Delaware Recommended Curriculum
This unit has been created as an exemplary model for teachers in (re)design of
course curricula. An exemplary model unit has undergone a rigorous peer review
and jurying process to ensure alignment to selected Delaware Content Standards.
Unit Title:
Money, Banking and Taxing
Designed by:
Rebecca N. Reed
District:
Red Clay Consolidated School District
(Revised September 2011)
Field Tested by:
Holly Golder
District:
Red Clay Consolidated School District (May 2011)
Content Area:
Economics
Grade Level:
8
____________________________________________________________
Unit Content from the Economics 6-8 Clarifications
In order to fully understand the impact of money, banking and taxes in the American
economy, students must first understand how each component within the system
operates. This unit is designed to provide understanding of several key concepts
including: velocity of money, circular flow, fiscal policy impacts. Once these concepts
are understood, then students will demonstrate their understanding by analyzing a
proposed tax policy and the impact upon all sectors of a market economic system.
Money in an economy facilitates trade and encourages specialization by reducing the
costs of exchange. The more an economy specializes, the more efficient it becomes.
With increased efficiency comes a higher standard of living and greater
interdependence. Banks, taxes, and spending by governments transfer income and
financial resources from one entity to another. These actions often promote
economic growth and redistribute income. Banks transfer money from savers to
borrowers. Households are willing to save their money because banks are willing to
offer interest payments as an incentive. Borrowers decide that the benefits of
borrowing outweigh the costs. The loans made by banks transfer savings to
borrowers. These transactions increase the money supply. This in turn increases
economic activity and promotes economic growth.
The goals of the Federal Reserve are to promote economic growth, full employment,
and price stability. By controlling the money supply, the Federal Reserve encourages
or discourages banks from making loans, which influences the level of economic
activity. (How the Federal Reserve attains these goals is addressed in the next grade
cluster.)
Taxes transfer money from individuals and businesses to the government. The
government uses that revenue to provide public goods and services and support the
purposes of government. Taxes that are levied can alter what people buy and affect
production decisions because of their impact on costs in the production process.
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Government spending transfers revenue to individuals and businesses and provides
public goods and services. Public goods and services provide benefits to more than
one person at the same time, and their use cannot be restricted only to those people
who have paid to use. Students should be able to analyze how tax dollars are used
to pay for public goods such as national defense, education, and roads and explain
why these services would be underprovided in the private sector without government
intervention. Governments sometimes use taxes to influence economic activity.
Government policy can address environmental concerns, define and protect property
rights, and attempt to make markets more competitive. Many government policies
also redistribute income. Social welfare programs such a food stamps and Medicaid
are examples of this. Circular Flow Models can help students to analyze the role
of money, banking, taxes and government spending in a market economy.
This unit consists of three sections, called Lessons:
•
Lesson 1 – The Economy as a Whole: Students are introduced to the Circular
Flow Model and how to trace the flow of money throughout the economy
using the model.
•
Lesson 2 – The Federal Reserve System: Students review what they learned
in previous grades about the role and purpose of banks. Then students
receive an introduction to the Federal Reserve System, while focusing on the
goals and functions of the Federal Reserve.
•
Lesson 3 – Government Taxing and Spending: Students are exposed to how
the government receives revenue through taxation and the public goods and
services that are provided. Students will analyze whether taxes are fair and
who directly benefits when taxes are levied.
2
Stage 1 – Desired Results
What students will know, do, and understand
____________________________________________________________
Delaware Content Standards

Economics Standard Two 6-8a: Students will analyze the role of
money and banking in the economy, and the ways in which government
taxes and spending affect the functioning of market economies.
Big Idea

Interdependence
Unit Enduring Understandings (K-12)
Students will understand that:

A nation’s overall levels of income, employment, and prices are
determined by the interaction of spending and production decisions made
by all households, firms, government, and trading partners

Because of interdependence, decisions made by consumers, producers,
and government impact a nation’s standard of living.

Market economies are dependent on the creation and use of money, and
a monetary system to facilitate exchange.
Unit Essential Questions

How do spending, saving and production decisions affect a market economy?

How is money created in a market economy?

How does our government’s taxation and spending policies affect our
economy?
Knowledge and Skills
Students will know…

There are three major players in a market economy: households, businesses,
and government.

Households sell their productive resources to businesses.

Household income is spent, taxed or saved.

Money spent for private goods and services returns to businesses and taxes paid
to the government fund public goods and services.

Savings is money households do not spend on goods and services and banks
transfer money from savers to borrowers.

The Federal Reserve System is the nation’s central bank and can control the
money supply by encouraging or discouraging banks from making loans.

Governments tax citizens in various ways.

Tax revenue is used in various ways and can alter what people buy and affect
production decisions.

Taxes and spending by government transfers and redistributes income and
financial resources from one entity to another.
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
Vocabulary:
Ability to Pay
System
Banks
Households
Services
Benefit
Income and
Recession
Circular Flow
Federal Reserve
Spending
Inflation
Public Goods and
Taxes
Unemployment
Students will be able to…

Trace the flow of money in a market economy.

Use a circular flow model to examine how money facilitates spending and saving
by households and businesses, and to examine how government taxing and
spending affect the funding of a market economy.

Evaluate how banks’ loaning process creates money.

Analyze how the Federal Reserve System acts as the central bank and its policies
influence economic activity.

Identify different types of taxes.

Analyze how government taxation policies influence economic activity.
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Stage 2 – Assessment Evidence
Evidence that will be collected to determine whether or not Desired Results are achieved
___________________________________________________________________
Transfer Task
This summative assessment is a transfer task that requires students to use
knowledge and understandings to perform a task in a new setting or context.
The assessment and scoring guide should be reviewed with students prior to any
instruction. Students should do the assessment after the lessons have been
completed.
Essential Question Measured by the Transfer Task
Click here for the Transfer Task.
Click here for the Roles Worksheet.
Click here for the Transfer Task Rubric.
Click here for Transfer Task Sample Advertisements and Teacher Tips.
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Stage 3 – Learning Plan
(Design learning activities to align with Stage 1 and Stage 2 expectations)
___________________________________________________________________
Lesson One:
The Economy as a Whole
Essential Questions
•
How do different components (sectors) in a market economy interact?
•
How does the flow of money in an economy affect production and spending?
Background
1
Unlike the study of individual markets, the total economy is the sum of all markets in
a society. Understanding involves the ability on the part of the students to analyze
how changes in one market will impact others. In a market economy, there are three
major players in the economy: households, businesses, and government. What the
society produces generates income for households. Households sell their productive
resources (land, labor, capital, and entrepreneurship) to businesses in exchange for
income (rent,
wages, interest, and profit). Household income is spent, taxed, or saved. The money
spent for private goods and services returns to businesses, while the taxes paid to
the government fund public goods and services. Savings is money households do not
spend on goods and services. Most households place this income with financial
intermediaries, banks and brokers. These financial institutions transfer the savings
through businesses borrowing from banks, the buying and selling of corporate stocks
and bonds, the funding
of mortgages, and the buying of insurance. Businesses from small to large borrow to
expand. This requires buying more productive resources from households, which in
turn creates more household income.
Instructional Strategies
Strategy 1: Gathering Information
Anticipation Guide/Gallery Walk
2
Print out the 12 slides from PowerPoint 1-1 to display around the room and 1 copy of
the Anticipation Guide (Activity 1-1) for each student.
Distribute the Anticipation Guide (Activity 1-1) to each student. Have students read
each statement and mark whether they believe the statement is true or false.
Encourage students to support their opinion with facts if possible.
1
Clarifications Document for Economics Standard 2
2
This activity is adapted from FedVille, an online interactive lesson provided by the Federal Reserve Bank
of San Francisco.
6
Allow time for students to move around the “gallery” to find the answers to the
3
questions on the Anticipation Guide. One direction that should be emphasized is
that students are supposed to disperse themselves around the room. When too many
students cluster around one text, it not only makes it difficult for students to view
the text, but it also increases the likelihood of off-task behavior. When students
have made a full pass through the gallery, share the correct answers with students.
Check for Understanding
4
•
List 3 facts about money and banking that were confirmed.
•
List 2 facts learned.
•
List 1 question you have.
Strategy 2: Extending and Refining
Analyzing an Analogy
5
Post the following analogy:
Money is to an economy as oil is to an engine.
~ Barbara Emery, 2011
Tell students that analogies help us to see relationships. Explain that within an
analogy, the words have relationships. Explain that in this analogy money and
economy have a similar relationship to oil and engine.
Scaffold the discussion by asking:
•
What relationship do oil and an engine have?
•
What happens to an engine if there is no oil?
•
How is money in an economy like oil in an engine?
3
A Gallery Walk is a strategy that can be used with most content areas; however, this is particularly
effective with social studies content. During a Gallery Walk, students explore multiple texts or images
that are placed around the room. Teachers often use this strategy as a way to have students share their
work with peers, examine multiple documents, or respond to a collection of quotations. This strategy
requires students to physically move around the room and can be especially engaging to kinesthetic
learners.
4
Abstract from Zygouris-Coe, V., Wiggins, M.B., & Smith, L.H. (2004, December). Engaging
Students With Text: The 3-2-1 Strategy. The Reading Teacher, 58(4), 381–384. doi:
10.1598/RT.58.4.8
5
Analogies are one of the most difficult concepts to teach students. In an analogy, students must infer the
relationship within and between the words presented. They use their prior experiences, intuition,
creativity, perception and much more to determine this relationship.. Effective analogy lesson plans are
ones that not only make connections with other relatable skills and content areas, but provide practical
and easy methods to deconstruct the analogy in order to reveal the relationship of the words.
Wilding, Amy (2010), Analogy Lesson Plans That Make Connections, Lesson Planet, retrieved
February 11, 2010, from www.lessonplanet.com.
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Further explain that without money in an economy, very little economic activity will
take place. Money facilitates trade/exchange. Without money, individuals would
spend a lot of our time trying to trade what we have for what we want. Students
should recall learning about the problems with bartering in grade 2-3.
Check for Understanding

