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ECONOMICS 101 Fiscal and Monetary Policy Ensuring Economic Stability A GOVERNMENTS PLAN FOR COLLECTING AND SPENDING MONEY IS CALLED A

BUDGET THE FEDERAL BUDGET IS THE BUDGET FOR THE NATIONAL GOVERNMENT

THE PRESIDENT PREPARES THE BUDGET AND SUBMITS IT TO CONGRESS ACTUALLY, THE OFFICE OF MANAGEMENT AND

BUDGET (OMB), WITHIN THE EXECUTIVE OFFICE OF THE PRESIDENT (EOP), PREPARES THE BUDGET THE CONGRESS WORKS ON THE BUDGET AND SUBMITS IT BACK TO THE

PRESIDENT FOR FINAL APPROVAL THE FEDERAL BUDGET IS FOR ONE YEAR THE BUDGET IS MADE UP OF

TWO MAIN PARTS: EXPENDITURES AND REVENUES EXPENDITURES: MONEY THE GOVERNMENT SPENDS ON ITS PROGRAMS AND SERVICES

REVENUES: THE MONEY RAISED (MOSTLY THROUGH TAXES) TO PAY FOR GOVERNMENT EXPENDITURES GOVERNMENT BUDGETARY POLICY IS

CALLED FISCAL POLICY IN OTHER WORDS, FISCAL POLICY EXAMINES HOW MUCH (AND ON WHAT) IS THE FEDERAL GOVERNMENT SPENDING AND HOW MUCH (AND WHAT TYPE) IS THE FEDERAL

GOVERNMENT TAXING BALANCED BUDGET: REVENUES = EXPENDITURES BUDGET SURPLUS:

REVENUES > EXPENDITURES BUDGET DEFICIT: REVENUES < EXPENDITURES LETS TAKE A LOOK BACK AT THE

FEDERAL BUDGET, GOING FROM PRESIDENT LYNDON JOHNSON IN THE LATE 1960S TO THEN PRESIDENT GEORGE W. BUSH IN THE EARLY 2000S WHEN THE GOVERNMENT RUNS A

DEFICIT, IT ADDS TO OUR NATIONAL DEBT SO WHAT IS OUR CURRENT NATIONAL DEBT?

US NATIONAL DEBT (AS OF 10:09 PM, NOVEMBER 7TH, 2016) $19,901,485,232,719.56 The estimated population of the United States is 324,933,147, so each citizen's share of this debt is

$61,239. The last time we had a surplus in our budget was under President Clinton in 2001. HOW HAS IT CHANGED FROM JUST LAST NIGHT?

HTTP://WWW.USDEBTCLOCK.ORG/ HOW CAN THE FEDERAL GOVERNMENT SURVIVE WITH SUCH HUGE DEBT?

THE SAME WAY FAMILIES SURVIVE IN DEBT. YOU FIND A CREDITOR TO FINANCE YOUR DEBT. MOST AMERICAN FAMILIES LIVE IN DEBT.

FOR EXAMPLE, MOST AMERICAN FAMILIES DO NOT BUY THEIR NEW HOME OUTRIGHT. THEY GET A MORTGAGE COMPANY OR A BANK TO FINANCE THE PAYMENT OF THEIR HOME OVER A 30-YEAR MORTGAGE

SIDE NOTE: THE HOUSING CRISIS OCCURRED BECAUSE MANY BANKS WERE GIVING MORTGAGES TO COUPLES WHO WERE POOR CREDIT RISKS. THEY COULDNT PAY BACK THE FULL

MORTGAGE PAYMENTS OVER THE COURSE OF THE LOAN. WHILE THEY COULD PAY OFF THE PAYMENTS IN THE EARLY STAGES OF THE LOAN, THEY COULDNT AFFORD THE PAYMENTS WHEN THE LOAN PAYMENTS WENT UP.

BANKS ENDED UP FORECLOSING ON HOMES! MOST AMERICAN FAMILIES DO NOT BUY A NEW CAR OUTRIGHT. THEY GET A BANK (OR THE CAR COMPANY) TO FINANCE THE PAYMENT OF

THEIR CAR OVER A X-MONTH PAYMENT. MOST AMERICAN FAMILIES DO NOT USE CASH TO PAY FOR BIG-TICKET CONSUMER ITEMS. THEY CHARGE THEIR PURCHASES ON A

CREDIT CARD. MANY AMERICAN FAMILIES DO NOT PAY CASH TO SEND THEIR KIDS OFF TO COLLEGE. STUDENTS GET LOW-INTEREST

GOVERNMENT LOANS TO PAY THEIR TUITION AND GET THROUGH COLLEGE. WHY DO BANKS AND OTHER LENDERS ASSUME THE DEBT OF AMERICAN FAMILIES?

