Macroeconomics
Unit 3
Minimum Wage
New York State
 $7.25
Federal Government
 $7.25
Highest Minimum Wage
 State
Washington State
Tip
Minimum
Wage
$2.13
$9.04
 City
San Francisco
$10.24 (Since 1/1/12)
History of Taxation in the U.S.

How did the issue of
taxation influence the
American Revolution?
“No Taxation Without
Representation”
 Townshend Acts, Stamp Act


How did taxation lead to the
end of the United States 1st
government the Articles of
Confederation?
No Power to Tax
 Weak Central Government

History of Taxation in the U.S.
was the 1st Federal
Income Tax levied in
1861?
 Why
 To
Pay for the cost of
raising an army to fight the
Civil War
 What
was the purpose of
the 16th Amendment?
 Establish
a Federal Income
Tax on All Americans
History of Taxation in the U.S.
 Why
do you think the
Federal Government the
passed the 21st
Amendment (The repeal
the 18th Amendment) in
1933 during the Great
Depression?
 25%
unemployment meant
less tax revenue collected
 Can tax Alcoholic
Beverages
Employment, Labor, and Wages
 What
is MACROECONOMICS?
 The
branch of economics that deals with
the economy as a whole, including:
employment, GDP, inflation, economic
growth, and the distribution of income.
 What
makes up the civilian labor
force?
 Men
and women, 16 and up who are
either working or actively looking for a
job.
Circular Flow



Key Feature
 How three aspects of the economy interact with
each other: businesses, government, and
households.
Factor Markets:
 Refers to markets where the factors of production
are bought and sold such as the labor markets
Product Markets:
 A market where products are sold (stores, malls,
etc.)
Circular Flow

Draw the circular flow chart in your notes
Labor Unions
Types of Unions:
1. Craft Union: an association of skilled
workers who perform the same kind of
work.
 Examples: what can you think of?
2. Industrial Union: an association of all
workers in the same industry, regardless of
the job each worker performs.
 Examples:
 UAW-
United Auto workers
Union Activities
1. Strike:
 refusal to work until demands are met
2. Picket:
 Parade in front of employers business
carrying signs about the dispute
3. Boycott:
 A mass refusal to buy products from
targeted employers or companies.
Categories of Labor
The four major categories of labor are
based on the general level of knowledge
and skills needed to do a particular kind of
job.
 Unskilled Labor: work with their hands
 Examples:
 Often
digging ditches, picking fruit
lowest paid workers
Categories of Labor
 Semiskilled
Labor: mechanical ability
and skills to operate machines that
require a minimum amount of training
 Examples:
dishwasher, lawnmowers
 Skilled
Labor: operate complex
equipment and can perform tasks with
little supervision
 Examples:
techs
carpenters, typists, computer
Categories of Labor
 Professional
Labor: highest
level of knowledge, based on
education
 Examples: teachers, doctors,
lawyers…
Wages
Most occupations have WAGE RATE, a
standard amount of pay given for work
performed.
 Non-competing labor grade:


broad categories of labor that do not directly
compete with one another because of
experience, training, education, and other
human capital investments.
Wages
 Why
does the average paramedic
make $38,000 and a professional
football player makes $3 million?
 Is
it because athletes are smarter?
 Are they more qualified?
 Who pays the salary of each
profession?
Wages
Traditional Theory of Wages:
1.Supply and Demand
Based
on the Needs of the
Free Market
Wages
2.Theory of Negotiated Wages
Organized
labor’s bargaining
strength is a factor that
determines wages
Wages
3.Signaling Theories
Employers
pay more for
certificates, diplomas and
degrees
Business Cycles and
Unemployment
Economic growth is something that is beneficial to
almost everyone. However, we cannot take economic
growth for granted. Sometimes, economic growth is
interrupted by Business Cycles
 Systematic ups and downs of real gross
domestic product. At other times, economic
growth is interrupted by
Business Fluctuations
Rise and fall of real GDP over time in a nonsystematic manner.
Phases of the Business Cycle:

1. Recession- GDP declines for 2 quarters
in a row or six consecutive months.
Peak- GDP goes up
 Trough- GDP turns around and stops going
down.

2. Expansion- a period of recovery from
recession
 3. Depression- state of the economy with a
large number of people out of work, acute
shortages and excess capacity in
manufacturing plants.