How is money in an economy like oil in an engine?

Complete a different analogy: Money is to an economy like __________.
Rubric
2 – This response gives valid explanation with a valid analogy.
1 – This response gives either a valid explanation or a valid analogy.
Strategy 3: Extending and Refining
Jigsaw
The basic tenet of the circular flow model of economic activity is, "What goes around
comes around." If students have not seen the model before, explain that it shows
the 'big picture' – how key parts of the economy fit together and are interdependent.
Households (consumers) provide businesses with payments in exchange for goods
and services. Business firms make payments to households (workers and investors)
in exchange for labor and other resources. Governments provide public goods and
services to households and businesses in exchange for taxes. Through loaning and
investing practices, the Banks and Financial Institutions impact the economy. The
Federal Reserve has tools that can further influence the economy. Each of the parts
depends on and is influenced by the others.
Prepare/Materials:
•
1 copy of Activity 1-3A for each team of four students.
•
1 copy of Activity 1-3B for each student.
•
Overhead or poster of Activity 1-3B to complete with students.
Distribute one copy of Activity 1-3A for each team of four. Each member of this
team will be responsible for becoming the expert on one of the four sectors
(households, producers, financial institutions, businesses) of the market economy.
Instruct students to meet with other student experts with like assignments (all
households meet, all banks meet, etc.). Each expert group should read the
description on Activity 1-3A and complete the information on Activity 1-3B.
Have experts return to their original team to share the purpose and the functions of
their assigned expert group. Have students complete Activity 1-3B (Circular Flow)
with the information from Activity 1-3A.
Lead a whole class debriefing in order to correct misunderstandings and answer
questions. Refer to the analogy used in Strategy 1-2 and ask students where the
“money” (Income, Sales/Spending, Taxes, Savings and Interest) is in a market
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economy. Ask students to predict what would happen if this economy did not use
money to make exchanges.
Answers for Activity 1-3B
1.
Land, Labor, Capital and
Entrepreneurship
6.
Goods and Services
2.
Income – Rent, Wages,
Interest and Profit
7.
Sales
8.
Savings
9.
Taxes
3.
Savings
4.
Taxes
5.
Public Goods & Services
(Spending*)
10. Public Goods and Services
(Spending*)
11. Loans and Interest
12. Loans and Interest
(Optional) Create an overhead of Activity 1-3B and have students complete as a
visual for the entire class.
Check for Understanding

How does the circular flow model demonstrate interdependence in an
economy? Give an example from your model to support your answer.
Rubric
2 – This response gives a valid explanation with an accurate and relevant example.
1 – This response gives a valid explanation with an inaccurate, irrelevant, or no
example.
Strategy 4: Application
Cooperative Pairs
Distribute Activity 1-4 to each student. Have students work in pairs to complete the
activity.
Answer Key for Activity 1-4
1.
Taxes
7.
1
2.
Savings and Investments
8.
7
3.
Loans and Interest
9.
11
4.
Public Goods and Services
10. 10
5.
Income OR Goods and
Services
11. 13
6.
Resources OR Spending
(Sales)
12. 4
Complete the Story: Accept any scenario that traces the flow of transactions back to
‘households’ from ‘businesses.’
Check for Understanding

How does the flow of money affect the production, spending and saving
decisions in a market economy? Explain your answer with an example.
9
Rubric
2 – This response gives a valid effect with an accurate and relevant example.
1 – This response gives a valid effect with an inaccurate, irrelevant, or no example.
10
Lesson Two: The Federal Reserve System
Essential Question
•
How and why do banks impact the supply of money in a market economy?
Background
Banks transfer money from savers to borrowers. Households are willing to save their
money because banks are willing to offer interest payments as an incentive.
Borrowers decide that the benefits of borrowing outweigh the costs. The loans made
by banks transfer savings to borrowers. These transactions increase the money
supply. This in turn increases economic activity and promotes economic growth.
The goals of the Federal Reserve are to promote economic growth, full employment,
and price stability. By controlling the money supply, the Federal Reserve encourages
or discourages banks from making loans, which influences the level of economic
activity. (How the Federal Reserve attains these goals is addressed in the next
grade cluster.)
Instructional Strategies
Strategy 1: Gathering Information
Brainstorming – Pair/Webbing
In grade 5, students are exposed to different functions of banks and the products
banks provide.
Have students complete Activity 2-1 in pairs. One student should be interviewed
while the other student completes a web with the information shared in the
interview. Have students reverse roles. Students could also be allowed to seek
additional information to add by finding different partners to share and record.
Have students share their webs to the class. While students are sharing, teachers
should check, correct and clarify the student information. Be sure that webs include
such items that demonstrate students’ understanding of how banks work and the
6
role of banks in a community. For example:
6
•
Banks transfer funds, directly or indirectly, from savers to
borrowers.
•
The money households do not spend is called savings.
•
Saving and investing is what households do with money they do not
spend on goods and services.
•
Saving provides resources to businesses to be used as investment
in capital goods.
•
When loans are made to borrowers, it stimulates the nation’s
economy.
•
Businesses and consumers both obtain loans.
Clarifications Document, Economics Standard 2 for grades 4-5
11
•
Mortgages are one kind of a loan.
•
Banks receive deposits from savers and provide loans to borrowers.
•
Banks provide an incentive to savers by paying interest on the
deposits, and then charging interest to borrowers.
•
The difference between interest charged and interest paid is the
bank’s profit.
•
Banks also facilitate exchange by providing access to money. Bank
depositors can write checks or withdraw cash in order to purchase
goods and services.
Check for Understanding

What is the purpose of a bank in an economy? Give an example to
support your answer.
Rubric
2 – This response gives a valid purpose with an accurate and relevant example.
1 – This response gives a valid purpose with an inaccurate, irrelevant, or no
example.
Strategy 2: Gathering Information
Viewing – Video and Simulations
Background
7
The Panic of 1907 saw the failure of many
banks and the loss to households of their
The Fed is a quasi-government
checking and savings deposits. Economic
entity and its regional Federal
activity contracted significantly and J.P.
Reserve Banks are privately
Morgan, a private citizen, saved the
owned. Most of the Fed directors
economy by rescuing the system. Many
are chosen by their stockholders.
influential leaders in the government and
However, individuals do not own
financial sectors thought that there needed
stock in Federal Reserve Banks.
to be a central bank to serve as the “lender
The stock is held only by banks
of last resort.” The goal was to maintain
that are members of the system.
stability in the economy. The Federal
Reserve System (The Fed) was created by
the Federal Reserve Act and signed into law by President Woodrow Wilson on
December 23, 1913. Although the Act was passed in the final days of the legislative
session, its creation had been debated for 6 years.
The Federal Reserve makes available many resources for teaching about the function
of the Federal Reserve with its program FED101. Below is a link to the video, “The
Fed Today” and teaching resources.
Teachers should show the video, The Fed Today and complete Lesson Plan 1.
Teachers could allocate 4-7 class periods to complete the first 4 lessons of this
7
Teacher Tip: Students may require additional instructional activities that explain how the Federal
Reserve creates money. An additional activity/simulation where students deposit money into banks and
banks then loan the excess reserves can be found at: http://ecedweb.unomaha.edu/ve/library/hbcm.pdf.
12
program. Activities and assessments to accompany this program can be found in
the teacher’s guide. Click here for complete Fed Today program materials.
Check for Understanding