BECAUSE THEY MAKE MONEY FROM OUR DEBT! BANKS AND OTHER LENDERS GET TO CHARGE INTEREST FOR THE LOANS THEY LEND TO US!

THE FEDERAL GOVERNMENT DOES THE SAME THING AS MOST AMERICAN FAMILIES. THEY OPERATE IN DEBT. THEY HAVE CREDITORS FINANCE THEIR DEBT LIKE AMERICAN FAMILIES HAVE

CREDITORS FINANCE THEIR DEBT. THE POINT IS YOU CAN LIVE IN DEBT. YOU JUST HAVE TO GET SOMEONE (USUALLY A BANK OR SOME OTHER LENDER) TO FINANCE YOUR DEBT.

IN THE CASE OF THE FEDERAL GOVERNMENT, WHO FINANCES ITS DEBT AND HOW DOES IT WORK? THE FEDERAL GOVERNMENT SELLS

TREASURY SECURITIES OF VARYING MATURITY. FOR INVESTORS, GOVERNMENT BILLS, NOTES AND BONDS ARE CONSIDERED SAFE BECAUSE THEY HAVE A GUARANTEED RATE OF RETURN,

BASED ON FAITH IN FUTURE U.S. TAX REVENUES. IN OTHER WORDS, BUYING U. S. GOVERNMENT BONDS IS CONSIDERED A SAFE INVESTMENT.

THEY WILL EARN INTEREST PAYMENTS FROM THE FEDERAL GOVERNMENT IN ADDITION TO RECEIVING THEIR FULL PRINCIPAL THE BIGGEST SINGLE HOLDER OF U.S.

GOVERNMENT DEBT IS INSIDE THE UNITED STATES! AS OF THIS TIME LAST YEAR (2016), US COMPANIES HELD A LITTLE OVER TWO THIRDS OF THE DEBT (AROUND $12.9 TRILLION). CHINA WAS THE LARGEST

FOREIGN OWNER, AND THEY ONLY OWNED ABOUT $1.3 TRILLION. Current holders http://ticdata.treasury.g ov/Publish/mfh.txt

SO WHERE DO WE SPEND OUR MONEY? EXPENDITURES ARE MADE UP OF DISCRETIONARY SPENDING AND

MANDATORY SPENDING. DISCRETIONARY SPENDING REQUIRES AN ANNUAL APPROPRIATION BILL, WHICH IS A PIECE OF LEGISLATION

SINCE THE SPENDING IS TYPICALLY FOR A FIXED PERIOD (USUALLY A YEAR), IT IS SAID TO BE UNDER THE DISCRETION OF THE CONGRESS DISCRETIONARY SPENDING FUNDS OUR

15 EXECUTIVE DEPARTMENTS OF THE FEDERAL GOVERNMENT AS WELL AS THE 90 INDEPENDENT AGENCIES! THE TOP DISCRETIONARY SPENDING IS FOR THE DEPARTMENT OF DEFENSE.

IN FACT, THE DEPARTMENT OF DEFENSE GETS MORE DISCRETIONARY SPENDING THAN THE OTHER 14 DEPARTMENTS COMBINED! MANDATORY SPENDING FUNDS

"ENTITLEMENT" PROGRAMS. THESE ARE CALLED ENTITLEMENTS BECAUSE INDIVIDUALS SATISFYING GIVEN ELIGIBILITY REQUIREMENTS SET BY PAST LEGISLATION ARE ENTITLED TO FEDERAL GOVERNMENT BENEFITS OR SERVICES

THE LARGEST MANDATORY SPENDING PROGRAMS ARE SOCIAL SECURITY, MEDICARE, AND MEDICAID SO WHAT EXACTLY IS A TAX?

