UNIT 3 MACROECONOMICS Government taxes, spending, fiscal policy, deficits, surpluses, debts.
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UNIT 3 UNIT 3 MACROECONOMICSMACROECONOMICS
Government taxes, spending, Government taxes, spending, fiscal policy, deficits, surpluses, fiscal policy, deficits, surpluses,
debtsdebts
TAX STRUCTURESTAX STRUCTURES
Proportional tax-Proportional tax- percentage of income percentage of income paid in taxes is the same for all income paid in taxes is the same for all income levelslevels
Progressive tax-Progressive tax- the percentage of the percentage of income paid in taxes increases as income income paid in taxes increases as income increasesincreases
Regressive tax-Regressive tax- percentage of income percentage of income paid in taxes decreases as income paid in taxes decreases as income increasesincreases
CHARACTERISTICS OF A GOOD CHARACTERISTICS OF A GOOD TAXTAX
Simplicity-rules should be easy to Simplicity-rules should be easy to understandunderstand
Efficiency-should be able to compute Efficiency-should be able to compute easily and inexpensivelyeasily and inexpensively
Certainty-people should know when Certainty-people should know when they’re due, how much to pay, etc.they’re due, how much to pay, etc.
Equity-should be fairEquity-should be fair
TYPES OF TAXESTYPES OF TAXES Income tax- Income tax- % of income% of income Sales tax-Sales tax- % of a good’s price % of a good’s price FICA taxes-FICA taxes- fund Social Security and fund Social Security and
MedicareMedicare Property taxes-Property taxes- based on value of based on value of
propertyproperty Corporate income tax-Corporate income tax- % of a company’s % of a company’s
profitsprofits Excise tax-Excise tax- tax on the sale or tax on the sale or
manufacture of a goodmanufacture of a good
Estate tax-Estate tax- tax on the total value of the tax on the total value of the money and property of a person who has money and property of a person who has dieddied
Gift tax-Gift tax- tax on money or property that tax on money or property that one living person gives to anotherone living person gives to another
Tariffs-Tariffs- taxes on imported goods taxes on imported goods Incentive tax-Incentive tax- tax to encourage or discourage a tax to encourage or discourage a
certain behaviorcertain behavior
GOVERNMENT SPENDINGGOVERNMENT SPENDING Mandatory spending-Mandatory spending- government spending on government spending on
programs that are required by current lawprograms that are required by current law Interest on the national debtInterest on the national debt Entitlement programs-Entitlement programs- if people meet requirements if people meet requirements
they receive benefitsthey receive benefits Discretionary spending-Discretionary spending- government planners government planners
can make choices about spendingcan make choices about spending National defenseNational defense EducationEducation Foreign aidForeign aid Scientific researchScientific research Much moreMuch more
FISCAL POLICYFISCAL POLICY
The use of government spending and The use of government spending and revenue collection to influence the revenue collection to influence the economyeconomy
Expansionary policies-Expansionary policies- lower taxes and lower taxes and higher spending to promote growthhigher spending to promote growth
Contractionary/restrictive policies-Contractionary/restrictive policies- higher taxes and lower spending to reduce higher taxes and lower spending to reduce economic growtheconomic growth
LIMITS OF FISCAL POLICYLIMITS OF FISCAL POLICY
Hard to change spendingHard to change spending Predicting the futurePredicting the future Delayed resultsDelayed results Political pressuresPolitical pressures Coordinating policy with the states and the Coordinating policy with the states and the
Federal Reserve’s monetary policyFederal Reserve’s monetary policy
DEFICITS, SURPLUSES, AND DEFICITS, SURPLUSES, AND THE NATIONAL DEBTTHE NATIONAL DEBT
Budget deficit-Budget deficit- government spending government spending exceeds tax collectionexceeds tax collection
Budget surplus-Budget surplus- tax collection exceeds tax collection exceeds spendingspending
National debt-National debt- all the money the federal all the money the federal government owes to bondholdersgovernment owes to bondholders
FISCAL POLICY OPTIONSFISCAL POLICY OPTIONS
Classical economics-the market should Classical economics-the market should regulate itselfregulate itself
Keynesian economics-Keynesian economics- the economy is the economy is made up of three sectors: individuals, made up of three sectors: individuals, businesses, and the governmentbusinesses, and the government The government should intervene to make up The government should intervene to make up
for changes in the other two to move for changes in the other two to move aggregate demand in the right directionaggregate demand in the right direction
Supply-side economics-Supply-side economics- focuses on focuses on moving aggregate supply to help the moving aggregate supply to help the economyeconomy
GOVERNMENT INVOLVEMENT GOVERNMENT INVOLVEMENT IN THE ECONOMYIN THE ECONOMY
Public good-Public good- a shared good or service for a shared good or service for which it would be impractical to make which it would be impractical to make consumers pay for individually and exclude consumers pay for individually and exclude nonpayersnonpayers
free rider-free rider- someone who would not pay for a someone who would not pay for a good or service but gets the benefits of it if it good or service but gets the benefits of it if it were provided publiclywere provided publicly
Market failure-Market failure- a situation where the market a situation where the market doesn’t distribute resources efficientlydoesn’t distribute resources efficiently
EXTERNALITIESEXTERNALITIES