How do actions by the Federal Reserve affect consumers and producers?
Give an example to support your answer.
Rubric
2 – This response gives a valid effect with an accurate and relevant example.
1 – This response gives valid effect with an inaccurate, irrelevant, or no example.
Strategy 3: Gathering Information (ALTERNATIVE OR SUPPLEMENTAL)
Summarizing from Text/Gallery Walk
Prepare/Materials
•
1 copy of Money, Banking & Monetary Policy for each student in the class
8
•
1 copy of Graphic Organizer 2-3 for each student
•
5 pieces of chart paper and markers
Have students complete Graphic Organizer 2-3 as they read through the publication.
Once complete, distribute 5 pieces of chart paper with the sections titles at the top of
each paper:
•
What is Money?
•
The Fed’s Role
•
How Banks Create Money
•
Monetary Policy and the Economy
•
The Fight Against Inflation
Have students circulate around the room and share one statement that they
recorded under the “Something I Want to Remember” section of the graphic
organizer. If what they would like to share has already been written, have students
place a check next that statement.
Once completed, have students review the class statements and take note of the
statements most often selected by students. (This is a good opportunity to correct
misunderstandings.)
8
The Federal Reserve makes available many resources for teaching about the function of the Federal
Reserve. The Federal Reserve of Dallas has free publications including Money, Banking & Monetary Policy,
from its Everyday Economics series. Sets of 35 can be requested at: www.dallasfed.org or a pdf version
can be downloaded at http://www.dallasfed.org/educate/everyday/money.pdf.
13
Check for Understanding

How do actions by the Federal Reserve affect consumers and producers?
Give an example to support your answer.
Rubric
2 – This response gives valid effect_ with an accurate and relevant example__.
1 – This response gives valid effect_ with an inaccurate, irrelevant, or no example_.
Strategy 4: Extending and Refining
Simulation
9
Prepare/Materials
•
Making Money in MiddleVillage PowerPoint
•
Print out of slides with notes of Making Money in MiddleVillage to use as a
script.
•
1 copy of Activity 2-4 for each student
10
Read the notes on the slides of the PowerPoint as students complete Activity 2-4
Worksheet.
Check for Understanding

How does the creation of money affect production, spending and saving
an economy? Give an example from the simulation to support your
answer.
Rubric
2 – This response gives a valid effect with an accurate and relevant example from
the simulation.
1 – This response gives a valid effect with an inaccurate, irrelevant, or no example
from the simulation.
9
This strategy uses a PowerPoint presentation that was created from Making Money in Middlevillage, by
Richard D. C. Trainer of the Federal Reserve Bank of New York. The original lesson was published in 1981
and is no longer in print.
The Teacher’s Guide is helpful in explaining the details of how the Federal Reserve operates. Because the
PowerPoint was created from the original lesson, the Teacher’s Guide follows the PowerPoint. Directions
for teachers to follow are included in the notes section of the PowerPoint and can be printed out prior to
using in the classroom.
10
Special thanks to John Thomas of A.I. DuPont Middle School who carefully scanned the original Making
Money in MiddleVillage into a PowerPoint in 2009.
14
Strategy 5: Application
Persuasive Writing
11
Background
Making Money in MiddleVillage demonstrates
how the money supply would increase or expand
by the actions of the Federal Reserve. The
Federal Reserve would want to expand the
money supply if Gross Domestic Product (GDP)
was slow, borrowing/loaning had decreased, or
unemployment was high. The opposite is true.
The Fed can decrease or contract the money
supply if prices (inflation) are rising rapidly.
Prepare/Materials
•
1 copy of Activity 2-5 for each student.
Have students respond to Activity 2-5,
Persuasive Writing, using the Circular Flow
Model.
From the Economics Clarification for
Grades 9-12:
To combat the instability of inflation and
recession, the Federal Reserve System
(also known as “the Fed”) uses the tools
of monetary policy. The goals of the Fed
are to promote economic growth, full
employment, and to achieve price
stability.
Since inflation is caused by
having too much money in circulation, the
Fed uses monetary policy to control and
stabilize the money supply. Acting as “the
banker’s bank,” the Fed increases or
decreases the money supply by providing
incentives for banks to make (or not
make)
loans
to
businesses
and
households.
Check for Understanding

How do banks affect the supply of money in a market economy?
your answer.
Explain
Rubric
2 – This response gives a valid effect with an accurate and relevant explanation.
1 – This response gives valid effect with an inaccurate, irrelevant, or no explanation.
11
This strategy can be scored with the Delaware Rubric for Stand Alone Writing found at:
http://www.doe.k12.de.us/infosuites/staff/ci/files/DEWritingRubric-StandAlone.pdf
15
Lesson Three: Government Taxing and Spending
12
Essential Question
•
How and why does the government collect and spend tax revenue?
Background
Taxes transfer money from individuals and businesses to the government. The
government uses that revenue to provide public goods and services and support the
purposes of government. Taxes that are levied can alter what people buy and affect
production decisions because of their impact on costs in the production process.
Government spending transfers revenue to
individuals and businesses and provides public
goods and services. Public goods and services
provide benefits to more than one person at
the same time, and the use of public goods
and services cannot be restricted to only those
people who have paid to use.
Students should be able to analyze how
tax dollars are used to pay for public
goods such as national defense,
education, and roads and explain why
these services would be underprovided in
the private sector without government
intervention.
Governments sometimes use taxes to
influence economic activity. Government
policy can address environmental concerns,
define and protect property rights, and
attempt to make markets more competitive.
Many government policies also redistribute
income. Social welfare programs such a food
stamps and Medicaid are examples of this.
Public goods and services are non-rival
and non-excludable. Non-rival means the
consumption of the good by one individual
does not reduce availability of the good for
consumption by others; and nonexcludability means that no one can be
effectively excluded from using the good.
In the real world, there may be no such
thing as an absolutely non-rivaled and
non-excludable good; but economists
think that some goods approximate the
concept closely enough for the analysis to
be economically useful.
One of the best examples of a public good
is national defense. To the extent one
person in a geographic area is defended
from foreign attack or invasion, other
people in that same area are likely
defended also. This makes it hard to
charge people for defense, which means
that defense faces the classic free-rider
problem. Indeed, almost all economists
are convinced that the only way to
provide a sufficient level of defense is to
have government do it and fund defense
with taxes.
- Tyler Cowen, "Public Goods."
The Concise Encyclopedia of
Economics. 2008. Library of
Economics and Liberty. 7 February
2011.
http://www.econlib.org/library/Enc
/PublicGoods.html
12
This lesson is adapted from, A Guide to Tax Whys: Understanding Taxes, published by the Department
of the Treasury – Internal Revenue Service, 1984.
16
Instructional Strategies
Strategy 1: Gathering Information
Acrostic Brainstorm/Gallery Walk
Background
13
In Grades 4-5, students are exposed to how government intervenes in failing
markets. For this strategy, students are to recall taxes that are levied and public
goods and services that the government provides.
Prepare/Materials
•
1 copy of Activity 3-1 for every 2-4 students (see below)
Distribute one copy of Activity 3-1 for groups or pairs of students. Have students
recall how taxes are collected and what services are provided by completing Activity
3-1. Click here for sample responses.
Have students rotate around the room and look at the work of the other groups. As
students move around the room, ask them to place a check beside any responses
that they included on their lists AND add at least one new response per column.
When the rotations have concluded, have students write a definition for Taxes and
for Public Goods and Services.
Taxes: Required payments of money to governments that are used to
provide public goods and services for the benefit of the community as a
whole.
Pubic Goods and Services: Benefits that cannot be withheld from those
who don’t pay for them, and benefits that may be “consumed” by one
person without reducing the amount of the product available for others.
Note: Teachers should move throughout the room with students to identify
incorrect responses and to add responses when needed.
Check for Understanding