A tax is the method most countries use to raise revenue for their governments THESE TAXES GO TOWARDS PAYING OFF

GOVERNMENT EXPENDITURES FORMS OF TAXATION There are different forms of tax systems

Proportional Progressive Regressive Tax

Tax Tax PROPORTIONAL TAX

The easiest type of tax Takes the same percentage of income from everyone

If you make $1,000 pay $100 in taxes If you make $100,000 pay $10,000 in taxes

Example: 10% Tax on all income A PROPORTIONAL TAX IS OFTEN CALLED A FLAT TAX BECAUSE EVERYONE PAYS THE SAME PERCENTAGE RATE

PROGRESSIVE TAX

The proportion of income taken as a tax increases as your income increases In laymans terms: the more you make, the greater percent you have to pay This is a precautionary measure against

taxing the poor more than they can afford to pay OUR FEDERAL INCOME TAX IS PROGRESSIVE

TRUMPS PRESIDENCY HAS PROPOSED TO CHANGE THE TAX BRACKETS. HERES HOW THEY ARE CURRENTLY: HERES THE PROPOSED CHANGES:

REGRESSIVE TAX As opposed to a progressive tax, the proportion on a regressive tax decreases the higher your income

In laymans terms: the more you make, the less you pay

Not considered a great tax system since it taxes the poor much more than they can afford to pay FOR EXAMPLE.

A poor person and a rich person both buy $100 in groceries

Each pays $6.75 in sales taxes The $6.75 takes more out of the poor persons income than it takes out of the rich persons income

In that sense, a flat tax is in fact regressive WHAT KINDS OF TAXES ARE THERE?

Income tax: a tax that is withheld from your paycheck every month, you file a tax return at the end of the year to calculate how much you owe

Both Federal and State withholding are based off income rates, as shown earlier. The government automatically takes money from your paycheck based on how much you are estimated to owe in taxes.

Federal withholding can be anywhere from 0% to 39.6%, based off your income. State withholding can be from 0% to 7.75%, based off your income. At the end of the year, you must file a tax return.

It takes into account what you earned, any deductions you may have, and computes your actual income tax. From that, you subtract what was already withheld from your checks.

If what they took is over what you actually owe, they will pay it back to you. If what they took is less, they will make you pay the difference. IN JANUARY,

EMPLOYEES RECEIVE A W-2 FORM FROM THEIR EMPLOYERS THAT INFORMS THEM OF THEIR PREVIOUS YEARS INCOME/WAGES AND THE AMOUNT OF TAXES WITHHELD FROM THEIR PAYCHECK

THIS FORM IS ALSO SENT TO THE IRS (INTERNAL REVENUE SERVICE) Form 1040 (Federal Tax Return)

Form D-400 (State Tax Return) PAYROLL TAX: TAXES DEDUCTED FROM A WORKERS PAYCHECK TO FUND SOCIAL SECURITY

AND MEDICARE THE PAYROLL TAX THAT FUNDS SOCIAL SECURITY IS CALLED FICA WHICH STANDS FOR FEDERAL INSURANCE CONTRIBUTIONS

ACT EXCISE TAX: A TAX PAID ON ONE SPECIFIC ITEM EXCISE TAXES ARE PAID WHEN A

CONSUMER PURCHASES GASOLINE, TOBACCO, ALCOHOL, OR MAKES LEGAL BETS (GAMBLING) SALES TAX

When you are taxed on purchasing certain items. Groceries carry a 2% tax. 6.75% for consumables. Variable Other Tax Rates

PROPERTY TAX Tax paid to a county and city for owning property. Can be for: Houses. Vehicles. (cars, motorcycles, boats, etc.)

Trailers. Land. Businesses pay tax on capital. (machinery, buildings, etc.) ESTATE TAX:

TAX COLLECTED ON WEALTH PASSED DOWN TO A DECEASED PERSONS HEIRS THE ESTATE TAX DOESNT KICK IN UNLESS THE ESTATE IS VALUED AT MILLIONS OF DOLLARS!

CAPITAL GAINS TAX: PAID ON THE SALE OF CAPITAL! SUCH THINGS AS STOCKS, BONDS, THE SALE OF HOMES, BUSINESSES, ETC.

MONETARY POLICY THE FEDERAL RESERVE BOARD (THE FED) CONTROLS MONETARY POLICY FEDERAL RESERVE

HEADQUARTERS THE FED WAS ESTABLISHED IN 1913 THE FED IS THE CENTRAL BANK OF THE U.S.