 When
a recession becomes severe!!!
Unemployment Types:





1. Frictional- workers who are between jobs for one
reason or another.
2. Structural- fundamental change in the operations
of the economy that reduces the demand for workers
and their skills (Globalization = less American
manufacturing)
3. Cyclical- directly related to servings in the business
cycle (recessions less people buy cars = auto
manufacture layoffs)
4. Seasonal- changes in weather (Pool builders,
Snow Plowing)
5. Technological- replacement of people by
machines. (Self-scanners)
Identifying Unemployment
Frictional
2. Structural
3. Seasonal
4. Technological
5. Structural
6. Frictional
7. Cyclical
8. Cyclical
9. Technological
10. Structural
1.
Cause
Business
Decisions
Changes in
Interest Rates
Consumer
Expectations
External Issues
Description
Effect
Lorenze Curve
Distribution of Wealth

Lorenze Curve

a curve that shows how much actual
distribution of income varies from an equal
distribution.
1. Education
 2. Wealth
 3. Discrimination
 4. Ability
 5. Monopoly of power

Poverty in America
1.What group has seen the highest
increase in poverty rates? Why?
2.The new poverty measures take
what into account
3.The new formula puts what % of
Americans in poverty
4.What is the annual poverty
income threshold?
Poverty in America
 Poverty
Guidelines- are annual dollar
amounts used to evaluate the money
income that families and unrelated
individuals receive
 # of people in poverty- 35.9 million
(12.9 children)
 Reasons for growth of povertygrowing gap in the distribution of
income
Reasons for growth of poverty 1.
goods production to service production
(wages are lower in service industry- food)
 2. Education gap
 3. Decline of unions- many low skilled
workers have to work elsewhere for less
pay
 4. Changing structure of the American
family
Response
 In
a minimum 4 Sentence Response
identify which Government AntiPoverty Program you feel has the
most important Pro’s and explain why.
 In a minimum 3 Sentence Response
explain if you agree or disagree with
your classmate and explain why.
Taxation

Anticipatory Set: Who pays taxes? Raise
your hands! If you have a job, buy
clothing, gasoline, food, or magazines,
attend music concerts YOU PAY TAXES!
Make a list of goods or services you
purchased in the last week in which you
paid a tax.
Taxation

Theoretically, any tax action is undertaking to advance
an accepted social goal, for example, to promote
freedom through a strong military, or to decrease
unemployment through public projects financed by taxes.
Whether these social goals have actually been advanced
is a source for frequent debate. Even the most effective
use of taxation, however sometimes produces totally
unforeseen side effects. For each of the following
actions below, write the goal and the unexpected side
effects (positive and/or negative).
Taxation
Action
Property taxes of used to
fund public education
Goal
Side Effects
Keep public schools
open
Educated Society,
Innovation & Production
Focus more resources
on production
More competition
increases taxes in other
areas
Discourage Use
Healthier Society
Sales tax is no longer
allowed as a deduction
on federal income tax
Raise More $ For the
Government
Tax breaks
Income tax rates are
lowered for most people
Individuals Keep
More of their $
Growth in business,
more spending
High import taxes are
imposed on foreign
made cars
Promote Domestically
Made Cars
Americans spend less on
foreign goods
Corporate tax rates are
lowered.
More corporations
Business taxes are
decreased
High taxes are levied on
cigarettes and alcohol
More Producers = Lower Prices
More Jobs!!
Taxation Cont.
Economic Impact of Taxes
1. Resource Allocation:
a tax placed on a good or service at the factory, raises
the cost of production
2. Behavior Adjustment
Taxes that are used to encourage or discourage certain
types of activities- example: sin tax (reduce
consumption of alcohol or tobacco
3. Productivity and Growth
Taxes can affect incentives to save, invest and work.
4. Incidence of a tax
Final burden of a tax
Taxation
Some taxes will always be needed, so we want to
make them as effective as possible. To do so,
taxes must meet the following criteria:
1. Equity:


fairness- taxes are viewed as being fair if they have few
exemptions, deductions or exceptions
2. Simplicity:

taxpayers and tax collector should be able to understand
the tax laws
3. Efficiency:

a tax should be easy to administer and reasonably
successful at collecting revenue.
Principles of Taxation
 Benefit
Principle:
 those
who benefit from government
goods and services should pay in
proportion to the amount of benefits they
receive.
 Ability-to-pay
 belief
principle:
that people should be taxed
according to their ability to pay.
Types of Taxes
Proportional
 Same percentage rate of taxation on
everyone regardless of total gross
income
 Example:
 Flat
Tax
 Everyone
pay’s 10% of their yearly income no
matter how much you make a year.
 Income

of $10 you pay $1 in taxes
Income of $1 million you pay $100,000 in taxes
Types of Taxes
Progressive:


A tax that takes a larger percentage from the
income of high-income earners than it does from
low-income individuals.
Example:

