Post on 29-Nov-2014
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Unit 2
Government and Trade
I. Government
A. Federal Programs1. Mandatory Spending (Entitlements)
a. Social Security ($644 billion)b. Interest Payments ($260 billion)
2. Discretionarya. Defense ($515 billion + 70 billion for War on Terror)b. Education ($59.2 billion)c. Art ($46 million)d. Science ($24 billion including NASA)e. Transportation ($11.5 billion)
B. State and Local Government1. Day to Day Expenses must be paid2. Investments are made3. Bonds are sold4. State and local govt’s must balance the budget5. Programs
a. Educationb. Transportation
C. Fiscal Policy
1. What is it?a. Budget set for fiscal year (October 1 to September 30)
to avoid elections
b. Office of Management & Budget (executive) and Congressional Budget Office (legislative) : make suggestions.
c. General Accounting Office keeps departments in check.
d. Each house has an Appropriations Committee
2. Expanding the economya. Increase Government Spending
b. Cut Taxes
3. Contracting the economya. Increase Taxesb. Decrease Spending
4. Laissez Faire up till 1932a. Invisible Handb. No government interventionc. Supply and Demand
5. Keynesian Economics from 1932-1981a. Spend out of a recessionb. Used by most Developed nations.
6. Supply-Side Economics (Reagan Era 1981 ---)a. Taxation affects economy.b. Laffer Curve proves that high taxes hurts the economy.
D. Deficits and Debt1. Balancing
a. Expenditures: What the government spends money on.b. Revenues: Sources of money for the government.c. Surplus – making $ (Clinton)d. Deficit – losing $ (most of the time) (now $1 trillion)e. Debt – overall losses (last paid off: Jackson)f. Fiscal Conservatives have pushed for balanced budget
amendment to Constitutiong. That would tie the gov’ts hands if there was an
emergency
2. Debt a. Interest payments make up about fifteen percent of
budget.b. World Crisis could bring doomed US economy if debt
persists.c. 2010 – $12 trillion
E. Partisan Spending
1. Republicans – Traditionally in favor of Laissez Faire.
2. Democrats – Keynesian economics, especially FDR.
3. Both parties try to outspend each other on the military.
4. Elected officials spend on special projects known as earmarks or pork barrel projects in their communities to get re-elected.
F. Taxes1. Federal government uses IRS to collect wage taxes.
a. Social Securityb. Income
2. Progressive – percentage of income taken increases with your wealth.a. Six brackets of Americansb. 0 - $8,000 = 10%c. $8,000-32 = 15%d. $32,000-77= 25%e. $77,000-160 = 28%f. $160,000-350 = 33%g. Over $350,000 = 35%
3. Flat – same percentage for everyone: 18% national, NO DEDUCTIONS!4. Regressive: Percentage taken from income increases the poorer you get
a. Sales – state tax is 6%b. National would be 23%
Part 2 - International Economics
A. Global Economy1. Trade
a. Distributioni. Not all nations have natural resources.ii. USA – rare minerals from Africa, oil from Mid-eastiii. Following supply and demand, tech/labor is cheaper
elsewhere.
2. Positive Attributesa. Receiving goods & services produced better abroad
allow for cheaper prices, efficiency.b. USA
i. Third leading exporter.ii. Largest importer.
3. Impact a. Laborers disadvantages in low skill jobs.b. Skilled or high tech jobs are an advantage.c. International Corporations - Free trade has allowed
international companies to exist that may dominate industries.
B. Trade1. Barriers
a. Import quotas.b. Export restraints.c. Tariffsd. Results
i. Increased pricesii. Trade Wars
2. Protectionism – isolate economy 3. Cooperation
a. Reciprocal Trade Act of 1934b. World Trade Organization 1995
i. Ensures compliance with General Trade Agreements of Tariffs and Trade.
ii. European Unioniii. NAFTA – North American Free Trade Agreement
C. Development
1. Levelsa. Developed, less developed
b. 1st (demo), 2nd(communist), 3rd(poor)
c. Core, semi-periphery, periphery,
2. Measuringa. GDP
b. Life expectancy
c. Infant Mortality Rate
d. Energy Consumption
D. Banking and Loans
1. International Monetary Fund – monitors exchange rates and policies of nations.
a. President is a European
b. Has isolated inflation problems
c. Helps advise poorer nations fix economies.
2. World Bank – provides monetary assistance to developing nations.
a. President is always American
b. Loans to nations to build infrastructure
c. Is accused of setting unrealistic goals
E. Trade Makes Sense
1. Absolute advantage = those that can produce the most using the resources they have.
2. Comparative Advantage = producing the most with the smallest opportunity cost.
3. Even though we make a good, it is wasteful for us to produce it.
F. Africa1. Pre-colonial stage saw exchange of minerals and
resources for crafts and salt.2. Colonial or Imperial Era
a. Europe divided continent.b. Racist paternalism, assimilation, or torture used to subdue
natives.c. African elite help reap natural resources.
3. Independencea. WWII factories help organize Africans to strike, riot.b. Some nations are free peacefully, others through brutal
fighting.
4. Aftermatha. Some infrastructure.b. Weak or dictatorial governments.c. Little investment.d. Oil in north, minerals in center, light manufacturing in south.
G. China
1. Great Leap Forward - disaster2. Post-Mao Zedong government has encouraged foreign
investment and local control.3. Rapid growth in GDP.4. Rapid modernization.5. Urban life is Westernized.6. Negative
a. Pollutionb. Income gap (between rich and poor)c. Homelessnessd. Rural povertye. Big swings in economic performance
H. India
1. Growth due to cheap labor and strong education among advanced students.
2. English compatibility due to colonialism.3. Technological advancements.4. Negative
a. Caste system segregationb. Hundreds of millions of poorc. Sprawling government and Hindu v. Muslim
conflict.