Federal Government and the Economy
Course
Political
Science I
Rationale
This lesson provides an overview of how the federal government manages
the US economy. This is foundational information for many government jobs.
Unit IV
Government
and the
Economy
Objectives
The students will be able to:
1. Identify sources of revenue for the federal government
2. Understand how the federal government manages the economy
3. Create a proposal for a federal budget plan
Essential
Question
How does
the federal
government
manage the
economy?
TEKS
§130.183(c)
(5)(B)(C)
Prior
Student
Learning
None
Estimated
Time
3 to 5 hours
Engage
Give the students “tax” demographics of a fictional individual. Then have them
use the IRS tax calculator (http://apps.irs.gov/app/withholdingcalculator/) to
determine the amount in taxes that the individual must pay or the federal tax
return he or she will receive. Then have the students discuss why they think
individuals are required to pay taxes and how they think the federal
government uses the tax dollars. Use the Discussion Rubric for assessment.
Key Points
I. How does the US government raise money?
A. Key Terms
1. Taxes – payments made by individuals and businesses to support
governmental activities (Remy, 2010)
2. Taxable income – an individual’s total income minus certain
deductions and exemptions (Remy, 2010)
3. Dependent – someone, usually under the age of 18, who depends
primarily on another person for basic items such as food, clothing,
and shelter
4. Withholding – the amount of money employers withhold from
workers’ wages during the year
5. Deficit – occurs when the government spends more than the
revenue it receives
6. Gross domestic product (GDP) – the sum of all goods and
services produced in a nation in a year (Remy, 2010)
7. Discount rate – the interest rate the Federal Reserve System
charges member banks for loans (Remy, 2010)
8. Reserve requirement – the percentage of money member banks
must keep in Federal Reserve Banks as a reserve against their
deposits (Remy, 2010)
9. Bond – a government security (Remy, 2010)
10. Securities – financial instruments, including bonds, notes, and
certificates, that are sold as a means of borrowing money with a
promise to repay the buyer with interest after a specific time
period (Remy, 2010)
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B. Taxes are the primary source of revenue
1. Individual Income Tax
a) Is the federal government’s biggest single source of revenue
b) Is levied on a person’s taxable income
c) Is a progressive tax based on a person’s ability to pay (higher
the income, higher the tax rate)
d) Must be reported/filed by April 15th of every year
(1) Withholding pays the anticipated taxes ahead of the April
15th deadline
(2) Self-employed people who do not receive regular salaries
must
(a) File income estimates four times a year
(b) Make payments based on estimates
2. Corporate Income Taxes
a) Are the federal tax on all the earned corporate income beyond
a corporation’s expenses and deductions
b) Is approximately 14% of federal revenues (Remy, 2010)
c) Does not apply to nonprofit organizations, which are exempt
(1) Colleges
(2) Labor unions
(3) Churches
3. Social Insurance Taxes
a) Are taxes collected to pay for major social programs such as
(1) Social Security
(2) Medicare
(3) Unemployment compensation
b) Are deducted from each worker’s paycheck by his or her
employer who then pays an equal amount and sends the total
to the federal government
c) Go into Treasury Department special trust accounts, not the
government’s general fund
4. Excise Taxes
a) Are taxes intended to increase state revenue while reducing
consumption of a product or service (e.g. gas and cigarette
taxes)
b) Are also called luxury taxes
5. Customs Duties
a) Are taxes levied on imported goods
b) Are also called customs duties, tariffs, or import duties
c) Are used to raise revenue or to protect domestic business and
agriculture from foreign competition (i.e. protective tariff)
6. Estate Taxes
a) Are taxes on property and money left by a person after he or
she has died
7. Gift Taxes
a) Are taxes on money someone gives while living
2
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C. Taxes are used to influence the economy
1. Governments use taxes to influence the economy by encouraging
and discouraging activities, such as
a) A tax deduction for home mortgage interest encourages
people to buy homes, which helps the construction industry
b) A heavy tax on cigarettes discourages smoking, which
improves peoples health
2. Tax exemptions
a) Are a legal means to free certain types of property, sales, or
income from taxpaying obligations
3. Tax credits
a) Are usually given to people with lower incomes
b) Allow taxpayers to reduce their income tax liability (e.g. child
care credit)