What do all public goods have in common?
example.
Explain your answer with an
Rubric
2 – This response gives a valid explanation with an accurate and relevant example.
1 – This response gives a valid explanation with an inaccurate, irrelevant, or no
example.
13
From the Delaware Clarifications Document for 4-5, Economic Standard 1a and 1b: In a market
economy, there is disagreement on the role government should play. Most economists agree that
government involvement is necessary to insure competition, protect property rights and provide public
goods and services. However, when it comes to a specific issue, the amount of government involvement
can create controversy. For example, should there be laws that prohibit child labor, regulate health and
safety, provide farm price supports and control land use through zoning laws?
17
Strategy 2: Extending and Refining
Categorizing
Background
Taxes can be either direct or indirect. A direct tax is one that the taxpayer pays
directly to the government. These taxes cannot be shifted to any other person or
group. An indirect tax is one that can be passed on—or shifted—to another person
or group by the person or business that owes it.
Businesses may recover the cost of the taxes they pay by charging higher prices to
customers, paying lower wages and salaries, paying lower dividends to shareholders,
or accepting lower profits.
Ultimately, individuals pay almost all taxes. Businesses and corporations use a tax
shift to pass taxes on to their customers, clients, patients, employees, and
stockholders.
Prepare/Materials
•
Students to refer to Activity 3-1 that was created earlier.
•
1 copy of Activity 3-2 for each student.
Ask students to refer to the list made (Activity 3-1).
taxes that people pay directly to the government.
Have students check off the
Explain that other taxes are paid indirectly and are harder to identify. For example,
for each gallon of gasoline a person pays 18.4 cents per gallon of federal tax. The
14
The
State of Delaware adds a tax of 22 cents per gallon for a total of 40.4 cents.
total tax, which is paid by the consumer to the gas station owner/company, is paid to
the governments for the consumer.
Have students complete Activity 3-2.
15
Click here for the answer key.
14
U.S. Department of Energy, www.eia.doe.gov as of February 15, 2011
15
http://www.irs.gov/app/understandingTaxes/whys/thm04/les04/media/ws_thm04_les04.pdf
18
Check for Understanding
The Delaware Tourism Office has the following information on its website:
Looking for a Bargain?
Delaware is the home of tax-free shopping!
Automatically save on whatever you buy here.
Explain why you agree or disagree with this statement. Provide an example to
support your explanation.
Rubric
2 – This response gives a valid explanation with an accurate and relevant example.
1 – This response gives a valid explanation with an inaccurate, irrelevant, or no
example.
Teacher Tip: During field testing of this unit, students had a difficult time understanding that although
there is no direct sales tax in Delaware placed upon consumers, there is a tax based on the gross sales.
Retailers pay a percentage of their sales to the State of Delaware. This cost is “passed off” to consumers
by adjusting the price of goods. In this way the tax is an indirect or hidden tax.
Strategy 3: Extending and Refining
Role Play
Background
It is difficult to get agreement on what is a fair tax because people have different
values and priorities. The two criteria that can be used to assess tax fairness are
benefits received and ability to pay. There are three types of taxes to consider:
•
fixed fees
•
tax schedules
•
fixed rate
Fixed fees are usually thought of being fair because only the people that directly use
the public good or service that is taxed will benefit. When the ability to pay is
considered, then a fixed tax does not seem fair because people with greater income
will pay a smaller percentage of total income.
Tax schedules are created with the ability to pay based on income. Those that make
more income, pay a larger percentage and a larger amount.
Fixed rate taxes take the same amount from each person, but are thought to be
unfair to those with lower incomes.
The IRS has a 16 slide PowerPoint, What is Taxed and Why, which can be shown to
students for support:
19
Prepare/Materials
1 copy of Activity 3-3a for each student
•
•
1 copy of Activity 3-3b for each student
•
(optional) 1 sheet per group of chart paper for Activity 3-3b
Ask students to brainstorm things that are fair about taxes and things that are unfair
about taxes. Ask if students agree about what makes a tax fair? Point out that it is
difficult to get people to agree on this topic. Explain that there are two criteria that
can be used to determine tax fairness: benefits received and ability to pay.
Distribute Activity 3-3a to each student. Ask them to place a check under the
correct criteria. Discuss if any of the taxes are based on the benefits received and
the ability to pay. Tell students that the taxes individuals pay are mostly income
taxes. People with very low income are often exempt from paying income taxes.
Divide students into 5 equally sized groups by counting off by 5s. Assign the
following incomes to each group:
Lowest Income $ 20,000
1 group (number 1s)
Middle Income
$ 60,000
3 groups (number 2s, 3s, and 4s)
High Income
$100,00
1 group (number 5s)
Share with students what the total income is for the entire class. For a class of
25 this would be $1,500,000 as follows:
$ 20,000 x 5 students = $100,000
$ 60,000 x 15 students = $900,000
$100,000 x 5 students = $500,000
Total
= $1,500,000
Distribute Activity 3-3b to each student.
Allow students time to create a new tax system that they determine is fair. Have
each group share their plan. A completely fair system is nearly impossible to create.
Students should be assessed by their ability to explain the difficulties of creating a
tax system.
Check for Understanding

In the United States, emphasis is placed on Equality. Consider the case
of taxes.

Should everyone be taxed equally? Explain your answer with an example
of a tax system that you would consider fair.
Rubric
2 – This response gives a valid explanation/opinion with an accurate and relevant
example.
1 – This response gives a valid explanation/opinion with an inaccurate, irrelevant, or
no example.
20
Strategy 4 – Application
Pass the Problem (modified Round Robin)
Background
It is easy to look at taxes and taxation from the viewpoint of households
(consumers). As we have seen households ultimately pay all taxes and do not have
the ability to pass the burden to the other sectors in an economy. Is it any wonder
why we even have taxes if most households do not like to pay them? The trade off
is that government also provides and makes available public goods and services with
the tax revenue collected.
In this strategy, students will recall the to evaluate how a change in taxes affects
one of the sectors in an economic system. Then using the criteria of benefit and
ability to pay, students determine which tax proposal, if any they would support.
Considering the overall impact upon the economic system is the key. This strategy
will help prepare students for the Performance Task for this unit.
Prepare/Materials
•
#10 Envelopes
•
1 copy of Activity 3-4 cut into separate pieces. One copy for every group
representing the four sectors in a market economy.
•
Sets of 3 slips of blank paper for each pair in a group of four.
Have students work in pairs representing one of the sectors in a market economy
(households, banks, government or businesses). Give one portion of Activity 3-4 to
each pair of students. Have students form a “market economy” by grouping
themselves so that every player in the economy is represented. Position student
desks as follows:
government
households
businesses
banks
Have each pair of students write the tax proposal from Activity 3-4 onto the outside
of an envelope.
Help students pass their envelopes in a round robin fashion, so that each pair of
students will read and respond to the tax proposal written on the outside of the
envelope. As each pair of students receives an envelope, they are to write on a slip
of paper a statement of whether they would support the tax proposal or not.
Eventually the pair that wrote the tax proposal will get their original envelope back.
When a pair receives their original envelope back they should read the statements.
Have each pair report on the opinions about the tax proposal from the perspective of
the other sectors in a market economy. Each pair should share a summary of the
tax proposal.
21
Finally, have each market economy decide upon one tax proposal to enact. Have
students state why they think this is the fairest tax proposal.
The four tax proposals are:
1)
Increase the tax on air travel – double to increase the security at
airports (Government)
2)
Increase the tax on tobacco products – deter smoking, support antismoking campaigns (households)
3) Change current tax plan to a national sales tax of 17% (businesses).
4) Change the tax law so that each individual can earn up to $500 of
savings account interest per year without paying tax on the first $500
– encourage savings.(banks)
Check for Understanding

