Fiscal responsibility
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Fiscal Responsibility. Indiana State Revenue. Pg. 386 #6 Identify at least three kinds of state taxes and fees that businesses pay. Pg. 386 #9 What are the main sources of state revenue? Skip B. Make Up of State Budget. Pg. 386 #4. Entitlements.

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Fiscal Responsibility

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Fiscal responsibility

Fiscal Responsibility


Indiana state revenue

Indiana State Revenue

Pg. 386 #6

Identify at least three kinds of state taxes and fees that businesses pay.

Pg. 386 #9

What are the main sources of state revenue?

Skip B


Make up of state budget

Make Up of State Budget

Pg. 386 #4


Entitlements

Entitlements

  • Benefits people MUST receive if they meet certain requirements.

    • Ex. Social Security, Military Pension, Medicare

  • Not everyone receives means-tested entitlements. Pg. 380 #1

    • Ex. Medicaid, Section 8

      * People learn to expect these benefits because they are guaranteed under certain conditions. *


Shared state and federal spending pg 380 7

Shared State and Federal SpendingPg. 380 #7

  • Medicaid - pg. 380 #6

    • Provides health insurance for low-income families

  • Unemployment

  • Education

  • Lower-income housing

  • Highway construction

  • Mass-transit

  • Healthcare

  • Employment training


Make up of the federal budget

Make Up of the Federal Budget

Pg. 380 #8

Discretionary:

Mandatory:


Social security and medicare balance

Social Security and Medicare Balance


Fiscal responsibility

Pg. 380 #5 ; Whose retirements are funded by the money today’s wage earners are now paying into Social Security?


Needy seniors or greedy geezers

Needy Seniors or Greedy Geezers

Pg. 380 #9

What problems do entitlement programs cause?

b. Why might it be difficult for lawmakers to make changes to entitlement programs?


Lyndon b johnson 1965

“Don’t ever argue with me [about health]. I’ll go a hundred million or billion on health or education. I don’t argue about that any more than I argue about Lady Bird [Mrs. Johnson] buying flour. You go to have flour and coffee in your house. Education and health. I’ll spend the money. I may cut back some tanks. But not on health.”

- Lyndon B. Johnson, 1965


Fiscal responsibility

Pg. 380 #10a. Why have some members of Congress pushed for additional government programs related to healthcare?b. Describe their suggestions to help solve this problem?


In summary

In Summary

  • Our current outlook on health care and social security cannot continue to support our growing population.

  • What do you think we should do differently?


What is fiscal policy

What is Fiscal Policy?

  • The use of government spending and revenue collection to influence the economy (Pg. 398 #3)

  • The federal government makes key fiscal policy decisions each year when it establishes the federal budget. (Pg. 398 #3)

    • The federal government prepares a new budget for every fiscal year, which goes from October 1 to September 30. (Pg. 398 #4)


The federal budget process

The Federal Budget Process

Pg. 398 #7

  • Federal agencies send requests for money to the Office of Management and Budget.

  • Office of Management and Budget works with President to create budget. President sends budget to Congress.

  • Congress makes changes to budget and sends new budget to President.

  • President signs budget into law.

  • OR President vetoes budget.

    • A. Congress overrides veto by 2/3 majority.

    • B. Congress and President compromise to create a new budget.


Budget hold ups

Budget Hold Ups

  • Appropriations bills must be adopted and submitted to the President by 9/30.

    • Appropriations bill – a bill that authorizes a specific amount of spending by the government (Pg. 398 #5)

  • If Congress cannot finish them in time, it must pass “Stopgap funding”.

  • If Congress and the President cannot agree on temporary funding, then the government shuts down.


Types of fiscal policy

Types of Fiscal Policy

Expansionary

(pg. 398 #6)

Contractionary

Reduces economic growth

Decreased spending

OR

Higher taxes

Implemented to slow down inflation

  • Encourages economic growth

  • Increased budget spending

  • OR

  • Tax cuts

  • Usually implemented during recessionary periods


Which type of fiscal policy pg 398 9

Which type of fiscal policy?Pg. 398 #9

Situation

Policy

  • Inflation is rising, and real GDP is up by 4%

  • GDP is down, and the unemployment rate has increased to 10%


National budget simulation

National Budget Simulation

  • Go to this website:

    • http://bit.ly/MpQP3p

  • Work with a partner to change the budget the way you think it should be changed. (15 minutes)

  • Discuss as a class.


Budget deficit and national debt

Budget Deficit and National Debt


Fiscal responsibility

Budget surplus- more revenue(taxes) was collected than spent (pg. 414 #3)

Budget deficit- more money was spent than collected


Response to the deficit

Response to the Deficit

Print Money

Borrow Money

To avoid hyperinflation, the government borrows money to pay deficits. (pg.414 #4)

Treasury bills – short term maturity: 26 weeks or less

Treasury note – medium term maturity: 2 – 10 years

Treasury bond – long term maturity: 30 years

  • The government controls the treasury and can have money printed at any time.

  • An increase in the money supply can cause inflation to rise.

    • Happened in Germany after WWI


National debt pg 414 5

National Debt (pg. 414 #5)

  • Deficit is the amount borrowed for ONE fiscal year (October 1 – September 30).

  • Debt is the amount of money the government owes to bondholders.


Is the debt a problem

Is the debt a problem?

  • “crowding-out effect” – the loss of funds for private investment caused by government borrowing (pg. 414 #6)

    • People buy bonds instead of stock.

  • Government must pay interest to bondholders

    • The more money borrowed the more interest that must be paid.

  • About ¼ of the National Debt is owned by Japan, China and the U.K.


Recent deficit debt problems

Recent Deficit / Debt Problems

  • Clinton created a surplus.

  • The Bush administration planned to use the surplus to secure Social Security, provide additional medical benefits to seniors and reduce income taxes.

  • His plan was thwarted when the stock market slowed down, tax revenue decreased and the Terrorist Attacks of 9/11 required unexpected military spending.


Think pair discuss

Think:Pair:Discuss

  • Answer questions 7 – 9 on page 414 on your own paper. (5 minutes)

  • Pair with your neighbor and discuss your answers. (2 minutes)

  • Discuss answers as a class.


Questions

Questions:

  • #7 Why does the federal government usually not create new money to cover a budget deficit?

  • #8 What are the three possible problems with national debt? Which problem do you see as the most serious?

  • Why did the federal government budget show a large deficit for several years following 2001?


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