Questions for Chapter 10 - Government Spending

Explain the two kinds of government spending.

1. The first is in the form of goods and services. The government buys many goods, such as tanks. It needs land for parks and capital goods for schools and laboratories. The government also needs to purchase supplies and pay for utilities. Finally, it must hire people to work in its agencies and staff the military. 2. The second type of government expenditure is a transfer payment, which is a payment for which the government receives neither good nor services in return. With the exception of Social Security, people normally receive these payments solely because they need assistance.

How does the spending by state and local governments compare to federal spending? What might explain any differences?

All of the states have grown over the years. The spending by state and local governments increased more then federal spending. Federal spending started with a higher percentage of GDP but their growth wasn't as much as the state and local government.

Identify the purpose of a balanced budget amendment.

At the state level, the process of creating a budget and getting approved for spending can take many forms. However, under balanced budget amendment states often must cut spending when revenues drop.

What were the results of government efforts to reduce deficits?

By reducing federal spending, the deficit can also be controlled. A terrorist attack in 2001, for example, led to unplanned government spending on homeland security and the wars in Afghanistan and Iraq. As this was President Bush's first year with tax cuts and the economy was slow, the government had fewer tax revenues than in previous years. As a result, record federal budget deficits returned in 2002.

Explain why entitlements are so named.

Entitlements are government checks people receive because they are so called "entitled" to them by law. Examples of this are Social Security and Medicare which are entitlements, and they are the largest programs in the category. When people refer to reforming entitlements they are usually talking about these two programs.

List four legislative attempts to deal with the problem of federal budget deficits.

Gramm-Rudman-Hollings, Budget Enforcement Act of 1990, Omnibus Budget Reconciliation Act of 1993, and Balanced Budget Agreement of 1997.

list the five largest federal government expenditures.

Healthcare, Social Security, and defense, income and payroll taxes are the primary revenue sources.

According to Rivlin, what is the best way for states to attract business?

Improvements in education and infrastructure.

How do local governments spend their funds?

Local governments spend their money on education,health and Social services.

Describe the difference between mandatory and discretionary spending.

Mandatory spending is spending in the federal budget that is required by law. An example of mandatory spending is Social Security. Because the government passed a law requiring federal monies to be put into Social Security, they are required to use budget money for it each year. Discretionary spending is spending for which the amounts change every year based on need. An example of this might be NASA: depending on the projects on their agenda, they may need more or less money in a given year.

Describe the way the government competes with the private sector.

Many public colleges and universities compete with more expensive private ones. The cost difference is due to the grants given by the government to public institutions. The government runs a system of hospitals for military veterans, which are funded with taxpayer dollars. At the same time, these facilities compete with hospitals in the private sector that offer similar services.

What world events may have contributed to the increase in defense revenues from 2000 to 2005?

Many things could have increased it such as invasion in Iraq, alqaedas attack on World Trade Center and Pentagon, etc. could have been a possible reason why. Mostly because the US could feel threatened and increase the contributions.

Identify the categories of federal, state, and local spending.

Most federal spending is on social security, national defense, income security, Medicare, health, etc. Most state spending is on budget processing, intergovernmental expenditures, public welfare, etc. Most local spending is on elementary and secondary elementaries, public utilities, public safety and health, etc.

What is the focus of state budgets?

Most funding is for K-12 education, public colleges and universities, health care, transportation, public safety, and other services.

List ways the national debt can affect the economy.

National Debt can affect the economy by - Privatizing purchasing power and transferring it to the public sector. - The government can reduce economic incentives if it appears to spend money carelessly. - Federal deficit spending requires financial market borrowing. The temporary use of funds can lead to higher interest rates, meaning all borrowers are required to pay more. - Redistributing income, the national debt, and the tax structure can impact the distribution of income.

How does Rivlin define "fiscal sanity"?

None of us are worried about the deficit for this year," said Brookings Senior Fellow and Former White House Office of Management and Budget Director Alice M. Rivlin. "We are worried that these deficits are not temporary, and will remain at 3.5 percent of Gross Domestic Product.

