1. Unit 14 Please use this to complete your mastery assignments!Using this will ensure mastery!

2. The Budget

AFederal Budgetis a plan for government expenditures and revenues for a specified period, usually a year

Thebudgetis how the government decides to spend and raise money.

ABudget Resolutionis an agreement within congress abouttotals revenues and spending for the year.It sets targets for how much will be spent in various categories

3. The Budget Continued

A governmentsbudget deficitis when a government spends more than it collects.It isthe difference between what is spent and collected in taxes.

Debtis money that has been borrowed but has not been paid back.

Balanced Budget - When spending equals revenue, this is known as a balanced budget (Revenue=Spending)

4. Fiscal Policy

Fiscal policy deals with changes in government spending and taxation. Remember government expendituresandtaxes =fiscal policy

Fiscal policyis carried out by the legislative and executive branches .

The government collects taxes in order to finance expenditures on a number ofpublic goods and services for example, highways and national defense.

Appropriations Billsare money bills passed through Congress that authorize government spending.

5. # 1Government Expense

The main government expense isSocial Security.

Social Securitygives money to retired persons and the disabled.

Largest government expenditure due to the number of old people growing:retirement age 65.

This makes it difficult to cut the budget because the money is going to help the disadvantaged such as the elderly and the poor.

Another large expense if government healthcare in the form ofMedicare/Medicaid .Medicareis healthcare for the elderly .Medicaidis healthcare for the poor.These are guaranteed benefits for those who qualify under government transfer programs.

6. Other Top 3 Federal Expenditures

2. National Defense:Government has to pay for military bases, FBI, CIA, NSA, Secret Service, military salaries.

3. Income Security:Government subsidies to veterans, railroad, and coal workers.

4. Healthcare: Medicare/MedicaidHealthcare assistance to elderly and infants and low-income.

7. Revenue

Top 4 sources of government revenue

Individual income taxes and payroll taxesnow account for four out of every five federal revenue dollars . Payroll taxesare deducted from a worker's paycheck to fund Social Security and Medicare.

Corporate income taxescontribute another 12 percent.

Excise taxes

Estate and gift taxes

Intergovernmental revenueis money that one level of government receives from another level such as when states receive money from the federal government.

8. Taxes

Income taxesare taxes a person pays on the income he or she earns.Income taxes are graduated taxes meaning that the more you make, the more tax you pay.

Sales Taxesare taxes placed on purchases.States levy sales taxes.

Property taxesare taxes that people pay on the land and houses that they own.Property taxes are assessedon value of the property.Property Taxes are used to pay for government administration and expensesfor things such as police officers, firefighters, and paramedics.Property tax also helps pay for services including community programs, parks, civic centers, libraries and schools.School districts also receive a large portion of property taxes.

9. Types of Taxes Government Can Implement

• Progressive

• • Increase in proportion to income

• • People/Businesses with higher income pay not only higher taxes, but at a higher rate

• Regressive

• • Decrease in proportion to income

• • People/Businesses with higher income pay taxes at a decreased percentage

• • Ex. Sales Tax

• Proportional

• • Rate remains constant even if though the amount being taxed increases

• • Ex. Property Tax

10. The Business Cycle

Thebusiness cycleis the upward and downward movement of the economy (growth and decline of the economy)

11. Phases of the Business Cycle

Expansion

Anexpansionis an upturn of the economy that lasts at least two consecutive quarters of a year.

During an expansion, production and employment are up.

Peak

Apeakis the top of the business cycle.period of prosperity. During a peak, production and employment are at their highest.

Aboomis a very high peak, when things in the economy are at their absolute best.

12. The phases explained (cont.)

Contraction

The economy as a whole is in decline during aContraction .Production, employment and business activity starts to slow down and decline.

Acontractionis after the peak but before the trough.

Arecessionoccurs if a contraction is severe. Recessions tend to be shorter than expansions, with the average recession lasting about a year.

