Economics: Theory and Practice, 10th Edition

CHAPTER 6

The Role of Government in the Macroeconomy

CHAPTER OBJECTIVES

To identify the major expenditures and revenues of federal, state, and local governments.

To distinguish among progressive, proportional, and regressive taxes, and discuss recent tax issues and reforms.

To introduce fiscal policy, explain its mechanics, and differentiate between discretionary and automatic fiscal policy.

To define a surplus, balanced, and deficit budget, and identify the economic impact of each.

To explain the relationship between the federal budget and fiscal policy.

To define the national debt, explain 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 ...