D. Federal securities (e.g. bonds, notes, treasury bills) are sold to borrow
revenue
1. The government must borrow money when its spending results in
a deficit
2. Government borrowing over time creates/increases the national
debt
3. The size of the national debt affects the economy
II. How does the US government manage the economy?
A. Characteristics of a healthy economy include
1. Low unemployment
2. Stable prices of consumer goods
3. High worker productivity
4. Increasing economy overall
B. The primary purpose of the national budget is to fund government
programs at the federal, state, and local levels
C. The Budget and Accounting Act of 1921 gives the President the
authority to prepare an annual budget and submit it to Congress for
approval
D. Unlike some state and local governments, the federal government is
not required to operate with a balanced budget
1. It is very rare for the federal government to spend exactly the
amount it receives in revenue
2. The most recent federal budget surplus occurred in 2001
3. Since 2001, the federal government’s expenditures have
exceeded its revenue, creating a budget deficit and increasing the
national debt
E. The federal government plays a major role in managing the US
economy
F. Control of the US economy is divided between the government and the
private sector, which often causes conflict
G. Four major components of federal government spending include
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1.
Direct benefit payments to people participating in social programs
(e.g. Social Security, health and welfare programs)
a) A large portion goes to uncontrollable expenditures
b) The biggest entitlement program is Social Security (Remy,
2010)
2. National defense expenses
3. Discretionary spending
a) On interests such as the environment, transportation, criminal
justice, etc.
b) As grants to states and localities
4. Interest on the national debt
H. The federal government influences the economy with two types of
policies
1. Fiscal Policy, which utilizes government spending and taxation
2. Monetary Policy, which manages the supply of money and credit
I. The Federal Reserve System (The Fed)
1. Is the central banking system of the US
2. Is the entity that loans money to banks
3. Is supervised by a seven-member Board of Governors that
a) Are selected by the President
b) Are approved by the Senate
c) Serve a four-year term
d) Determine the general money and credit policies of the US
e) Make decisions independent of the President and the Senate
4. Uses four main tools to control the US monetary policy
a) Raise or lower the discount rate
b) Raise or lower the reserve requirement
c) Buy government bonds
d) Sell government securities
5. Creates policies that may support or challenge existing
government programs
Activities
1. Federal Budget – Divide the class into two groups. Each group is
responsible for creating a proposal for a federal budget plan. Have each
group outline the amount of expenses for each department and policy in
the US. Have the groups propose their budgets to the class. After the
proposals are complete, have the students act as the US Congress and
vote on which budget proposal to adopt for the federal government. The
vote must pass with a two-thirds majority; therefore, the students may
need to compromise and/or create a budget that represents both groups’
needs and demands. Use the Group Evaluation Rubric, the Presentation
Rubric, and/or the Discussion Rubric for assessment.
(Note: The following website can be used as a resource for the groups,
http://www.whitehouse.gov/omb/budget/Overview.)
4
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Assessments
Federal Government and the Economy Key Terms Quiz and Key
Federal Government and the Economy Exam and Key
Discussion Rubric
Individual Work Rubric
Group Evaluation Rubric
Presentation Rubric
Materials
Federal Government and the Economy computer-based presentation
Federal Government and the Economy Key Terms
IRS Withholding Calculator
Computers with Internet access
Tax demographics of a fictional individual
Resources
Remy, Ph.D., R. C. (2010), United States Government: Democracy in Action,
Glencoe McGraw-Hill.
http://apps.irs.gov/app/withholdingcalculator/
Accommodations for Learning Differences
For reinforcement, the students will test their understanding of the federal
government by completing the activity found at
http://apps.irs.gov/app/understandingTaxes/whys/thm01/les01/ac3_thm01_le
s01.jsp. Use the Individual Work Rubric for assessment.
For enrichment, students will research how much they will earn by completing
the activity found at:
http://apps.irs.gov/app/understandingTaxes/whys/thm03/les03/ac3_thm03_le
s03.jsp. Use the Individual Work Rubric for assessment.
State Education Standards
Texas Essential Knowledge and Skills for Career and Technical Education
§130.183. Political Science I (One to Two Credits).
