Unit 3Macroeconomics: Institutions

Ch 8 – Employment, Labor, and Wages

Ch 9 – Sources of Gov.’t Revenue

Ch 10 – Gov.’t Spending

Ch 11 – Money and Banking

Ch 12 – Financial Markets SKIP

• Macroeconomics • The area of economics that deals w/ the ________ as a whole, including inflation, _____________, economic growth, gross domestic product, + the distribution of _________.

• Macro = _______

Ch 8 – Employment, Labor, and Wages

• Labor • The civilian labor force – includes men + women _____ + older who are either working or ______________ for a job.

• It excludes members of the ____________, the prison population, other ______________ people or those who are not _______ employment.

• Unions • Associations of _______ formed to bargain for better working conditions + _____________.

• Approximately ____% of American labor is represented by unions.

• Unions tend to be concentrated in ____________ areas + increasingly in among gov.’t workers.

• Have ___________________________ (negotiations b/w workers + employers).

• If an agreement cannot be reached, workers may go on strike (refusing to ______). Striking workers may picket (protest ___________ the employer’s business). As a final result, striking workers may organize a boycott (a mass refusal to _____________ from their employers).

End Section 1

• Collective ___________

• Occurs when representatives from both _________ + ___________ meet. Labor is represented by a group of __________ union officials.

• Requires __________ from both sides. If a compromise cannot be reached b/w the 2 sides, other methods of negotiation are available:

• Mediation – involves bringing in a ____________ ____ whose job it is to find a solution acceptable to both sides. The mediator’s solution is ______ _________.

• Arbitration – involves bringing in a ___________ whose decision is ___________.

• Fact-finding – involves bringing in a neutral 3rd party to __________ about a dispute + present a solution which is ______________.

• Beneficial if both sides have presented _______ _______ or if one side doesn’t trust the other.

• Injunction (_____________ not to act) or seizure (temporary gov.’t ___________).

• ____________________ – may involve a simple public appeal or firing federal workers.

End Section 2

• Categories of _______

• Unskilled labor – people who work primarily w/ their hands b/c they _________ + skills required for other tasks.

• Basically anyone, regardless of ___________, could walk in off the street + easily take over their jobs.

• Usually earn the _________________.• Ex: Fruit pickers

• Semiskilled labor – workers w/ enough mechanical abilities/skills to _________________ that require a _____________ of training.

• Ex: Lawnmowers• Skilled labor – workers who are able to operate

_______________ + can perform their tasks w/ little _____________.

• Ex: Carpenters• Professional labor – workers w/ the ___________ of

knowledge-based education + managerial skills.• Usually earn the ________________.• Doctors

• ______ determination • The traditional theory of wage determination states that _______ + ________ for a worker’s skills/services determine their wages.

• High demand + low supply = ______ wages• Low demand + high supply = ______ wages

• The equilibrium wage rate is the wage rate that leaves neither a ______ nor _________ in the labor market.

• The theory of negotiated wages states that organized labor’s ____________________ is a factor that helps determine wages.

• Seniority is the ______________ a person has been on the job + in some jobs, the more seniority a person has the _________ his/her wages are.

• The signaling theory states that employers are willing to pay more for people w/ certificates, diplomas, ________, + other “signals” of ____________________.

• The ability of a _________ to attract labor also determines wages at the _______________.

End Section 3

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QD1

S1

• _______ in labor

• For every _____ a man makes, a woman averages about ___ cents. This is known as the gender wage gap.

• Over _____ of the gap is due to the differences in skills + ___________.

• Ex: Many women leave the labor force to start a ______.

• Less than ____ of the gap is due to the uneven distribution of men + women in certain ___________ (meaning more men tend to be employed in _____ level positions).

• Over ____ of the gap is due to ______________.

• The ERA (Equal Rights Amendment) would have assured that women enjoyed the same rights + protections _______________. It passed in Congress in 1972, but Conservatives feared that it disrupt America’s _________________ + launched a Stop-ERA campaign. The amendment was ___________ by enough states.

