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What should be the role of government in our economy?

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. Monetary Policy

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What should be the role of government in our economy?

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  1. What should be the role of government in our economy? • Discuss this with a partner. • Come up with 3 things

  2. Basic goals of an economy • Full employment • Low inflation (price stability) • Economic growth

  3. There are 2 basic ways for the government to affect the economy • Monetary Policy This is the Federal Reserve controlling the supply of money. 2. Fiscal Policy This is the GOVERNMENTactions of TAXING and SPENDING.

  4. 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?”

  5. Keynes’ Radical Idea: Govs. should reduce taxes and/or increase gov. spending during recessions to stimulate the economy. Market for all goods and services in an economy Aggregate Supply = All goods in the economy Prices/ Income During recessions, demand for goods decreases and GDP contracts Aggregate Demand= All demand (C+G+I+X) Quantity (Real GDP)

  6. 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)

  7. I’m glad you asked! In times of economic expansion, government should DECREASE Spending and INCREASE Taxes! Wait a second…do you think a government exists that would decrease spending during the good times? Alright, fine, but when does that money get paid back? No free lunch, right?

  8. Massive Gov. spending to fund WWII

  9. 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.

  10. "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 Jean-Baptiste Le Roy (November 13, 1789).

  11. "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).

  12. How do we tax? There are 3 tax structures, which one do we use? • FlatTax-everyone pays the same percentage of income • Progressive-people with higher incomes pay a higher percentage of their income • Regressive-people with lower incomes pay a higher percentage of their income US- Progressive

  13. Our Progressive Tax Brackets for 2013

  14. 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?

  15. 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

  16. 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

  17. Where does it go? http://www.usgovernmentspending.com/welfare_budget_2010_4.html#usgs302

  18. Debt vs. DeficitWhat 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

  19. History of the debt? Total Debt = $ 16.5 Trillion US GDP = $ 15.6 Trillion Current Total Debt = 107% of GDP SourceU.S. Federal Reserve

  20. Who racks up more debt? Democrats or Republicans?

  21. US Total Debt compared to other countries

  22. 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.

  23. Tomorrow you get your chance to balance the federal budget! Meet in the computer lab.

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