(5)
The student identifies the roles played by local, state, and
national governments in public and private sectors of the United
States free enterprise system. The student is expected to:
(B)
identify the sources of revenue of the United States
government and analyze their impact on the United
States economy;
(C)
identify the sources of expenditures of the United States
government and analyze their impact on the United
States economy;
College and Career Readiness Standards
Mathematics Standards
5
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VIII. Problem Solving and Reasoning
A. Mathematical problem solving
1. Analyze given information.
2. Formulate a plan or strategy.
3. Determine a solution.
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Federal Government and the Economy Key Terms
Bond – a government security (Remy, 2010)
Deficit – occurs when the government spends more than the revenue it receives
Dependent – someone, usually under the age of 18, who depends primarily on another
person for basic items such as food, clothing, and shelter
Discount rate – the interest rate the Federal Reserve System charges member banks for
loans (Remy, 2010)
Gross domestic product (GDP) – the sum of all goods and services produced in a nation
in a year (Remy, 2010)
Reserve requirement – the percentage of money member banks must keep in Federal
Reserve Banks as a reserve against their deposits (Remy, 2010)
Securities – financial instruments, including bonds, notes, and certificates, that are sold
as a means of borrowing money with a promise to repay the buyer with interest
after a specific time period (Remy, 2010)
Taxable income – an individual’s total income minus certain deductions and exemptions
(Remy, 2010)
Taxes – payments made by individuals and businesses to support governmental
activities (Remy, 2010)
Withholding – the amount of money employers withhold from worker’s wages during the
year
7
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Name ___________________________________Date __________________________
Federal Government and the Economy Key Terms Quiz
Directions: Match the term with the correct definition.
1. _____Bond
6. _____Reserve requirement
2. _____Deficit
7.
_____Securities
3. _____Dependent
8.
_____Taxable income
4. _____Discount rate
9.
_____Taxes
5. _____Gross domestic product (GDP)
10. _____Withholding
*************************************************************************************************************
A. Taxable income – an individual’s total income minus certain deductions and exemptions
(Remy, 2010)
B. Bond – a government security (Remy, 2010)
C. Deficit – occurs when the government spends more than the revenue it receives
D. Reserve requirement – the percentage of money member banks must keep in Federal
Reserve Banks as a reserve against their deposits (Remy, 2010)
E. Dependent – someone, usually under the age of 18, who depends primarily on another
person for basic items such as food, clothing, and shelter
F. Withholding – the amount of money employers withhold from worker’s wages during the
year
G. Gross domestic product (GDP) – the sum of all goods and services produced in a nation in
a year (Remy, 2010)
H. Securities – financial instruments, including bonds, notes, and certificates, that are sold as a
means of borrowing money with a promise to repay the buyer with interest after a specific
time period (Remy, 2010)
I.
Taxes – payments made by individuals and businesses to support governmental activities
(Remy, 2010)
J.
Discount rate – the interest rate the Federal Reserve System charges member banks for
loans (Remy, 2010)
8
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Federal Government and the Economy Key Terms Quiz Key
1. B
2. C
3. E
4. J
5. G
6. D
7. H
8. A
9. I
10. F
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Name ___________________________________Date _________________________
Federal Government and the Economy Exam
1. _____Which of the following is the primary source of revenue for the federal
government?
A. Bond
B. Securities
C. Taxes
D. None of the above
2. _____Which of the following is the federal government’s biggest single source of
revenue?
A. Individual Income Tax
B. Corporate Income Tax
C. Social Insurance Tax
D. Excise Tax
3. _____Which of the following is the deadline for filing individual income tax reports?
A. January 15th
B. April 15th
C. July 15th
D. October 15th
4. _____Which of the following are “taxes on property and money left by a person after he
or she has died”?
A. Corporate Income Taxes
B. Social Insurance Taxes
C. Excise Taxes
D. Estate Taxes
5. _____Which of the following are “taxes collected to pay for major social programs”?
A. Corporate Income Taxes
B. Social Insurance Taxes
C. Excise Taxes
D. Estate Taxes
6. _____Which of the following is “the federal tax on all the earned corporate income
beyond a corporation’s expenses and deductions”?