Trough

Atroughis the lowest point of the business cycle. (the bottom). It occurs when real GDP levels off and slowing begins to increase.

In atrough , the production and employment are at their lowest.

A deep trough is called a slump or a depression.A depression is a large recession and is the worst part of the business cycle for the economy.

13. Economic Indicators

Economic indicatorsare economic statistics that tell the government how well the economy is doing and how it will do in the future. (Measuring the Economy)

Examples:

unemployment rate

Real GDP

The inflation rate

14. Top Economic Indicators

Real GDP

M2 Money Supplymoney in circulation

CPI-Consumer Price Index (Inflation)

PPI-Producer Price Index

Consumer Confidence Survey

Unemployment

15. Unemployment

Unemploymentare those within the civilian labor force who arent working.

Civilian Labor Force- -all civilians 16 years old or older who are either working or looking for work.

The percentage of people in the civilian labor force who are not working but are looking for jobs make up theunemployment rate.

When people lose their jobs, they are personallyimpactedby unemployment.People are forced to cut back on luxuries as well as basic needs such as health care.

Government programs such asWorkforceprovide services for the unemployed such as job training.In exchange for benefits,Workforcerequires welfare recipients to exchange some of their labor to get benefits.

TheEqual Pay Act of 1963was passed by Congress to stop employers from discrimination by paying less income due to gender or race.

16. Inflation

Inflationis an increase in the general level of prices.

TheCPI (consumer price index)tracks inflation.

With theCPI,the government samples prices every month for about 400 products commonly used by consumers to keep track of inflation.

17. GDP

Gross Domestic Product (GDP)

• • A measure of the economys output.The dollar value of all final goods and services produced in a country in a year.

Real GDP

• • Shows an economys production after the distortions of price increases have been removed.

Balance of trade isthe difference between the value of a nation's exports and its imports.

18. Stocks and Bonds

Stocksrepresent shares of a company. These shares give part of the ownership of the company to you, the share-holder. Your stake in that company is defined by the amount of shares that you, the investor, own.

Bondsare loans to a company, corporation or the government.You purchase the bond and that institution gives you a receipt (bond) for your loan with a promise to repay you with interest over a period of time in the future.Bonds are bought and sold on the open market

19. Common Stock vs Preferred Stock

Common stockis ownership in a companystocks traded on the open market.

Those who own these stocks earn adividendfrom their share of the company profits.Some companies such as Microsoft don't pay dividends, and never have any intentions of doing so.

The obvious risk with common stock is that the price may fall and you risk losing what you have invested. A good thing about common stock is that you can not lose more than your initial investment.

Preferred Stocksold by companies and is then traded among investors on the secondary market. Preferred stock is less risky than common stock, therefore investors can expect less reward.

Like Bonds (which give interest payments to the owner), preferred stocks give regular dividends for a period of time.There is no hope for making big money (large capital gains) but these are also less risky than common

20. Mergers

AMergeris a combination of two or more companies into one.

Mergers threaten competition so the government tries to limit them.

Vertical Mergers(AKA Vertical Integration)This is whenfirms at different stages in the production chain merge (such as Oil companies)

Horizontal Mergers(AKA Horizontal Integration)-where competing firms in the same industry merge (Sprint merges with AT&T)

21. Monopoly

Monopoly- --when a market is controlled by a sole provider of a good or service andthere is no competition

Competitionis maintained by the government by controlling monopolies.

Congress has tried tocontrol monopolies and their powersby creating anti-trust laws.These laws are put in to ban monopolies and keep industries competitive.

Two examples of anti-trust laws:the Sherman Antitrust Act and the Clayton Act.

A type of monopoly that exist because there are high fixed costs in a particular industry is known as aNatural Monopoly .Because it is economically sensible to have certain natural monopolies, governments often regulate those in operation, ensuring that consumers get a fair deal.

Examples ofnatural monopoliesinclude the telephone companies, water companies, and gas companies.