• Some anti-___________ laws have been passed however.

• In addition, women + minorities have greater difficulties in getting raises + __________. This invisible barrier that obstructs their ______________ up the corporate ladder is known as the glass ceiling.

Ratified --- RedRatified, then rescinded  ---- Yellow   Ratified in 1 house of legislature   --- Green  Not ratified --- Blue

• Minimum wage • The _____________ that can be paid ________ to most workers.

• Currently it is set at $___ per hr.• Intended to protect workers from

being _________. However, it is controversial. Some argue that employers cannot afford as many employees + so fewer people get _______.

Does this lead to a surplus or shortage of workers?

_________

End Section 4

Ch 9 – Sources of Gov.’t Revenue• Taxes • Taxes impact the _____________ in by affecting:

• ____________________ – the higher the taxes on resources, the fewer people can afford them + it can __________________.

• _________________ – can discourage consumers from ___________ certain products.

• Ex: The sin tax (a relatively ______ designed to raise revenue + __________) on items such as tobacco + alcohol.

• The nation’s productivity + _________• Also, the burden of taxes is sometimes transferred onto

__________________ besides the one being taxed.• If a company is charged a higher tax it may the cost

of its goods (passing cost onto __________), take it out of profits (passing cost onto ________), or lay off workers (passing cost onto ____________).

• Criteria for _______ taxes

1. ______ – fairness. But what is fair?

2. _________ – laws should be written so that the tax payer + tax collector can understand them.

• Good ex: Sales taxes• Bad ex: The income tax

3. ___________ – relatively easy to administer + reasonably successful at generating _________.

• Good ex: Income tax• Bad ex: Toll booths on

highways

• Principles of taxation

• The benefit principle of taxation says that those who ______ from gov.’t goods/services should pay in _____________ to the benefits they receive.

• Ex: toll booth taxes, gas taxes, etc…• 2 disadvantages:

1. Those who can ___________ to pay taxes are usually the ones who benefit most from gov.’t services.

2. Benefits are often hard to ________.• The ability to pay principle of taxation says that

people should be taxed according to their _______ _____ regardless of the _________ received.

• Ex: income tax• 2 bases for:

1. Benefits are often hard to measure.2. Assumes that people w/ higher

incomes suffer _______________ paying taxes than people w/ lower incomes.

• Types of taxes

• Proportional tax or “flat tax” – everyone pays the same ________________ (not the same amount) regardless of income.

• Ex: If flat tax was applied to income taxes everyone would have to pay 20%. So someone who made $20,000 would pay $_______ + someone who made $200,000 would pay $________.

• Progressive tax – people who make more pay a ________________________ of their income.

• Ex: Current income tax• Regressive tax – people who make less pay

a _____________________ of their income.• Ex: Sales tax

End Section 1

• ________ taxes• The most important taxes the national gov.’t collects are the __________ tax (over 35% of its revenue), _____________ taxes (about 33%), + ___________________ taxes (about 7.5%).

• P. 232• Excise tax – taxes on the ___________ or sale of

selected items like gas, alcohol, coal, etc…• Property tax – taxes levied on either real _______

(land, buildings, etc) or on ______________ (cars, stocks, bank accounts, etc).

• Estate tax – (or “_____ tax”) taxes the gov.’t levies on the transfer of property when a person dies.

• Gift tax – taxes on donations of $ or wealth PAID BY THE PERSON _______ THE GIFT. This is to prevent people from giving away their wealth shortly before __________.

• Customs duties or tariffs – taxes on __________.• User fees – charges on the use of _____/_______

such as gov.’t land.

End Section 2

• Sources of revenue for _____ gov.’ts

• Sources of revenue for _____ gov.’ts

• $ from the __________ gov.’t (over 22%).• __________ (20% - except for the states w/ no

sales tax).• State ________________ + insurance (18%).• State _______ tax (15% - except for the states

w/o an income tax).