How does taxing and spending affect the different sectors in a market
economy? Refer to the circular flow model to support your answer.
Rubric
2 – This response gives a valid effect with an accurate and relevant example.
1 – This response gives a valid effect with an inaccurate, irrelevant, or no example.
Strategy 5: Extending and Refining – OPTIONAL
Interactive/Online resources
The Internal Revenue Service has an online program for teaching about the Hows
and Whys of Taxes, titled Understanding Taxes. There is a section designed just for
teachers and one for students. The program includes: slide presentations, paper
activities, online activities and simulations and several assessments. It is not
recommended that teachers implement the entire program, but instead select
portions. This program can be implemented as an online lesson or downloaded and
implemented as paper driven lesson. There is a link to a Spanish version.
The program is divided into two units. The first unit is titled, “Hows of Taxes”.
This unit would best be used as a student activity where each of the different taxes
was assigned to different students in a jig-saw fashion and have students report to
the class about the tax they studied:
•
How is the tax collected?
•
How is the tax paid?
•
Does everyone pay this tax?
•
Does everyone that pays this tax pay the same amount?
The second unit, “Whys of Taxes”, has 6 themes and not all are applicable to
Economic Standard Two for the 6-8 grade cluster. The following themes are
recommended:
Theme 1: Your Role as a Taxpayer
22
Theme 4: What is Taxed and Why
Theme 5: The Impact of Taxes (This theme also meets Economic Standard One for
6-8)
Theme 4, What is Taxed and Why has the following lessons:
Lesson 1: Federal/State/Local Taxes
Lesson 2: Taxes in a Market Economy
Lesson 3: Income Tax Facts
Lesson 4: Direct and Indirect Taxes
Theme 5, The Impact of Taxes has the following lessons:
Lesson 1: How Taxes Influence Behavior*
Lesson 2: The Politics of Taxation
*NOTE: Theme 5, The Impact of Taxes, Lesson 1: How Taxes
Influence Behavior is a lesson about taxes that change people’s buying
habits such as sin taxes.
Completion of the program as suggested may take 4-5 class periods.
Also see: Reality Check: Briefing on the Budget Challenges, January 2009, online
document for additional information about budget issues in Delaware.
Check for Understanding

Why is it often difficult to decide how tax money should be collected and
spent? Explain your answer with evidence using a Circular Flow Model.
Rubric
2 – This response gives a valid reason with an accurate and relevant example.
1 – This response gives a valid reason with an inaccurate, irrelevant, or no example.

How do taxes affect consumer’s behavior? Give an example to support
your answer.
Rubric
2 – This response gives a valid effect with an accurate and relevant example.
1 – This response gives valid effect with an inaccurate, irrelevant, or no example.

