UNIT 3
MACROECONOMICS
Government taxes, spending,
fiscal policy, deficits, surpluses,
debts
TAX STRUCTURES
 Proportional
tax- percentage of income
paid in taxes is the same for all income
levels
 Progressive tax- the percentage of
income paid in taxes increases as income
increases
 Regressive tax- percentage of income
paid in taxes decreases as income
increases
CHARACTERISTICS OF A GOOD
TAX
 Simplicity-rules
should be easy to
understand
 Efficiency-should be able to compute
easily and inexpensively
 Certainty-people should know when
they’re due, how much to pay, etc.
 Equity-should be fair
TYPES OF TAXES
 Income
tax- % of income
 Sales tax- % of a good’s price
 FICA taxes- fund Social Security and
Medicare
 Property taxes- based on value of
property
 Corporate income tax- % of a company’s
profits
 Excise tax- tax on the sale or
manufacture of a good
 Estate
tax- tax on the total value of the
money and property of a person who has
died
 Gift tax- tax on money or property that
one living person gives to another
 Tariffs- taxes on imported goods

Incentive tax- tax to encourage or discourage a
certain behavior
GOVERNMENT SPENDING

Mandatory spending- government spending on
programs that are required by current law



Interest on the national debt
Entitlement programs- if people meet requirements
they receive benefits
Discretionary spending- government planners
can make choices about spending




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National defense
Education
Foreign aid
Scientific research
Much more
FISCAL POLICY
 The
use of government spending and
revenue collection to influence the
economy
 Expansionary policies- lower taxes and
higher spending to promote growth
 Contractionary/restrictive policieshigher taxes and lower spending to reduce
economic growth
LIMITS OF FISCAL POLICY
 Hard
to change spending
 Predicting the future
 Delayed results
 Political pressures
 Coordinating policy with the states and the
Federal Reserve’s monetary policy
DEFICITS, SURPLUSES, AND
THE NATIONAL DEBT
 Budget
deficit- government spending
exceeds tax collection
 Budget surplus- tax collection exceeds
spending
 National debt- all the money the federal
government owes to bondholders
FISCAL POLICY OPTIONS
 Classical
economics-the market should
regulate itself
 Keynesian economics- the economy is
made up of three sectors: individuals,
businesses, and the government

The government should intervene to make up
for changes in the other two to move
aggregate demand in the right direction
 Supply-side
economics- focuses on
moving aggregate supply to help the
economy
GOVERNMENT INVOLVEMENT IN
THE ECONOMY
 Public
good- a shared good or service for
which it would be impractical to make
consumers pay for individually and exclude
nonpayers
 free rider- someone who would not pay for a
good or service but gets the benefits of it if it
were provided publicly
 Market failure- a situation where the market
doesn’t distribute resources efficiently
EXTERNALITIES
 Externality-
an economic side effect that
benefits or costs someone other than the
one who produces or consumes the good
EXTERNALITIES AND
MARKET INEFFICIENCY
 Negative




Externalities
Automobile exhaust
Cigarette smoking
Barking dogs (loud pets)
Loud stereos in an apartment building
EXTERNALITIES AND
MARKET INEFFICIENCY
 Positive



Externalities
Immunizations
Restored historic buildings
Research into new technologies
POVERTY
 Poverty
rate- % of people who live in
households below the official poverty line
 Causes of poverty





Lack of education
Location
Discrimination
Economic shifts
Changes in family structure
ANTI-POVERTY PROGRAMS

Welfare- economic aid to the poor
 Cash transfers- direct payments of money to poor
people





Temporary Assistance for Needy Families
Social Security
Unemployment benefits
Worker’s compensation
In-kind transfers- goods and services provided for free
or reduced prices



Food stamps
Housing
Legal services
FORM 1040 
 Fill
out the info at the top-use a spouse if
you want to, dream spouse, etc.
 Don’t use real social security #, make it up
 1-5. filing status





Single
Married jointly
Married separately
Head of household: married with children
Widower: spouse deceased
 6.



exemptions
Check box for you and for spouse
List names of kids if any
Add up total number of exemptions and put
the number in the box
 7.
make up a salary for last year
 8a. Make up interest from a bank account
 9a. Make up dividends from stock
investments
 11. if you like, write down alimony
received from previous spouse(s)
 12. if you ran your own business, put the
income you made from that
 13.
if you made money selling stocks, put
it here
 17. if you rented out real estate, put the
amount you made here
 18. if you got income from a farm, put it
here
 19. if you were unemployed for part of last
year, put the amount you received here
 22. add up lines 7-21 and put here







23. up to $250 in teacher expenses can be put
here
26. if you spent money to move, put it here
31. if you paid alimony to a former spouse, put
the amount here
33. if you were paying interest on a student
loan, put it here
34. if you paid tuition and fees, put the amount
here
36. add lines 23-35 and put here
37. line 22 minus line 36






Turn over the form and copy the amount on line
37 to line 38
40a. Write your standard deduction from the
box on the left
41. line 38 minus line 40a
42. Put $10,000
43. put line 41 on line 43 also $10,000 less
44. using your income on line 43 and the tax
table on the next slide, compute your tax and
write it here

10% on income between $0 and $8,350

15% on the income between $8,350 and $33,950; plus
$835

25% on the income between $33,950 and $82,250;
plus $4,675

28% on the income between $82,250 and $171,550;
plus $16,750

33% on the income between $171,550 and $372,950;
plus $41,754

35% on the income over $372,950; plus $108,216
 61.
put ½ of line 43
 71. recopy from line 61
 72. if 71 is bigger than 60, 71-60; 0 if not
true
 75. if 60 is bigger than 71, 60-71; 0 if not
true