The United States income tax is considered progressive:
in 2010, individuals who earned up to $8,375 fell into the
10% tax bracket, while individuals earning $373,650 or
more fell into the 35% tax bracket. Basically, taxpayers
are broken down into categories based on taxable
income; the more one earns, the more taxes they will
have to pay.
Types of Taxes
Regressive:


A tax that takes a larger percentage from lowincome people than from high-income people. Tax
is generally a tax that is applied uniformly. This
means that it hits lower-income individuals harder
Examples:

Gas tax and cigarette tax. For example, if a person has
$10 of income and must pay $1 of tax on a package of
cigarettes, this represents 10% of the person's income.
However, if the person has $20 of income, this $1 tax only
represents 5% of that person's income.
Federal Taxes
Federal Tax
Characteristics
Payroll
Individual income tax over
time- deducted from check
(6.2%)
Proportional
Progressive Income
Higher taxable income,
higher income taxed
Progressive
Indexing
Keeps people from paying
more because of inflation
Regressive
FICA- Social Security
Social Security
Proportional
FICA- Medicare
There is no cap rich pays
the same as poor (1.45%)
Proportional
Corporate income
Tax on corporations profits
Progressive
Excise
A tax on manufacture or
sale of selected items
Regressive
Estate and gifts
The government levies on
the transfer of property
when a person dies
Progressive
Customs
A charge levied on goods
brought in from other
countries
Type of tax
Proportional
State and Local Taxes
State/local tax
Characteristics
Type of Tax
Property
A tax on tangible and
intangible possessions,
real estate, furniture
Progressive
Public Utilities
Tax on utilities (electric,
water)
State Liquor Store
Income
Sales Tax
Varies from towns and
cities collect sales tax
along with state sales tax
Other income
Taxation on Investment
Return
National Debt
http://www.usdebtclock.org/
 Up to the minute check of the United
States debt!

Government Spending
Government is big business in America. In fact, all
levels of government in the US spend more than all
privately owned businesses combined. Government
is a major player in our economy due to its enormous
expenditures.
 Per capital

Public sector –


per person basis; total divided by population
part of the economy made up of the local, state, and
federal governments
Private sector
private individuals and businesses
Types of Spending1.
Goods and Services:

the government uses goods, services,
and other resources to provide the public
goods and services that most Americans
enjoy (buildings, land for parks, schools)
2. Transfer Payment:

a payment for which the government
receives neither goods or services in
return. (social security, welfare,
unemployment)
Mandatory v Discretionary
Spending
Mandatory Spending:

Government Spending
by law, no choice



Medicare
Medicaid
Social Security
Mandatory v Discretionary
Spending
Discretionary Spending:
 Area’s
that the government can
pick and choose how much
money they would like to spend
per year
 Defense
 Education
 Healthcare
Impact of Spending
1. Resource allocation:

government spending decisions directly affect
how resources are used.
2. Redistributing of income:

the way in which income is allocated among
families, individuals or other designated groups in
the economy.
3. Competing with the Private sector:

the government produces goods and services
that compete with the private sector. (educationpublic vs. private)
Deficit, Surplus & The National Debt




Deficit Spending
 When government spends more then it brings in.
 Increase in time of economic crisis & war
Federal debt
 Total amount of $ owed to outside lenders. $ used
to support government programs
Balanced Budget
 = amount of $ raised and spent by the
government
Trust Fund
 $ raised and set aside for future government
spending. I.E. Social Security

FED


Modern Banking
Established in 1913 the Federal Reserve
System is 12 Regional Branches of the U.S.
Central Bank that influences the value of the
U.S. dollar by controlling $ supply. Also can
raise & lower interest rates & sell government
bonds.
FDIC

Established in 1933 the Federal Deposit
Insurance Corporation, insures bank deposits
up to $250,000.
The Stock Market

The New York Stock Exchange
Worlds Largest Stock Exchange located on
Wall Street in Manhattan, NYC.
 Over 3 thousand U.S. companies listed
stocks are bought & sold daily.
 Average U.S. daily trading value is $153
Billion

The Stock Market

Dow- Jones Industrial Average

Tracks daily buying and selling of shares of the 30
top U.S. companies. Can provide projections for the
over all health of the economy
 Some









Companies
Coca-Cola
Exxon Mobil
The Home Depot
McDonalds
Microsoft
Walt Disney
IBM
Caterpillar
WalMart
Bull vs. Bear Markets

Bull Market


A strong upward trending Market, tends to
see more buying of stocks & investment.
Bear Market

A weak downward trending market, tends to
see more selling of stocks for cash & less
investment

All visuals taken from Google images