THE FED IS A BANKERS BANK THOUSANDS OF COMMERCIAL BANKS ARE MEMBERS OF THE FEDERAL RESERVE SYSTEM

THE PRESIDENT APPOINTS (& SENATE RATIFIES) THE SEVEN MEMBERS WHO MAKE UP THE BOARD OF DIRECTORS FOR 14YEAR TERMS THE PRESIDENT SELECTS ONE OF THE

BOARD MEMBERS TO CHAIR THE FED FOR A FOUR-YEAR TERM (WITH SENATE APPROVAL) JANET YELLEN, CURRENT CHAIR OF THE FEDERAL RESERVE

THE FED OVERSEES MANY LARGE COMMERCIAL BANKS IT CAN BLOCK MERGERS IF IT BELIEVES THE ACTION WILL LESSEN COMPETITION

THE FED HOLDS THE GOVERNMENTS MONEY (REVENUES ARE DEPOSITED IN THE FED) THE FED ISSUES (DOESNT PRINT) THE

NATIONS CURRENCY (PAPER AND COINS) AND CONTROLS ITS CIRCULATION ONE OF THE FEDS MAJOR RESPONSIBILITIES IS MONETARY POLICY

CONTROLLING THE SUPPLY OF MONEY (THE COST OF BORROWING MONEY) IN THE ECONOMY THE FED CAN RAISE OR LOWER THE DISCOUNT RATE,

THE RATE THE FED CHARGES MEMBER BANKS FOR LOANS IF THE DISCOUNT RATE IS LOW, THEN BANKS CAN LEND OUT MORE MONEY TO CUSTOMERS AT A LOWER INTEREST

IF THE DISCOUNT RATE IS HIGH, THEN IT IS MORE DIFFICULT FOR BANKS TO LEND OUT MONEY TO CUSTOMERS, AND THEY WILL CHARGE A HIGHER INTEREST RATE TO STIMULATE THE ECONOMY

(BECAUSE OF LOW GDP AND HIGH UNEMPLOYMENT), THE FED CAN LOWER THE DISCOUNT RATE THIS ENCOURAGES BANKS TO BORROW MONEY FROM THE FED TO MAKE LOANS TO

THEIR CUSTOMERS LOW INTEREST RATES = BORROWING = INVESTMENT IN BUSINESSES & CONSUMER SPENDING = ECONOMIC GROWTH

THE CONCERN HERE IS OF INCREASED INFLATION (THE RATE AT WHICH THE GENERAL LEVEL OF PRICES FOR GOODS AND SERVICES IS RISING AS WELL AS THE PURCHASING POWER OF CURRENCY IS FALLING)

TO SLOW DOWN INFLATION, THE FED RAISES THE DISCOUNT RATE, MAKING IT MORE DIFFICULT FOR BANKS TO MAKE LOANS (AND THEREFORE TAKES MONEY OUT OF THE ECONOMY)

HIGH INTEREST RATES = LACK OF BORROWING = LITTLE INVESTMENT & LITTLE CONSUMER SPENDING = ECONOMIC DOWNTURN = LESS INFLATION

SO, GENERALLY SPEAKING, WHEN INFLATION IS RISING, THE FED WILL RAISE INTEREST RATES TO SLOW DOWN THE ECONOMY

BUT, WHEN UNEMPLOYMENT IS RISING, THE FED WILL LOWER INTEREST RATES TO SPUR ON THE ECONOMY THE FED TRIES TO KEEP A BALANCE BETWEEN INFLATION AND UNEMPLOYMENT

RATE BY ITS CONTROL OF MONETARY POLICY LOOSE MONEY: LOW INTEREST RATES

TIGHT MONEY: HIGH INTEREST RATES COMMERCIAL BANKS SOMETIMES FAIL, DESPITE THE BEST EFFORTS OF THE FED

THE MOST IMPORTANT INSURANCE AGENCY IS THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), A FEDERAL CORPORATION THAT INSURES INDIVIDUAL ACCOUNTS IN FINANCIAL INSTITUTIONS

FOR UP TO $250,000. KEEPING OUR FINANCIAL SYSTEM SAFE

When the banking system collapsed in 1934, the resulting crisis wiped out peoples entire savings.

Congress passed, and President Franklin D Roosevelt signed, legislation to protect

deposits. This legislation created the FDIC.

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