Externality- an economic side effect that Externality- an economic side effect that benefits or costs someone other than the benefits or costs someone other than the one who produces or consumes the goodone who produces or consumes the good
EXTERNALITIES AND EXTERNALITIES AND MARKET INEFFICIENCY MARKET INEFFICIENCY
Negative ExternalitiesNegative Externalities Automobile exhaustAutomobile exhaust Cigarette smokingCigarette smoking Barking dogs (loud pets)Barking dogs (loud pets) Loud stereos in an apartment buildingLoud stereos in an apartment building
EXTERNALITIES AND EXTERNALITIES AND MARKET INEFFICIENCY MARKET INEFFICIENCY
Positive ExternalitiesPositive Externalities ImmunizationsImmunizations Restored historic buildingsRestored historic buildings Research into new technologiesResearch into new technologies
POVERTYPOVERTY
Poverty rate- % of people who live in Poverty rate- % of people who live in households below the official poverty linehouseholds below the official poverty line
Causes of povertyCauses of poverty Lack of educationLack of education LocationLocation DiscriminationDiscrimination Economic shiftsEconomic shifts Changes in family structureChanges in family structure
ANTI-POVERTY PROGRAMSANTI-POVERTY PROGRAMS WelfareWelfare- economic aid to the poor- economic aid to the poor Cash transfers-Cash transfers- direct payments of money to poor direct payments of money to poor
peoplepeople Temporary Assistance for Needy FamiliesTemporary Assistance for Needy Families Social SecuritySocial Security Unemployment benefitsUnemployment benefits Worker’s compensationWorker’s compensation
In-kind transfers- goods and services provided for free In-kind transfers- goods and services provided for free or reduced pricesor reduced prices Food stampsFood stamps HousingHousing Legal servicesLegal services
FORM 1040 FORM 1040 Fill out the info at the top-use a spouse if Fill out the info at the top-use a spouse if
you want to, dream spouse, etc.you want to, dream spouse, etc. Don’t use real social security #, make it upDon’t use real social security #, make it up 1-5. filing status1-5. filing status
SingleSingle Married jointlyMarried jointly Married separatelyMarried separately Head of household: married with childrenHead of household: married with children Widower: spouse deceasedWidower: spouse deceased
6. exemptions6. exemptions Check box for you and for spouseCheck box for you and for spouse List names of kids if anyList names of kids if any Add up total number of exemptions and put Add up total number of exemptions and put
the number in the boxthe number in the box
7. make up a salary for last year7. make up a salary for last year 8a. Make up interest from a bank account8a. Make up interest from a bank account 9a. Make up dividends from stock 9a. Make up dividends from stock
investmentsinvestments 11. if you like, write down alimony 11. if you like, write down alimony
received from previous spouse(s)received from previous spouse(s) 12. if you ran your own business, put the 12. if you ran your own business, put the
income you made from thatincome you made from that
13. if you made money selling stocks, put 13. if you made money selling stocks, put it hereit here
17. if you rented out real estate, put the 17. if you rented out real estate, put the amount you made hereamount you made here
18. if you got income from a farm, put it 18. if you got income from a farm, put it herehere
19. if you were unemployed for part of last 19. if you were unemployed for part of last year, put the amount you received hereyear, put the amount you received here
22. add up lines 7-21 and put here22. add up lines 7-21 and put here
23. up to $250 in teacher expenses can be put 23. up to $250 in teacher expenses can be put herehere
26. if you spent money to move, put it here26. if you spent money to move, put it here 31. if you paid alimony to a former spouse, put 31. if you paid alimony to a former spouse, put
the amount herethe amount here 33. if you were paying interest on a student 33. if you were paying interest on a student
loan, put it hereloan, put it here 34. if you paid tuition and fees, put the amount 34. if you paid tuition and fees, put the amount
herehere 36. add lines 23-35 and put here36. add lines 23-35 and put here 37. line 22 minus line 3637. line 22 minus line 36
Turn over the form and copy the amount on line Turn over the form and copy the amount on line 37 to line 3837 to line 38
40a. Write your standard deduction from the 40a. Write your standard deduction from the box on the leftbox on the left
41. line 38 minus line 40a41. line 38 minus line 40a 42. Put $10,00042. Put $10,000 43. put line 41 on line 43 also $10,000 less43. put line 41 on line 43 also $10,000 less 44. using your income on line 43 and the tax 44. using your income on line 43 and the tax
table on the next slide, compute your tax and table on the next slide, compute your tax and write it herewrite it here
10%10% on income between $0 and $8,350 on income between $0 and $8,350
15%15% on the income between $8,350 and $33,950; on the income between $8,350 and $33,950; plusplus $835 $835
25%25% on the income between $33,950 and $82,250; on the income between $33,950 and $82,250; plusplus $4,675 $4,675
28%28% on the income between $82,250 and $171,550; on the income between $82,250 and $171,550; plusplus $16,750 $16,750
33%33% on the income between $171,550 and $372,950; on the income between $171,550 and $372,950; plusplus $41,754 $41,754
35%35% on the income over $372,950; on the income over $372,950; plusplus $108,216 $108,216
61. put ½ of line 4361. put ½ of line 43 71. recopy from line 6171. recopy from line 61 72. if 71 is bigger than 60, 71-60; 0 if not 72. if 71 is bigger than 60, 71-60; 0 if not
truetrue 75. if 60 is bigger than 71, 60-71; 0 if not 75. if 60 is bigger than 71, 60-71; 0 if not
truetrue
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