I+G Aggregate demand= C+I+G Why does the demand curve slope down and to the right?
Read pg 424 to find out!
Aggregate DemandAggregate Demand
Slopes downward to the right Slopes downward to the right because because Only one money supply exists at any Only one money supply exists at any
given timegiven time Purchasing power of this money supply Purchasing power of this money supply
is fixed in the short run is fixed in the short run Curve shows the purchasing power of Curve shows the purchasing power of
the supply at each price level the supply at each price level
Aggregate DemandAggregate Demand
Read Increase in Aggregate Demand Read Increase in Aggregate Demand and Decrease in Aggregate Demand and Decrease in Aggregate Demand on pgs 424 and 425. Identify what on pgs 424 and 425. Identify what would cause a change in each would cause a change in each direction, and list at least 3 direction, and list at least 3 examples.examples.
Increase in DemandIncrease in Demand
Shift to the right Shift to the right Change in the amount of money Change in the amount of money
people savepeople save The more they save the less they spend The more they save the less they spend
Economic forecastsEconomic forecasts Increase in transfer paymentsIncrease in transfer payments Reduction in taxes Reduction in taxes
Decrease in DemandDecrease in Demand
Shift to the left Shift to the left Increased savings Increased savings Forecasts negative Forecasts negative Increased taxes Increased taxes Decreased transfer payments Decreased transfer payments
EquilibriumEquilibrium
Draw and correctly label an Draw and correctly label an aggregate equilibrium. aggregate equilibrium.
What does this equilibrium point tell What does this equilibrium point tell you?you?
Aggregate EquilibriumAggregate Equilibrium
Demand-Side Policies Demand-Side Policies
Increase or decrease total demand in Increase or decrease total demand in the economy by shifting the the economy by shifting the aggregate demand aggregate demand
Fiscal PolicyFiscal Policy The use of government spending and The use of government spending and
taxing to influence economic activities taxing to influence economic activities
Keynesian Economics Keynesian Economics
A set of actions designed to lower A set of actions designed to lower unemployment by stimulating aggregate unemployment by stimulating aggregate demanddemand
GDP=C+I+G+FGDP=C+I+G+F Can ignore the Foreign sector because net Can ignore the Foreign sector because net
impact is so small impact is so small Government usually stable Government usually stable Consumption can be determined using the Consumption can be determined using the
consumption function consumption function It’s the INVESTMENT sector that is to blame!It’s the INVESTMENT sector that is to blame!
Keynesian Economics Keynesian Economics
Investment sector unstable Investment sector unstable MultiplierMultiplier
The investment sector also effected the The investment sector also effected the other sectors on a larger magnitude other sectors on a larger magnitude than the original decrease than the original decrease
Accelerator Accelerator Speeds up the trend in the Investment Speeds up the trend in the Investment
sectorsector
Keynesian EconomicsKeynesian Economics
Government must use Fiscal Policy to Government must use Fiscal Policy to keep the changes in the Investment keep the changes in the Investment Sector from effecting the overall Sector from effecting the overall economyeconomy Taxes - indirectTaxes - indirect Spending - directSpending - direct
Supply-Side EconomicsSupply-Side Economics
Read pgs 431-433Read pgs 431-433 Identify the major assumptions of supply Identify the major assumptions of supply
sideside What are the limitations on supply side What are the limitations on supply side
economics economics How does supply side economics differ from How does supply side economics differ from
Demand side?Demand side? Who is responsible for the adjusting of the Who is responsible for the adjusting of the
economy in supply side?economy in supply side?
Review QuestionsReview Questions
1.1. What is aggregate supply?What is aggregate supply?
2.2. What is aggregate demand?What is aggregate demand?
3.3. What is the sector to blame for all What is the sector to blame for all disturbances in Keynesian economics?disturbances in Keynesian economics?
4.4. What tools are available to the What tools are available to the government to offset these disturbances?government to offset these disturbances?
5.5. What two effects does the government try What two effects does the government try to stop or slow?to stop or slow?
Supply Side AssumptionsSupply Side Assumptions
Multiplier and Accelerator effect Multiplier and Accelerator effect Government has the duty and ability Government has the duty and ability
to check unemployment and inflation to check unemployment and inflation Government needs to deregulate to Government needs to deregulate to
make production easier make production easier Higher Taxes produce lower returns Higher Taxes produce lower returns
for the government for the government
Limitations to Supply-Side Limitations to Supply-Side Economics Economics
Belief that the market should take a Belief that the market should take a larger role larger role Hands off as much as possible Hands off as much as possible Less direct roleLess direct role Use incentives to get production up Use incentives to get production up
Lack of experience and hard data to Lack of experience and hard data to understand and implement understand and implement
Differences Differences
Smaller role of government Smaller role of government Laffer Curve Laffer Curve
Higher taxes take away incentive to Higher taxes take away incentive to work harderwork harder
Considered invalid today Considered invalid today
Who is responsible ?Who is responsible ?
The government (same as demand The government (same as demand side) side) Different tactics to accomplish the same Different tactics to accomplish the same
goals goals