How does the act of levying taxes affect our economy? Explain your
answer with an example.
Rubric
2 – This response gives a valid effect with an accurate and relevant example.
1 – This response gives valid effect with an inaccurate, irrelevant, or no example.
23
Resources and Teaching Tips
A variety of resources are included (texts, print, media, web links):
•
A Guide to Tax Whys: Understanding Taxes, published by the Department of
the Treasury – Internal Revenue Service, 1984. out of print
•
Consumer Guides and Protection (www.usa.gov)
•
FedVille online activity from The Federal Reserve of San Francisco
(http://www.frbsf.org/education/fedville)
•
Government Printing Office (www.gpo.gov )
•
Making Money in Middlevillage, published by Federal Reserve Bank of New
York, 1981. out of print
•
Money, Banking & Monetary Policy, online and print booklet from the Federal
Reserve Bank of Dallas (www.dallasfed.org )
•
The Fed Today, online video from the Federal Reserve Bank of Philadelphia
(www.philadelphiafed.org)
•
The Federal Reserve, FED101, FedVille and The Fed Today
•
US Office of Management and Budget, Understanding Taxes
•
The Federal Reserve System (www.federalreserveonline.org)
•
The Internal Revenue Service (www.irs.gov)
•
What Is the Federal Reserve, lesson from the Money in Motion exhibit at the
Federal Reserve Bank of Philadelphia
(http://www.philadelphiafed.org/education/teachers/)
•
Additional lessons about taxes can be found on the IRS website at:
http://www.irs.gov/app/understandingTaxes/teacher/index.jsp Website
includes PowerPoints, Lesson Plans and Activities, and Interactive Activities.
•
Fiscal Policy and Federal Budget information can be found at The Citizen’s
Guide to the Federal Budget.
http://www.gpoaccess.gov/usbudget/fy00/guidetoc.html
24
Anticipation Guide (Activity 1-1)
Name __________________________________
Directions: Read each statement below carefully and decide whether the statement
is TRUE or FALSE. Place an X in the TRUE or FALSE column. In the REASONS
column, write down why you feel the way you do about each statement.
Statement
TRUE
FALSE
REASONS
1. Money has always been in
paper and coin form.
2. There is over $9 trillion
dollars of US currency
available.
3. Most of the world’s gold is
in Fort Knox.
4. The largest denomination
of US currency ever printed
was a $100,000 bill.
5. Counterfeiting is a bigger
problem today than any other
time in history.
6. Money doesn’t grow on
trees and isn’t made from
trees either.
7. Our money is durable and
doesn’t tear easily when
folded.
8. In the Colonial Era change
was made by cutting coins into
pieces.
9. A packaged stack of money
has 1000 bills.
10. Banks request more cash
during the summer travel
months.
11. George Washington is
featured on more US bills than
any other person.
12. The first bank chartered
by an African-American
woman is in Richmond,
Virginia.
Adapted from: FedVille, an online student activity
http://www.frbsf.org/education/fedville/
25
Anticipation Guide (Activity 1-1) ANSWER KEY
Directions: Read each statement below carefully and decide whether the statement
is TRUE or FALSE. Place an X in the TRUE or FALSE column. In the REASONS
column, write down why you feel the way you do about each statement.
Statement
T
X
1. Money has always been in
paper and coin form.
2. There is over $9 trillion
dollars of US currency
available.
X
X
Commodity money such as shells, furs,
and tobacco has been used.
FRB of New York has the largest
accumulation of gold in its vault.
Woodrow Wilson appears on the $100,000
bill. This note was never circulated, but
used for transactions between federal
reserve banks.
X
5. Counterfeiting is a bigger
problem today than any
other time in history.
REASONS
Currency (M2) data released every
Thursday by the Federal Reserve
www.federalreserve.gov/releases/h6/
X
3. Most of the world’s gold is
in Fort Knox.
4. The largest denomination
of US currency ever printed
was a $100,000 bill.
F
After the Civil War 30-50% of all US
paper was counterfeit.
6. Money doesn’t grow on
trees and isn’t made from
trees either.
X
Our paper money is made from linen and
is unaffected by water, which is why
money left in pockets and laundered is
fine.
7. Our money is durable and
doesn’t tear easily when
folded.
X
Money can be folded over 4000 times
before it will tear.
8. In the Colonial Era change
was made by cutting coins
into pieces.
X
Spanish coins known as Pieces of Eight
coins were cut to make change. Each full
coin was worth 8 reales.
9. A packaged stack of money
has 1000 bills.
X
A stack of money has 100 notes or about
1.1 cm or .4 inches.
10. Banks request more cash
during the summer travel
months.
X
Banks request more money during the
holiday shopping season of November and
December.
11. George Washington is
featured on more US bills
than any other person.
X
Alexander Hamilton appears on 11
different US notes.
12. The first bank chartered
by an African-American
woman is in Richmond,
Virginia.
X
The bank is still operational. The Maggie
L. Walker National Historical Site
commemorates her life.
http://www.nps.gov/malw/
Adapted from: FedVille, an online student activity
http://www.frbsf.org/education/fedville/
26
Activity 1-3A
Name ____________________________
Roles in a Market Economy
Households
Businesses
Households sell their productive
resources (land, labor, capital, and
entrepreneurship) to businesses in
exchange for income (rent, wages,
interest, and profit). Household income
is spent, taxed, or saved. When income
is saved, households receive interest.
Households also receive public goods
and services from government.
Businesses buy productive resources
with money (rent, wages, interest, and
profit). With their resources businesses
make goods and provide services in
exchange for money in the form of
sales. Businesses do several things
with the money from sales like
investing, paying taxes and purchasing
more resources. Businesses also
receive public goods and services from
government.
Complete lines 1, 2, 3, 4 and 5
Government
Governments at all levels (federal, state
and local) have the ability to tax people’s
earnings and purchases (income tax and
excise tax) and business profits
(corporation tax). Governments also
provide public goods and services.
Complete lines 4,5, 9 and 10
Complete lines 6, 7, 8, 9 and 10
Banks & Financial Institutions
Banks and financial institutions provide
many services that involve money.
Financial institutions accept savings
from households and businesses and in
return make money by loaning money
and paying interest on savings. A
special institution is known as the
Federal Reserve. The Federal Reserve,
at times, acts like a bank by making
loans and buying securities from
financial institutions.
Complete lines 3, 8, 11 and 12
27
Activity 1-3B
Circular Flow Model
4
5
10
9
1
2
7
3
6
8
4
11
12
Banks and
Financial Institutions
28
ANSWER KEY
29
Activity 1-4
Name(s)_______________________________
Application – Circular Flow Model
Questions 1-6 Write the exchange between the different components in the
market economy.
1.
From households to government __________________________
2.
From businesses to banks ________________________________
3.
From banks to households _______________________________
4.
From government to businesses __________________________
5.
From businesses to households ___________________________
2. From households to businesses ___________________________
Statements 7-12 Write the number that corresponds to where the event
occurs on the circular flow model.
3. Max sold timber to a pencil manufacturer. _________________
4. Margarita purchased a rose bush from the home garden center.
________________
5. The Whites got a car loan for a new car. ______________
6. Trike Paving Company received a contract from the state to pave two roads.
_________
7. LaTisha put money from babysitting in the bank. ______________
8. The government received income tax revenue from you.
______________
Complete the story
Pablo Garcia needed money to go to college. He got a student loan and the loan
paid for his books and courses for the school year. Because money circulates
throughout the economy, he will see this money again when …..
________________________________________________________
________________________________________________________
________________________________________________________
30
Activity 2-1
Brainstorming Interview/Reporter
Record your partner’s responses to these questions:
“What role do banks and financial institutes play in an economy? What services do
they provide?”
BANKS and FINANCIAL INSTITUTIONS
31
Graphic Organizer 2-3
Name____________________
DIRECTIONS: As you read through, Money, Banking & Monetary Policy complete the
chart below. You will be asked to share your chart.
Section Title
(pages)
Something I Already
Knew or a Fact I Know
Something I want to
Remember
What is Money?
(pages 5-7)
The Fed’s Role
(pages 7, 10-11)
How Banks
Create Money
(pages 8-9, 11)
Monetary Policy
and the
Economy
(pages 11-12)
The Fight
Against
Inflation
(page 12)
32
Activity 2-4 Worksheet
Making Money in Middlevillage
Securities Firm
Cash (checking account)
___________
Cash reserves
___________
Required reserves
___________
Excess reserves
Securities____________
1
Deposits ______
___________
___________
2
Loans & Investments
___________
___________
Cash reserves
___________
Deposits
______
Required reserves
___________
Excess reserves
___________
___________
Loans & Investments
___________
Cash reserves
Deposits_______
___________
Required reserves
Excess reserves
___________
___________
___________
Loans & Investments
___________
3
Cash reserves
___________
Required reserves
___________
Excess reserves
___________
Deposits_____
___________
Loans & Investments
___________
If we continue this process, how much new checkbook money is created?
1
Activity 2-4 Worksheet
ANSWER KEY
Securities Firm
+$10,000
Cash (checking account)
____________
___________
Cash reserves
_____________
+$10,000
___________
Securities
1
-$10,000
+$10,000
Deposits
+$1,000
Required reserves
___________
Excess reserves
__________
+$9,000
+$ 0
___________
Loans & Investments
+$9,000
___________
2
+$9,000
3
Cash reserves
_____________
+$9,000
___________
Deposits
+$9,000
+$900
Required reserves
___________
Excess reserves
___________
+$8,100
+$8,100
+$ 0
___________
+$8,100
Loans & Investments
___________
+$8,100
Cash reserves
_____________
Required reserves
___________
+$8,100
Deposits
+$810
___________
+$7,290
Excess reserves
___________
+$ 0
___________
+$7,290
+$7,290
2
Loans & Investments
Cash reserves
_____________
___________
___________
+$7,290
Deposits
+$729
Required reserves
___________
Excess reserves
___________
+$7,290
+$6,561
+$ 0
___________
+$6,561
Loans & Investments
___________
this process, how much new checkbook money is created?
+$6,561
If we continue
$100,000
3
Activity 2-5
Name ______________________________
Persuasive Writing
Today’s Headline
Federal Reserve Chairman Will Seek to
Increase the Money Supply
Prompt: Mr. Sampson, the local convenience store owner, is upset by today’s
headline. He feels that an increase in money supply will lead to high inflation and
that he will have to raise his prices. He is afraid that he may have to go out of
business because of it.
How would you explain to Mr. Sampson that an increase in the money supply by the
Federal Reserve may help him?
Write an explanation to Mr. Sampson sharing how the Federal Reserve increases the
money supply and how such an increase may help Mr. Sampson’s business. Be sure
to use your best writing strategies for this assignment.
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
4
Activity 3-1
_____________________________
Name
Acronym Brainstorm
With a partner see how many types of taxes and ways taxes are used you can
brainstorm that fit into the acronyms below.
Common Taxes
Government Goods and Services
(Public Goods)
5
Activity 3-2
Name ______________________
Date _______________
TAX and GOURMET CHOCOLATES
Key Terms:
Direct tax – A tax that cannot be shifted to others such as income tax.
Indirect tax – A tax that can be shifted to other such as business property tax
and excise taxes.
Tax shift – The process that occurs when a tax that has been levied on one
person or group is in fact paid by others.
Manufacturers like to produce and sell as much as possible without producing more
than they can sell. When production equals what can be sold, supply and demand is
balanced or in equilibrium.
Equilibrium depends on many factors, especially price. Raising prices may lower the
quantity demanded. Lowering prices might have the reverse effect.
Manufactures often raise prices to pay for an increase in production costs. Taxes -including sales, property, payroll and income taxes – can cause price increases. A
direct tax is one that is paid directly to the government. An indirect tax may be
shifted to others. A tax shift occurs when a business shifts its taxes to others.
6
Activity 1
A chocolate manufacturer wants to shift part of the company’s tax increases onto the
price of their chocolate candies.
Read each item below. Check the taxes the company could pass on to
customers.
____ An increase in personal income tax rates for employees.
____ An increase in property tax on the manufacturing plant.
____ An increase in tariffs for imported chocolate.
____ An increase in property tax on the company president’s home.
____ An increase in excise tax on chocolate candy.
7
Activity 2
Study the graphs below to understand what happened when a chocolate
manufacturer shifted part of a tax increase onto the price of a box of chocolates.
Answer the questions that follow.
Figure 1 - supply and demand before the tax
tax added
Figure 2 - supply and demand with
1. What was the equilibrium price and quantity before the tax?
2. What was the equilibrium price and quantity after the tax was added?
8
Activity 3
Answer the questions below in the space provided.
How did the tax affect sales of the candies?
government tax revenue in the long run?
What effect might this have on
9
Activity 3-3a
Name ____________________________
Date ______________________
Are Taxes and Fees Fair?
Taxes and fees are necessary in order to provide public goods and services. The
question is: Are taxes and fees collected in a fair manner? To answer this question
there are two criteria to consider.
1)
Benefits Received – The person paying the tax or fee pays an amount in
proportion to the benefits they receive from government goods or services.
2)
Ability to Pay – People with different amounts of wealth or income pay
different amounts of taxes and fees. The person with more wealth or income
should pay more taxes and fees.
Decide whether each of the taxes listed below is based on the Benefits Received or the
Ability to Pay. Place a check in the correct column.
Tax
Benefit
Ability to Pay
Received
Auto Registration & Tags
Bridge Tolls
Cigarette Tax
Driver’s License
Gasoline Tax
Hunting Licenses
Income Tax
Marriage Certificate
New Auto Document Fee
Postage Stamps
Property Tax
School Tax
10
Activity 3-3a
Name ANSWER KEY
Date ______________________
Are Taxes and Fees Fair?
Taxes and fees are necessary in order to provide public goods and services. The
question is: Are taxes and fees collected in a fair manner? To answer this question
there are two criteria to consider.
3)
Benefits Received – The person paying the tax or fee pays an amount in
proportion to the benefits they receive from government goods or services.
4)
Ability to Pay – People with different amounts of wealth or income pay
different amounts of taxes and fees. The person with more wealth or income
should pay more taxes and fees.
Decide whether each of the taxes listed below is based on the Benefits Received or the
Ability to Pay. Place a check in the correct column.
Tax
Benefit
Ability to Pay
Received
Auto Registration & Tags
X
Bridge Tolls
X
Cigarette Tax
X
Driver’s License
X
Gasoline Tax
X
Hunting Licenses
X
Income Tax
X
Marriage Certificate
X
New Auto Document Fee
X
Postage Stamps
X
Property Tax
X
School Tax
X
11
Activity 3-3b
Name ____________________
Date ___________________
CLASS TAX
Your class has been asked to create a tax system that will fairly tax all
students in the classroom.
In your class you have the following income groups:
Lowest income - $ 20,000/year
Middle income - $ 60,000/year
Highest income - $100,000/year
Your teacher will assign you a tax group. You and the members of your
group are to create a tax system that will raise at least $250,000. You may
use a combination of fixed and percentage tax rates.
To complete this activity you will need to know how many students are in
each tax group.
Be prepared to report to the class about your choice of tax system and why
you feel it is a fair system.
12
Activity 3-4
Directions: Each pair of students is to receive one of the following
scenarios:
Households
Businesses
You are to look at each tax proposal from
the perspective of households.
You are to look at each tax proposal from
the perspective of businesses.
Each player in the economy has a different
tax proposal. The tax proposal that your
group will support is:
Each player in the economy has a
different tax proposal. The tax proposal
that your group will support is:
To increase the amount of money
spent on anti-smoking campaigns, the
government should increase taxes on
cigarettes.
To simplify the tax collection system,
the government should change the
income tax rate system to a 17%
national sales tax.
Banks and Financial Institutions
Government
You are to look at each tax proposal from
the perspective of governments.
You are to look at each tax proposal from
the perspective of banks and financial
institutions.
Each player in the economy has a different
tax proposal. The tax proposal that your
group will support is:
Each player in the economy has a
different tax proposal. The tax proposal
that your group will support is:
To double the amount of security at
airports, the government should
double the tax fees on air travel.
To encourage individual savings, the
government should offer a tax break
on the first $500 of interest earned
on savings accounts.
13
Lesson Essential Questions and Check for Understanding
Name _____________________________
Date ________________
By the end of Lesson 1 you will be able to answer these two questions:
1
How do different components (sectors) in a market economy interact?
2
How do money flows in an economy affect production and spending?
Strategy 1-1
3-2-1
List 3 facts about money and banking that were confirmed.
• ________________________
• ________________________
• ________________________
List 2 facts learned.
• ________________________
• ________________________
List 1 question you have.
• ________________________
________________________
14
Lesson Essential Questions and Check for Understanding
Name _____________________________Date ________________
Strategy 1-2
How is money in an economy like oil in an engine? What is another analogy about a
market economy that begins with ‘Money is to an economy like ______’.
_____________________________________
________________________________
________________________________
________________________________
________________________________
Strategy 1-3
How does the circular flow model demonstrate interdependence in an economy?
Give an example from your model to support your answer.
_____________________________________
________________________________
________________________________
________________________________
________________________________
15
Lesson Essential Questions and Check for Understanding
Name _____________________________Date ________________
Strategy 1-4
How do money flows affect the production, spending and saving decisions in a
market economy? Explain your answer with an example.
_____________________________________
________________________________
________________________________
________________________________
________________________________
16
Lesson Essential Questions and Check for Understanding
Name _____________________________Date ________________
By the end of Lesson 2 you will be able to answer this question:
How and why do banks impact the supply of money in a market economy?
Strategy 2-1
What is the purpose of a bank in an economy? Give an example to support your
answer.
_____________________________________
________________________________
________________________________
________________________________
________________________________
Strategy 2-2/2-3
How do actions by the Federal Reserve affect consumers and producers? Give an
example to support your answer.
_____________________________________
________________________________
________________________________
________________________________
________________________________
Lesson Essential Questions and Check for Understanding
Name _____________________________Date ________________
17
Strategy 2-4
How does the creation of money affect production, spending and saving an
economy? Give an example from the simulation to support your answer.
_____________________________________
________________________________
________________________________
________________________________
________________________________
Strategy 2-5
How do banks impact the supply of money in a market economy?
answer.
Explain your
_____________________________________
________________________________
________________________________
________________________________
________________________________
18
Lesson Essential Questions and Check for Understanding
Name _____________________________Date ________________
By the end of Lesson 3, you will be able to answer this question:
How and why does the government collect and spend tax revenue?
Strategy 3-1
What do all public goods have in common?
Explain your answer with an example.
_____________________________________
________________________________
________________________________
________________________________
________________________________
19
Lesson Essential Questions and Check for Understanding
Name _____________________________Date ________________
Strategy 3-2
The Delaware Tourism Office has the following information on its website:
Looking for a Bargain?
Delaware is the home of tax-free shopping!
Automatically save on whatever you buy here.
Explain why you agree or disagree with this statement. Provide an example to
support your explanation.
_____________________________________
________________________________
________________________________
________________________________
________________________________
Source: Delaware Tourism Office http://www.visitdelaware.com/shopping.htm
Accessed February 10, 2011
20
Lesson Essential Questions and Check for Understanding
Name _____________________________Date ________________
Strategy 3-3
In the United States, emphasis is placed on Equality. Consider the case of taxes.
Should everyone be taxed equally? Explain your answer with an example of a tax
system that you would consider fair.
_____________________________________
________________________________
________________________________
________________________________
________________________________
Strategy 3-4
How does taxing and spending affect the different sectors in a market economy?
Refer to the circular flow model to support your answer.
_____________________________________
________________________________
________________________________
________________________________
________________________________
Lesson Essential Questions and Check for Understanding
21
Name _____________________________Date ________________
Strategy 3-5
Why is it often difficult to decide how tax money should be collected and spent?
Explain your answer with evidence using a Circular Flow Model.
_____________________________________
________________________________
________________________________
________________________________
________________________________
How do taxes affect consumer’s behavior? Give an example to support your answer.
_____________________________________
________________________________
________________________________
________________________________
________________________________
How does the act of levying taxes affect our economy? Explain your answer with an
example.
_____________________________________
________________________________
________________________________
________________________________
________________________________
22
Delaware Content Standards
•
Economics Standard Two 6-8a: Students will analyze the role of money
and banking in the economy, and the ways in which government taxes and
spending affect the functioning of market economies.
Understand:

