Economics, 11th Edition

CHAPTER 6The Role of Government in the Macroeconomy

CHAPTER OBJECTIVES

• Identify the major expenditures and revenues of federal, state, and local governments.
• Distinguish among types of taxes—progressive, proportional, and regressive—and discuss tax reforms.
• Explain fiscal policy, its mechanics, and differentiate between discretionary and automatic fiscal policy.
• Define a surplus, balanced, and deficit budget, and identify their economic impacts.
• Explain the national debt, its financing, size, and burden on taxpayers, and introduce crowding out.

Let's begin this chapter with a quick civics lesson. As the world becomes more global and we are far more influenced by the activities of other nations and cultures, differences in the types of governments under which people live become more relevant. Global concerns have also fostered an increased awareness of, and interest in, the democratic form in the United States. Here people elect other people to represent them and make decisions on their behalf; decisions are not made by dictators, military or religious leaders, or kings.

The philosophy underlying a representative form of government has fostered multiple political subdivisions in the United States: Authority and functions are dispersed through many government units. There is a federal jurisdiction along with state and local jurisdictions. As a result, we elect and give decision-making authority to a president, congresspersons, a state governor and state legislators, and ...