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Topic . “The Public Sector. Government’s Role in the Economy”

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Assignment 11 “The Public Sector. Government’s Role in the Economy”

Learning Objectives

Students will be able to

• Identify the economic role of government in the economy.

• Recognize the categories of government spending and the sources of government revenues.

Main Contents

• Public and Private Sectors

• Economic role of government in the economy

• Categories of government spending and the sources of government revenues.

• Circular-Flow Diagram Reviewed

Resources

• McConnell, Campbell; Brue, Stanley; and Flynn, Sean. “Economics, Principles, Problems, and Policies”. 18th Edition, New York, 2009. , chapter 4, pages 72-90

• “The Role of Government in a Market Economy”. Video.

• “Economic indicators and the business cycle”. Khan Academy Video.

• “Private Sector vs. Public Sector”. Video.

• “Public sector: Role of government”. Video.

• Ray, Margaret; and Anderson, David. “Krugman’s Macroeconomics for AP”. Worth Publishers/BFW, 2011

• Anderson, David. “Economics by Examples”. Worth Publishers/BFW, 2007

Online Resources

• OpenStax College. Principles of Economics

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Vocabulary and Key Terms

▪ Personal Distribution of Income

▪ Personal taxes

▪ Personal Saving

▪ Personal Consumption Expenditures

▪ Economic Government’s Role

▪ Transfer payment

▪ Market intervention

▪ Taxation

▪ Market failure

▪ Externalities

▪ Subsides

▪ Public Goods and Services

▪ Quasi-public goods

▪ Government Purchases

▪ Structure of Federal Expenditures

▪ Federal Tax Revenues

Study questions

1. What is government’s economic role in the economy? List and explain the basic economic functions of governments.

2. Make a circular flow diagram including the public sector. Explain how the government intervention affects the circular diagram. (The circular flow Revisited)

3. What are the sources of government revenues and how does it allocate its expenditures?

4. Draw a production possibilities curve with public goods on the vertical axis and private goods on the horizontal axis. Assuming the economy is initially operating on the curve, indicate how the production of public goods might be increased. How might the output of public goods be increased if the economy is initially operating at a point inside the curve?

5. Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: (a) French fries, (b) airport screening, (c) court systems, (d) mail delivery, and (e) medical care. State why you answered as you did in each case.

6. Use the circular flow diagram to show how each of the following government actions simultaneously affects the allocation of resources and the distribution of income:

a. The construction of a new high school.

b. A 2-percentage-point reduction of the corporate income tax.

c. An expansion of preschool programs for disadvantaged children.

d. The levying of an excise tax on polluters

7. What is the most important source of revenue and the major type of expenditure at the Federal level? At the state level? At the local level?

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