A nation’s overall levels of income, employment, and prices are determined
by the interaction of spending and production decisions made by all
households, firms, government, and trading partners

Because of interdependence, decisions made by consumers, producers, and
government impact a nation’s standard of living.

Market economies are dependent on the creation and use of money, and a
monetary system to facilitate exchange.
KNOW

There are three major players in a market
economy: households, businesses, and
government.

Households sell their productive resources
to businesses.

Household income is spent, taxed or saved.

Money spent for private goods and services
returns to businesses and taxes paid to the
government fund public goods and
services.

Savings is money households do not spend
on goods and services and banks transfer
money from savers to borrowers.

The Federal Reserve System is the nation’s
central bank and can control the money
supply by encouraging or discouraging
banks from making loans.
DO

Trace the flow of money in a
market economy.

Use a circular flow model to
examine how money facilitates
spending and saving by
households and businesses,
and to examine how
government taxing and
spending affect the funding of
a market economy.

Evaluate how banks’ loaning
process creates money.
 Analyze how the Federal
Reserve System acts as the
central bank and its policies
influence economic activity.
 Identify different types of taxes.

Governments tax citizens in various ways.
 Evaluate the fairness of taxes.

Tax revenue is used in various ways and
can alter what people buy and affect
production decisions.


Taxes and spending by government
transfers and redistributes income and
financial resources from one entity to
another.

