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    Principles of Economics: 2nd Edition by Fred M Gottheil

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    AKARESH JOSE EBOOKS

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    Principles of Economics: 2nd Edition by Fred M Gottheil

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    AKARESH JOSE EBOOKS
    25 views19 pages

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    © All Rights Reserved
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    25 views19 pages

    Principles of Economics: 2nd Edition by Fred M Gottheil

    Uploaded by

    AKARESH JOSE EBOOKS

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
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    You are on page 1of 19

    Principles of Economics

    2nd edition
    by Fred M Gottheil
    PowerPoint Slides prepared by Ken Long

    ©1999 South-Western College Publishing


    1
    Chapter 29
    Government Spending

    08/29/22
    ©1999 South-Western College Publishing
    2
    What is the role of
    government?
    • Note that this is a normative issue
    • Begin with the market failure
    theory of government, government
    intervenes when the market fails
    to do something

    3
    First case of market failure,
    government must provide pure public
    goods
    • A pure private good is rival and
    exclusion is possible
    • A pure public good is just the
    opposite, non-rival and
    exclusion difficult or
    impossible 4
    Example of a pure public
    good
    • National defense
    • Police and fire protection come
    close
    • The free rider problem

    5
    Second case of market failure,
    government needs to correct for
    serious externalities (see chapter 14
    for a discussion of externalities
    Externalities: side effects in
    production or consumption, or
    unpriced by-products
    Can be both positive and
    negative externalities
    6
    Negative externalities (external or social
    costs)--pollution for example
    Positive externalities (external benefits),
    inoculation from disease, education,
    etc.
    The market tends to overproduce things
    with negative externalities and
    underproduce things with positive
    externalities
    Can try to correct for this with taxes,
    subsidies, regulation, etc.
    7
    Other roles of government
    • Merit goods • Redistribution of
    • Promote income
    competition • Stabilize the
    economy

    ©1999 South-Western College Publishing


    8
    What is a Merit Good?
    A good with strong positive
    externalities that market
    demand and supply do not
    produce enough of, in some
    people’s opinion
    ©1999 South-Western College Publishing
    9
    What are examples of a
    Merit Good?
    • higher education
    • artistic endeavors
    • health related goods
    • public libraries
    • national public radio
    ©1999 South-Western College Publishing
    10
    How can government
    redistribute income?
    Through a system of taxes
    and transfers

    11
    What is a
    Transfer Payment?
    Government spending that
    transfers income from
    one person to another

    ©1999 South-Western College Publishing


    12
    What are examples of
    Transfer Payments?
    • welfare •Medicare
    • food stamps •Medicaid
    • social security
    • unemployment benefits
    ©1999 South-Western College Publishing
    13
    2 ways of measuring the
    growth of government
    spending
    • Absolute dollars
    • Relative measure, as a %
    of GDP

    14
    How much does the
    government spend?
    In 1996, state and
    federal governments
    spent $2,636.1 billion

    ©1999 South-Western College Publishing


    15
    Government as a % of
    GDP
    1929, all levels of government,
    about 10%
    Today, between 35-40%
    Normative issue, is this good or
    bad?
    16
    http://www.ssa.gov
    http://nces.ed.gov
    http://www.idresearch.com
    http://www.ed.gov
    http://www.socialsecurity.org
    http://www.ncpssm.org/menu.html
    http://www.publicdebt.treas.gov
    ©1999 South-Western College Publishing 1
    17 7
    • What comprises government spending?
    • What is a Public Good?
    • What is a Merit Good?
    • What is a Transfer Payment?
    • What is Welfare?
    • What is Medicaid?
    • What is Social Security?
    • What is Medicare?
    • What percent of GDP does the
    government spend?
    18
    END
    ©1999 South-Western College Publishing
    19

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