If you were to argue for reduced spending at the state and local levels, which categories would you choose?

Other broad categories of the federal budget include education, training, employment, and social services; transportation; veterans' benefits; administration of justice; and natural resources and the environment. They include both mandatory and discretionary spending. Individual states, like the federal government, also have expenditures. Like the federal government, states must approve spending before distributing funds.

Why is defense spending important to Boeing?

Over time, Boeing has become the world's leading aerospace producer and the largest manufacturer of commercial jetliners and military aircrafts combined.

List two kinds of government spending and provide three examples of each.

Payment for goods and services ; The government buys many goods, such as tanks, planes, ships, and even space shuttles. It needs office buildings, land for parks, and capital goods for schools and laboratories. Transfer payment ; A transfer payment that one level of government makes to another is known as a grant- in-aid. The receiving government courts this payment as intergovernmental revenue. Interstate highway construction programs are examples of grant-in-aid.

Why are people reluctant to support a reduction in government spending?

People are often reluctant to support reduction in government spending because the reduction in government spending might result in reducing the real GDP.

Why do you think the national debt as a percentage of GDP has not risen at the same rate as the debt per capita?

Perhaps most importantly, as the risk of a country defaulting on its debt service obligation increases, the country loses social, economic, and political power. This, in turn, makes the national debt level a national security issue.

Explain why politicians insert "pork" items into other legislation.

Pork is a term used by some to describe a line-item budget expenditure that dodges normal budget-building procedures. Since most pork projects provide generous benefits to a small number of individuals or businesses, taxpayers generally would not otherwise approve the projects.

How does the "pork" spending described by the columnist on page 261 illustrate a conflict between political and economic goals?

Spending on "pork" projects wins support for elected official but is an inefficient use of government resources.

Look at Figure 10.3 on page 273. Why do state expenditures not include elementary and secondary education? Do they not pay for it? Explain.

States mainly focus on spending on budget processing, intergovernmental expenditures, public welfare, etc. whereas other local spending focuses on things such as elementary and secondary education.

In which three ways might government spending impact the economy?

Taxes Interest Rate Import Restriction

Discuss the relationship of the federal deficit to the federal debt.

The deficit is not the debt. The difference between the deficit and the debt lies in the time frame. The federal deficit, or surplus, refers to what happens with the federal government budget each year. The public debt is accumulated over time; it is the sum of all past deficits and surpluses.

Describe two reason; for the growth of government spending since the 1930s.

The growth in government spending since the 1930s had two main causes. First, a major change in public opinion gave the government a larger role in everyday economic affairs. Second, massive government spending funded the United States involvement in World War II.This resulted in more people working, as factories converted to war production.

People are living longer and families have fewer members. How will the combination of these two factors affect future transfer payments such as Social Security?

The individual expenditures in the federal budget can be grouped into broad categories. The largest is for payments to aged and disabled Americans through the Social Security program. Retired persons receive benefits from the Old-Age and Survivors Insurance (OASI) program. Those unable to work receive payments from disability insurance (DI) programs.

What is the difference between the national debt and the federal deficit?

The national debt is the amount of money owed by the federal government. Federal deficit is exactly how much the government spends exceeds how much it brings in. Taxes, fees, and investments are the sources of federal government income.

List the three major categories of spending by local governments.

The three major categories are elementary and secondary elementaries, public utilities, public safety and health.

Why is it difficult for the NSA to compete with the Internet giants in hiring mathematicians?

They are limited to hiring only American citizens and that is a big restriction because many other countries have better intelligence in math like China or India.

What work do mathematicians perform for the NSA?

They try to match wits with the Soviets to build better things and each side tries to protect its own code by trying to destroy the others.

Do you think that transfer payments, such as unemployment compensation, are a successful or unsuccessful way to accomplish the goal of economic security? Explain your answer.

Transfer payments are successful in ways but also not successful. It is successful because it helps people live and stay secure which helps them bounce back on their life. It is unsuccessful because some people take advantage of the system.