Unit 3
Macroeconomics: 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
P
skills/services determine their wages.
S1
• 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
D1
factor that helps determine wages.
Q
• 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
• _______
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
______________.
Ratified --- Red
Ratified, then rescinded ---- Yellow
Ratified in 1 house of legislature --- Green
Not ratified --- Blue
• 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.
• 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
• $ from the __________ gov.’t (over 22%).
revenue for • __________ (20% - except for the states w/ no
_____ gov.’ts
sales tax).
• State ________________ + insurance (18%).
• State _______ tax (15% - except for the states
w/o an income tax).
• $ from the ________ + _______ gov.’ts (35%).
• Sources of
revenue for • _______ taxes such as real estate, cars, bank
_____ gov.’ts
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?
______________
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
• __________ of goods/services:
gov.’t
• 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 • Due to its __________, the public sector
gov.’t spending 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 • The federal budget is an __________ outlining
spending
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
• _______________ (over 20%)
spending by • _______________ (18%)
the federal
• _______________ (15%) – includes
gov.’t
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
• Occurs when the gov.’t spends more than it collects.
spending • 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 • _______ – easy to _____ from one place to
of $
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 • The _____________ of the US.
Reserve System) • 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.
Ben Bernanke
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