Brandon, Jordan, Ricardo, Monica, and
Cynthia
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The role of the federal government has
grown, making it a vital player in the
economy.
Incomes are affected when the government
decides where to make expenditures.
Government spending directly affects how
resources are allocated.
The circle graph shows that all levels of government combined account for
about 28%-nearly 1/3 of the nation’s total output. The bar graph shows that
federal spending accounts for nearly 2/3 of all government spending, or 18% of
the total output.
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Goods and Services- Planes, tanks, ships,
space shuttles, office buildings, land for
parks, capital goods for schools and libraries.
Transfer Payments- A payment for which the
government receives neither nor services in
return.
ex) Social Security, welfare, unemployment
compensation, and Medicare.
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Transfer payment from one level of
government to another not involving
compensation.
ex) Interstate highways. Government pays
for most of the cost to build the highway and
the state it’s being built in covers the rest of
the tab.
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The government expenditures have grown
since the 1940s
◦ WWII
◦ Change in public opinion that government should
have a large role in everyday economic affairs.
◦ TVA, low cost electricity to people in the south in
the 1930s
Fiscal year: 12-month financial planning period
that may or may not coincide with the
calendar year
Mandatory spending: spending authorized by
law that continues without the need for
annual approvals of congress
Discretionary spending: programs that must
receive annual authorization (military, coast
guard, welfare)
Federal Government Expenditures
 The president is responsible for developing
the federal budget for the fiscal year, which
begins on October 1.
◦ When the budget is complete, the budget is sent to
the House of Representatives.
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The House only deals with discretionary
spending. Mandatory spending is not part of
the annual budget process, although
Congress can deal with its separately.
◦ Discretionary spending is broken down for action
by various committees that propose appropriation
bills.
◦ The budget is reassemble and voted on by the
House and Senate.
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If differences between the House and the
Senate emerge, a compromise bill is
developed on which both vote.
The largest components of the federal are
social security, national defense, income
security, Medicare, net interest on the federal
debt.
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State & Local Expenditures
◦ State and local levels of government also have
expenditures like at the federal
◦ These governments must approve spending before
revenue dollars can be released
◦ In most states it’s modeled after the federal
government
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Approving spending
◦ Some states have enacted a Balanced budget
Amendment, Which is a constitutional amendment
that requires that annual spending not exceed
revenue
◦ When revenue drops….NO MORE SPENDING
◦ A reduction in revenues may occur if sales tax or
state income tax fall because of a decline in general
level of economic activity
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State Government Expenditures
◦ Major types of SGE shown in the following picture
◦ 7 of the most important categories , accounting for
nearly 80% of all state spending are going to be
shown in the following picture
◦ The largest category of state spending….is….wait
for it….InterGovemental Expenditures; which are
funds that one level of government transfer to
another for spending.
◦ Comes from anything that’s taxable
◦ The 2nd largest is Public Welfare
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Local Government Expenditures
◦ These include; Counties, Municipalities, townships,
school districts, and other special districts
◦ Largest amount of spending in local governments
is elementary & secondary education, utilities,
hospitals, police protections, interest on debt,
public welfare, and highway
◦ Schools are priories.
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Historically the federal budget has been
characterized by a remarkable amount of
deficit spending-or spending in excess of
revenues collected.
When the federal government runs a deficit, it
must finance the shortage of revenue by
borrowing from others.
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Federal budget deficits existed from 1970 until
1998 when the budget finally had a surplus.
Deficits add to the federal debt and the total debt
amount to $5.7 trillion in fiscal year 2001,
approximately $3.3 trillion of which is held by
the public.
The debt affects the economy in several ways
◦ Taxes are needed to pay the interest on the debt
◦ The distribution of income is altered
◦ Purchasing power is transferred from the private sector
to the public sector.
◦ Incentives to work, save, and invest may also be altered.
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Despite recent budget surpluses, the overall
federal budget would show a deficit if not for
the surpluses in the Social Security Trust
Fund.
The rapid growth of entitlements are still
threat to future budget surpluses.
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https://www.youtube.com/watch?v=gkJnmW
hin90
http://www.forbes.com/sites/realspin/2014/
04/15/passage-of-the-data-act-is-a-majoradvance-in-government-transparency/