Capitalism: Based on private ownership and profit.
Traditional: Based on trade of goods.
Command Economy: Opposite of a supply and demand economy.
Laissez Faire: Very little government involvement in the economy.
Four Factors of Production
Land: Consists of all useful materials found in the natural environment.
Labor: The human effort that goes into producing the goods or services.
Capital: Money used to buy tools and equipment used to produce goods or services.
Entrepreneurship: The people that start their own business, taking all the necessary risks in order to make a profit.
Steps to Federal Budget
1) The President submits a budget request to Congress.
2) The House and Senate pass budget resolution.
3) House and Senate Appropriations subcommittees “markup” appropriation bills.
4) Congress vote on appropriation bills and reconcile differences.
5) The president signs each appropriation bill and it becomes a law.
3 Main Sources of Government Revenue
1) Individual Income Taxes - 47%
2) Corporate Taxes - 12%
3) Payroll Taxes - 33%
GDP: “Gross Domestic Product” Final spending on all goods and services (All together). Measuring the growth of the economy. Growth = healthy economy.
Imputed Rent: The rental of something’s cost. The value of the house as if the owner was a renter.
1789-1921: Congress in control. Simple method of collecting taxes and spending it. Only time with a balanced budget.
1921-1974: The national debt increased majorly, so Congress gave power of the Budget to the president who concentrated the money on the executive branch.
1974-present: The legislative and executive branch share power over the Federal Budget, but they can’t ever compromise and agree, so the federal deficit keeps growing.
Individual Income Tax: Comes from wages or from earnings on investments.
Social Insurance Tax: Used to fund pensions and health insurance for elderly. Also the fund unemployment and disability insurance for workers.
Corporate Income Tax: Tax paid by businesses on their profits each year.
Excise Tax: Levied on the sale of goods and services.
Progressive Tax: Tax burden falls more heavily on wealthy than poor taxpayers.
Regressive Tax: Tax burden, as percentage of income, falls more heavily on poor taxpayers than wealthy because they pay the same amount.
Mandatory Spending: Committed to be spent a specific way and can only be altered by special legislation.
Entitlements: Programs through which individuals receive benefits based on their age, income, etc.
Discretionary Spending: What the budget debated in Congress is made up of.
Earmarks: A frequent complaining about the budget focuses on the practice of using earmarks to set aside funds for specific projects.
Macroeconomics: The study of economy-wide (large scale) phenomena - unemployment, inflation, economic growth.
Microeconomics: The study of how individual units - business, households, people - make decisions about how to allocate resources.
Resources: Include time, money, labor, and machinery.
Seven Principles of Economics
1) People face trade-offs.
2) The cost of something is what you give up to get it.
3) Rational people think at the margin.
4) People respond to incentives.
5) Trade can make everyone better off.
6) Markets are usually a good way to organize economic activity.
7) Future consequences count.
*Poverty can come from trade restriction.
*The government can control prices.
*People usually take the simpler method out.
Supply and Demand
Goods: Material items.
Services: Things that you need or want done.
Consumer/Producer: The buyer/Service provider.
Supply: How much of a good/service there is and how much producers will sell something for a particular price.
Demand: How much people want a product or service.
Accessibility: How attainable a product is to the consumer concerning the object’s use,