The U.S. Economy: Private and Public Sectors

1. The U.S. Economy: Private and Public Sectors Chapter 4

2. Chapter 4 Overview Important facts about the U.S. households and U.S. businesses Why do corporations dominant American business? Principal-agent problem? The economic functions of our government How the various types of government in the U.S. receive income and spend income

3. 4.1 Households as Income Receivers Approx. 111 million households in the U.S. Revisit your circular flow diagram to see the significance of the �household� Remember �households� represent the 4 factors of production and also the major category of consumers in our market

4. 4.1 Households as Income Receivers Functional Distribution of Income See Figure 4.1 for the proportions of income earned by the various factors of production Which factor gets the biggest share? Why? Which factor gets the smallest? Why? Personal Distribution of Income See Figure 4.2 Why is income not equally divided among the income earners?

7. 4.2 Households as Spenders See Figure 4.3 How do households spend their income? What portion goes to consumption? What portion of income goes to taxes? Why is savings negative? See Figure 4.4 What are durable, nondurable goods, services?

10. 4.3 The Business Population Revisit your Circular Flow Chart Businesses come in different definitions, what is a plant, a firm, an industry? What is a horizontally organized firm? What is a vertically organized firm? What is a conglomerate?

11. 4.4 Legal Forms of Business See Figure 4.5 Define sole proprietorship Advantages and Disadvantages Define partnership Advantages and Disadvantages Define corporation Advantages and Disadvantages

13. 4.4 Legal Forms of Business Under a corporation what is a stock and what is bond? What does the concept �limited liability� refer to and why is it important? How does the �Principal-Agent� problem apply seemingly more to corporations than to sole proprietorships and/or partnerships? What are �Business Ethics�? Do you have them?

14. 4.5 Public Sector: Government�s Role Revisit your Circular Flow Chart Referring to the Public Sector includes: local, state and federal government activities (expenditures and finances)

15. 4.5 Public Sector: Government�s Role The Economic Functions of Government are: Providing the Legal Structure Maintaining Competition Redistributing Income Reallocating Resources (externalities +/-) Promoting Stability Should government�s role be expanded?

16. 4.6 Government Finance What does government buy? Spend on? See Figures 4.7 & 4.8

18. 4.7 Federal Finance Federal Expenditures include 4 main areas: Pensions & income security National defense Health Interest on the public debt Check out the latest figures on these amounts: www.federalbudget.com and www.whitehouse.gov/omb/budget and www.treasurydirect.gov

19. 4.7 Federal Finance Federal Tax Revenues What are the primary sources of the federal tax revenues? What are the 3 major types of taxing? How is marginal tax rate different from average tax rate?

20. 4.8 State and Local Finances What are the major forms of state revenues? What are the major expenditures for state government? What are the major forms of local revenues? What are the major expenditures for local government?

21. Chapter 4 Review What are the important facts about the U.S. households and U.S. businesses Why do corporations dominant American business? What is Principal-agent problem? How important is it to our corporations? Describe the economic functions of our government How do the various types of government in the U.S. receive income and spend income?