• $ from the ________ + _______ gov.’ts (35%).• _______ taxes such as real estate, cars, bank

accounts, buildings, etc… (24%).• ________ + state-owned liquor stores (8%).• ______ tax (6%).

End Section 3

• The flat tax • A ______________ tax on individual income.

• Gained widespread attention during the election of 1996 as a way to “___” the current tax system.

• Advantages:

1. ___________

2. Eliminates many ____________

3. Reduces the need for many __________, tax preparers, + a good portion of the ___

• Disadvantages:

1. Removes many ________________ in the current tax code (ex: you can get deductions for certain donations)

2. Would benefit the ________ more + hurt ________ classes

3. No one knows _______ would be needed to raise the current revenue.

End Section 4

Ch 10 – Gov.’t Spending• Spending • In 2003, federal, state, + local gov.’ts

collected nearly $__________. That averaged out to about $10,300 per capita (per _________).

• The public sector refers to the part of the _________ made up of federal, state, + local _________.

• The private sector refers to the part of the _________ made up of private ___________ + privately-owned ____________.

Are they part of the public or private sector?Are they part of the public or private sector?

______________ 1. Employees at TL Hanna High School

______________ 2. Employees at Microsoft

______________ 3. The President of the United States

______________ 4. Police

______________ 5. The veterinarian at Pet-Smart

______________ 6. Bankers

______________ 7. A soldier

______________ 8. Your family physician

• Types of gov.’t __________

• __________ of goods/services:• Tanks, ships, weapons, space

shuttles, land, roads, offices, ________, prisons, employees, etc…

• Transfer payments (a payment for which the gov.’t ________________ goods nor services):

• ______________, welfare, unemployment, Medicare, grants-in-aid (transfer payment from one ________ of gov.’t to another), etc…

• _______ of gov.’t spending

• Due to its __________, the public sector has a huge impact on people’s lives:

1. _______________________ – military spending encourages private

industries that make weapons, agricultural price supports encourage

more people to stay on farms, etc…

2. ___________________ – the amount of $ received by lower

income families through programs such as Medicare, the closing of a military base causes the surrounding community to lose $, etc…

3. _________________________ – public education vs. private education, military vs. private hospitals, etc… End Section 1

• Federal gov.’t spending

• The federal budget is an __________ outlining proposed $ that will be _______ + _______.

• About 2/3 of the federal budget is mandatory spending (spending authorized ________ that doesn’t have to be approved by Congress every year – ex: Social Security, Medicare, etc…).

• About 1/3 of the federal budget is discretionary spending (programs that must receive Congressional ____________ every year – ex: the military, welfare, stimulus $, etc…).

• The fiscal year is a 12 month financial planning period.

• The federal gov.’t’s fiscal year is from ____________________.

• A budget deficit is when the gov.’t spends _______ $ than it takes in.

• A budget surplus is when the gov.’t takes in _______ $ than it spends.

• Major spending by the federal gov.’t

• _______________ (over 20%)• _______________ (18%)• _______________ (15%) – includes

retirement benefits for federal + military employees, food programs for low income families, subsidized housing, Medicare, etc…

• Interest on the ___________ (varies)

End Section 2

• State spending

• Unlike the ______ gov.’t, some states have enacted a balanced budget amendment in their state constitutions which requires that annual spending not _______________.

• So in other words, by law, some states cannot ___________ than they take in.

• If one of these states experience an unanticipated in revenue, they must immediately ______________.

• Major spending by state gov.’ts

• Major spending by local gov.’ts

• $ to ______ gov.’ts (30%)• Public ________ (18%)• Higher _________ (10%)• Highways (6%)

• _______ Education (36%)• Utilities (10%)• __________ (5%)• Gov.’t administration (5%)

End Section 3

• Deficit spending

• Occurs when the gov.’t spends more than it collects.• The federal gov.’t _________ runs a deficit. Why?

