Chapter 10:The Economics of

Government Spending

Chapter 10:The Economics of

Government Spending

10-1: The Economics of Taxation

• Government Spending in Perspective• Public sector spending was low prior to the Great

Depression• Video - The New Deal

John Stossel in the Classroom

2008 Pig Book

"Fighting for the interests of my constituents“

• Two types of government spending– Purchase of goods and services

• Tanks, planes, ships, space shuttle• Office buildings, parks, schools• Supplies, utilities• Employees

– Transfer payments • Can be made to an individual

– Social Security, Welfare, Medicare, etc.• Can be made to another level of

government– Called a grant-in-aid– Necessary for large construction projects

• Impact of Government Spending

– Resource Allocation

– Redistribution of Income

– Competition with the Private Sector

– Increasing the Tax Burden

10-2: Federal, State and Local Government Expenditures

• Federal Expenditures

– Fiscal year or budget year for U.S. Gov’t is 10/1 – 9/30

– Appropriations bill is an act of Congress that allows federal

agencies to spend money for a specific purpose.

– Mandatory spending is spending authorized by law that

continues without the need for annual approvals by

Congress, such as Social Security.

– Discretionary spending must be approved by Congress in

the annual budgetary process, such as defense spending.

• Why you should care about the national debt

• Video - Debt auction• Video - Interest on debt• Video - Jon Stewart

10-3: Deficits, Surpluses and the National Debt