A. Corporate Income Taxes
B. Social Insurance Taxes
C. Excise Taxes
D. Estate Taxes
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7. _____Which of the following are “taxes intended to increase state revenue while reducing
consumption of a product or service”?
A. Corporate Income Taxes
B. Social Insurance Taxes
C. Excise Taxes
D. Estate Taxes
8. _____Which of the following are true statements about customs duties?
A. They are taxes levied on imported goods
B. They are used to raise revenue or to protect domestic business and agriculture from
foreign competition
C. Both A and B
D. Neither A nor B
9. _____Governments use taxes to influence the economy by encouraging and
discouraging activities.
A. True
B. False
10. _____The federal government is required to operate with a balanced budget.
A. True
B. False
11. _____Which of the following is NOT a characteristic of a healthy economy?
A. Low unemployment
B. Stable prices of consumer goods
C. Low worker productivity
D. Increasing economy overall
12. _____The primary purpose of the national budget is to fund government programs at the
federal, state, and local levels.
A. True
B. False
13. _____Which of the following is NOT a major component or government spending?
A. Direct benefit payments to people participating in social programs
B. National defense expenses
C. Nondiscretionary spending
D. Interest on the national debt
14. _____Which of the following is a true statement about US fiscal policy?
A. It manages the supply of money and credit
B. It utilizes government spending and taxation
C. Both A and B
D. Neither A nor B
11
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15. _____Which of the following is a true statement about US fiscal policy?
A. It manages the supply of money and credit
B. It utilizes government spending and taxation
C. Both A and B
D. Neither A nor B
16. _____Which of the following is a true statement about the Federal Reserve System?
A. It is the central banking system of the US
B. It is the entity that loans money to banks
C. It is supervised by a Board of Governors
D. All of the above
17. _____Which of the following is NOT a primary tool that the Federal Reserve System uses
to control US monetary policy?
A. Raise or lower the discount rate
B. Raise or lower the reserve requirement
C. Loan government bonds
D. Sell government securities
18. _____Which of the following describes how the Federal Reserve System encourages
banks to borrow money?
A. Raise the discount rates
B. Lower the discount rates
C. Both A and B
D. Neither A nor B
19. _____The Federal Reserve System cannot create policies that challenge existing
government programs.
A. True
B. False
20. _____The Federal Reserve System is supervised by a Board of Governors that is paid by
the US President.
A. True
B. False
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Federal Government and the Economy Exam Key
1. C
2. A
3. B
4. D
5. B
6. A
7. C
8. C
9. A
10. B
11. C
12. A
13. C
14. B
15. A
16. D
17. C
18. B
19. B
20. B
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Name_______________________________
Date________________
Group Evaluation
Group 1
Did the group take the assignment seriously?
No
1
2
3
4
5
6
7
8
Could you tell what the group was trying to portray?
No
1
2
3
4
5
6
7
8
Was the group portrayal creative?
No
1
2
3
4
5
6
7
Did the group include the correct elements?
No
1
2
3
4
5
6
7
8
8
9
Yes
10
9
Yes
10
9
Yes
10
9
Yes
10
Would you like to see this group demonstrate its talent for you in the future?
No
Yes
1
2
3
4
5
6
7
8
9
10
Total Score_______
Group 2
Did the group take the assignment seriously?
No
1
2
3
4
5
6
7
8
Could you tell what the group was trying to portray?
No
1
2
3
4
5
6
7
8
Was the group portrayal creative?
No
1
2
3
4
5
6
7
Did the group include the correct elements?
No
1
2
3
4
5
6
7
8
8
9
Yes
10
9
Yes
10
9
Yes
10
9
Yes
10
Would you like to see this group demonstrate its talent for you in the future?
No
Yes
1
2
3
4
5
6
7
8
9
10
Total Score_______
14
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Group 3
Did the group take the assignment seriously?
No
1
2
3
4
5
6
7
8
9
Yes
10
Could you tell what the group was trying to portray?
No
1
2
3
4
5
6
7
8
9
Yes
10
Was the group portrayal creative?
No
1
2
3
4
5
6
9
Yes
10
9
Yes
10
7
Did the group include the correct elements?