• _______, to stimulate the economy (Ex: Stimulus $ of 2008).

• _________, b/c of an unexpected event (Ex: WWII).• Unplanned, b/c the gov.’t doesn’t ______ as much

$ as it anticipated (Budgets are based on estimates).

• The deficit is the loss of $ ___________. The federal debt (or national debt) is the TOTAL amount of $ the federal gov.’t has borrowed to pay off the debt.

So how does the gov.’t _________ $?By selling bonds to the public (a formal

contract to repay borrowed $ + _______ on the borrowed $ in the future).

• One of the reasons the gov.’t has ________ balancing the budget is b/c much of the budget is spent on entitlements (or entitlement programs) which are programs or benefits using established __________________ to provide health, nutritional, or income supplements to individuals.

• Ex: Social security, Medicare, welfare, unemployment, etc… End Section 4

Ch 11 – Money and Banking• __________ of $ • Money is _______________ that serves as a

medium of exchange, a measure of value, + a store of value.

1. Medium of exchange – something ________ by all parties as ________ for goods/services (Ex: gold, silver, salt, seashells, etc…).

2. Measure of value – a common denominator that can be used to express ______ in terms that most ___________ __________ (Ex: price tags, to base the value of something by the weight of something else, etc…).

3. Store of value – the property that allows _________________ to be saved until needed (putting $ in the bank, stockpiling gold etc…).

• Characteristics of $

• _______ – easy to _____ from one place to another.

• __________ – won’t disintegrate or fall apart after a ______ period of time.

• _______ – can be divided into ______ units.• Limited ___________ – if too much exists or

can be made, it loses its _______.

End Section 1

• The gold standard

• A monetary standard under which the basic __________ unit is equal to, + can be ____________ for, a specific amount of gold.

• In 1900, the US went on the gold standard w/ an ounce of gold being worth $20.67. Although people continued to use paper $, they could at any time exchange the $ for a set amount of gold at the ___________.

• Many _______________ were also on the gold standard.• Advantages:

• People feel more _______ if they can convert their $ into gold.

• It is supposed to prevent the gov.’t from _____________ ______ $ (thus, preventing inflation). In reality, countries that go on the gold standard never have enough ______.

• Disadvantages:• The gold stock may not grow fast enough to keep pace

w/ a growing economy + thereby __________ economic growth.

• If too many people demand gold all at once, there can be a gold ___________.

• The price of gold can ___________________ over time.• A gov.’t looks inept if it isn’t able to accurately manage

the gold/$ supply.• The US went off the gold standard in 1934 during the ________

___________, when people didn’t trust in the value of paper $ + began stockpiling gold. Fearing there would be a ________ ________ of gold, the gov.’t ended the gold standard.

End Section 2

• The Fed (Federal Reserve System)

Ben Bernanke

Chairman of the Fed

• The _____________ of the US.• A central bank is a bank that can _____ $

to other banks.• It issues our _______________.• B/c its member banks __________ in the

Fed, the gov.’t does not own it. However the gov.’t does _______ it. The president appoints (w/ Congress’s approval) the Chairman of the Fed.

• The FDIC • When the _________________ in 1929, many people lost their fortunes + immediately ran to the banks to withdraw their $. Many banks ___ _________ + closed permanently. Countless people lost __________.

• To re-establish people’s _____________ in the banking system, Congress passes The Banking Act of 1933 which created the Federal Deposit Insurance Corporation (FDIC) which protects _________________ in the event of a bank closure (up to $______ per individual per account type at each bank – temporary increase – will go back down to $_________ in 2014).

• _____________ still happen occasionally. If a bank appears to be in danger of collapsing, the FDIC can ______ the bank + either ____ it to a bigger bank or ____________ it + pay off the depositors. This is all done in secrecy to prevent _________________. The primary reason for bank closures is poor ___________.

End Section 3