No
1
2
3
4
5
6
7
8
8
Would you like to see this group demonstrate its talent for you in the future?
No
Yes
1
2
3
4
5
6
7
8
9
10
Total Score_______
Group 4
Did the group take the assignment seriously?
No
1
2
3
4
5
6
7
8
9
Yes
10
Could you tell what the group was trying to portray?
No
1
2
3
4
5
6
7
8
9
Yes
10
9
Yes
10
9
Yes
10
Was the group portrayal creative?
No
1
2
3
4
5
6
7
Did the group include the correct elements?
No
1
2
3
4
5
6
7
8
8
Would you like to see this group demonstrate its talent for you in the future?
No
Yes
1
2
3
4
5
6
7
8
9
10
Total Score_______
15
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Group 5
Did the group take the assignment seriously?
No
1
2
3
4
5
6
7
8
9
Yes
10
Could you tell what the group was trying to portray?
No
1
2
3
4
5
6
7
8
9
Yes
10
Was the group portrayal creative?
No
1
2
3
4
5
6
9
Yes
10
9
Yes
10
7
Did the group include the correct elements?
No
1
2
3
4
5
6
7
8
8
Would you like to see this group demonstrate its talent for you in the future?
No
Yes
1
2
3
4
5
6
7
8
9
10
Total Score_______
Group 6
Did the group take the assignment seriously?
No
1
2
3
4
5
6
7
8
9
Yes
10
Could you tell what the group was trying to portray?
No
1
2
3
4
5
6
7
8
9
Yes
10
9
Yes
10
9
Yes
10
Was the group portrayal creative?
No
1
2
3
4
5
6
7
Did the group include the correct elements?
No
1
2
3
4
5
6
7
8
8
Would you like to see this group demonstrate its talent for you in the future?
No
Yes
1
2
3
4
5
6
7
8
9
10
Total Score_______
16
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Name_______________________________________
Date_______________________________
Discussion Rubric
Objectives
4 pts.
Excellent
3 pts.
Good
2 pts. Needs Some
Improvement
1 pt. Needs Much
Improvement
N/A
Pts.
Participates in group discussion
Encourages others to join the
conversation
Keeps the discussion progressing
to achieve goals
Shares thoughts actively while
offering helpful recommendations to
others
Gives credit to others for their ideas
Respects the opinions of others
Involves others by asking questions
or requesting input
Expresses thoughts and ideas
clearly and effectively
Total Points (32 pts.)
Comments:
17
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Name______________________________________
Date_______________________________________
Individual Work Rubric
4 pts.
Excellent
Objectives
3 pts.
Good
2 pts. Needs Some
Improvement
1 pt. Needs Much
Improvement
N/A
Pts.
Follows directions
Student completed the work as directed,
following the directions given, in order and to the
level of quality indicated
Time management
Student used time wisely and remained on task
100% of the time
Organization
Student kept notes and materials in a neat,
legible, and organized manner. Information was
readily retrieved
Evidence of learning
Student documented information in his or her
own words and can accurately answer questions
related to the information retrieved
*Research/Gathering information (if relevant)
Student used a variety of methods and sources
to gather information. Student took notes while
gathering information
Total Points (20 pts.)
Comments:
18
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Name:____________________________________
Date:_____________________________
Presentation Rubric
4 pts.
Excellent
Objectives
3 pts.
Good
2 pts. Needs Some
Improvement
1 pt. Needs Much
Improvement
N/A
Pts.
Topic/Content
 Topic discussed completely and in-depth
 Includes properly cited sources (if used)
Creativity/Neatness
 Integrates a variety of multimedia effects to
create a professional presentation (transition
and graphics) or appropriate visual aid used
 Title slide, table of contents, bibliography are
included, using acceptable format
Mechanics
 Grammar, spelling, punctuation, and
capitalization are correct
 Image and font size are legible to the entire
audience
Oral Presentation
 Communicates with enthusiasm and eye
contact
 Voice delivery and projection are dynamic
and audible
Audience Interaction
 Presentation holds audience’s attention and
relates a clear message
 Clearly and effectively communicates the
content throughout the presentation
Total Points (20 pts.)
Comments:
19
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