Vocabulary:
o
Circular Flow
o
Federal Reserve System
o
households
o
income and spending
o
inflation
Analyze how government
taxation policies influence
economic activity.
23
o
public goods & services
o
recession
o
taxes
o
unemployment
o
benefits
o
ability to pay
24
Unit Title/Grade: Money, Banking and Taxes
Content/Benchmark: Economics Standard 2 6-8
Enduring Understanding: Banks, taxes, and spending by governments transfer income and financial resources from one entity to another.
These actions redistribute income and often promote economic growth.
STUDENTS WILL BE ABLE TO: analyze the role of money and banking in the economy, and the ways in which government taxes and
spending affect the functioning of market economies.
Unit Essential Questions:
 How do spending, saving and production decisions affect a market economy?
 How is money created in a market economy?
 How does our government’s taxation and spending policies affect our economy?
Concept:
The Economy as a Whole
LEQ/C4U:
• How do different sectors in a market
economy interact?
• How do money flows affect
production, spending and saving?
• How do consumers and producers
interact in a market economy?
Vocabulary:
Taxes, Public Goods and Services
Circular Flow, Households
Income and Spending
Concept:
Concept:
The Federal Reserve System
LEQ/C4U:
Government Taxing and Spending
LEQ/C4U:
• How do banks’ loaning practices create
money?
• How are banks regulated?
• How does a change in the money supply
affect production, spending and saving?
• How does the Federal Reserve influence
economic activity?
Vocabulary:
Federal Reserve System, Banks
Inflation
Recession, Unemployment
• What are taxes?
• Why do we need taxes?
• What criterion can be used to determine
the fairness of taxes?
• How does government taxing and
spending influence economic activity?
Vocabulary:
Public Goods and Services
Taxes
Benefits, Ability to Pay
25
MBT Activity 3-1
Sample Responses Include
T – Tires, Telephone. Tolls
A – Alcohol, Airline Tickets, Amusement Tax
X – “Excise Tax”
R – Real Estate
E – Estate Tax
V – Vehicle Sales Tax
E – Earnings
N – New Imports
U - Utilities
E - Energy
Other taxes include: driver’s licenses, fishing and hunting stamps and equipment, parking,
property tax, corporate tax, dog licenses, playing cards, cigarettes, gasoline, imports,
vaccinations, etc.
P – Parks, Public Highways, Police, Public Schools
U – Unemployment
B – Bridges
L – Lighthouses, Law Enforcement
I – Interstate Highways
C – Courts
G – Golf courses, Government
O – On the job training. Oil subsidies, Orphan drugs*
O - OSHA
D - Defense
S – Streets, Social Security, Schools
Other goods and services include: postal services, animal control, agencies (DNREC, EPA,
NOAA,
etc.)
*prescription drugs that would not be privately produced because it is cost-prohibitive.
26
MBT Activity 3-2
Answer Key
Activity 1
A chocolate manufacturer wants to shift part of the company’s tax increases onto the price
of their chocolate candies. Read each item below. Write a check mark next to the taxes
that the company could pass on to customers.
An increase in personal income tax rates for employees
√ An increase in property tax on the manufacturing plant
√ An increase in customs duties for imported chocolate
An increase in property tax on the president’s home
√ An increase in sales tax
Activity 2
1. When was supply and demand balanced before the tax? 4,000 boxes
2. When was balance achieved after the tax? 3,000 boxes
Activity 3
How did the tax affect sales of the candies? What effect might this have on government
revenue in the long run?
Suggested Answer: Sales of the candies dropped. Ultimately this could result in a loss of
government revenue, because fewer sales could mean that the business would pay less in
overall taxes.
27
Money, Banking, and Taxes
Transfer Task Roles
Role
Situation
Product
Student
Council
Member
A ten percent increase in
school taxes is proposed.
The average increase per
household will be
approximately $150. A
referendum will be held in one
month.
As a member of the student
council you will prepare a written
statement about the financial
benefits and costs this referendum
will have upon the residents of the
school district.
Television
News
Announcer
The Federal Reserve
announced today that they
would take action to increase
the money supply in a
reaction to higher
unemployment rates. You
want to make sure that all the
effects (positive and negative)
are shared with your viewers.
You will plan a news segment for
the evening news. You may create
charts and/or graphs to support
your news segment. If possible
you can tape the segment or recite
it aloud to your classmates.
Local banks are competing for
customers. Several banks are
running advertising campaigns
to attract customers to take
out personal loans. A bank
has hired you to create an
effective advertisement to get
people to take out the loans.
(Examples)
Your advertisement will be printed
in local newspapers and published
to the bank’s website. Your
advertisement must include all the
‘small print’ (disclaimer) that is
required by law on all bank
advertising. The bank wants you
to include how the loans will
impact the community as a whole.
Congress is debating a bill
that will decrease personal
income tax by a significant
amount. This will increase
your take-home pay. As a
responsible citizen you want
to make sure that your
congressman is fully aware of
the impact such a change will
have on the economy.
Sending emails and letters are
effective ways to communicate
with elected officials. The
correspondence you create will be
shared with others so they too can
send emails and letters. Be sure
to fully explain the benefits and
costs of this tax change upon the
economy.
Advertising
Executive
Responsible
Citizen
28
Money, Banking, and Taxes
Transfer Task Rubric
Students should self-evaluate their products by making sure all items on the left-hand side
were completed. Teachers should use the right-hand side to score the student’s work for
how well each criterion was met.
Student: Did you…?
Teacher: How well did
the student provide…?
Situation
Situation
___ Did you explain the situation in your
own words?
___ (3) Explanation of the situation is
detailed and has extending details that help
clarify the situation.
___ Did you provide details about the
situation?
___ Did you include all elements
required?
___ (2) Explanation of the situation is well
represented and has some details.
___ (1) Explanation is vague and at times
unclear. Details are missing.
Impact on the Economy
Impact on Money Supply
___ Did you explain how the overall
economy will be impacted?
___ (3) Complete explanation of the method
used to change the economy was included and
full understanding of the impact upon the
economy is evident.
___ Did you discuss how the change will
impact all sectors of a market economy
(households, producers, government,
banks)?
___ Did you describe how the economy is
interdependent when a change in the
economy occurs?
___ (2) Good explanation of the how the
economy will be changed, but only a partial
explanation of how the economy will be
affected.
___ (1) Weak explanation of how the
economy is affected and limited explanation of
how all sectors of an economy.
Benefits
Benefits
___ Did you explain or show how
different sectors of an economy are
helped when this type of change occurs?
___ (3) Complete understanding of how
different sectors of an economy benefit with
full explanation as to the different levels of
impact.
___ Did you explain or show how some
members of an economy are impacted at
different levels? (Example: If there is a
change in state park fees, then citizens
that use state parks are affected more
than people that rarely go to state parks.)
___ (1) Some sectors of the economy that
benefit were not well described or missing.
Costs
Costs
___ Did you explain or show how
different sectors of an economy are hurt
when this type of change occurs?
___ (3) Complete understanding of how
different scetors of an economy are negatively
affected with full explanation as to the
different levels of impact.
___ Did you explain or show how some
members of an economy are impacted at
different levels?
___ (2) All those that benefit are identified.
___ (2) All those that are negatively affected
are identified.
___ (1) Some parts of the economy that
‘lose’ were not well described or missing.
29
Money, Banking, and Taxes
Transfer Task - Teacher Tip
Sample Advertisements and Disclaimers
Students were unsure at times how to weave the problem, impact on the economy, and benefits
and costs into their project, especially the bank advertisement. What should the disclaimer say?
Communicators Group, an advertising firm, created advertisements that were designed to show the
benefits of banking through a local bank. A disclaimer should show the costs of taking out a loan.
Sample Disclaimer
Bank of America, N.A. Member FDIC.
Equal
Housing Lender
©2011 Bank of America Corporation. Credit and collateral
are subject to approval. Terms and conditions apply. This is
not a commitment to lend. Programs, rates, terms and
conditions are subject to change without notice.
Sample Disclaimer
Rate locks are available on 15 and 30 year terms with a
deposit of .75% of the loan amount which is credited
toward the closing costs. Rates quoted are for single
family owner occupied and second homes with a
minimum loan amount of $100,000 and a minimum
down payment of 20%, no-cash out refinances, and
requires escrow of real estate taxes. Rate quotes for
lesser loan amounts are available upon request. All
APR's quoted on a loan balance of $100,000 and
without Private Mortgage Insurance. Maximum loan
amount $417,000. Please call for rates on loans over
$417,000. Private Mortgage Insurance permits 5% down
on Owner Occupied, Single Family Home Loans, call
for details.
© Copyright 2005 - 2011, Savings Bank of Walpole
30
Money, Banking, and Taxes
Transfer Task
Prior
Knowledge
Now that you have learned how the role of money and banking in the economy, and
the ways in which government taxes and spending affect the functioning of market
economies, you will demonstrate your understanding by responding to a problem of
your choice.
Problem
A market economy is affected by private banks practices, actions of the Federal
Reserve and government tax and spending policies. It is important for citizens to
understand the role of money, banks and government in order to maintain a healthy
economy. Often citizens, for one reason or another, do not understand how an
economy is interdependent.
Role
Your role will be to explain how a change in the economy whether through banking or
government policies does and will affect everyone to some degree.
Product
Your product will be a detailed analysis of a change in the economy. You will have a
choice in how you will present your information. Choose from one of the following:
Criteria for
an
Exemplary
Response
For each situation there are four necessary components:
1)
Situation – Restate the situation in your own words giving details about the
situation.
2)
Impact on the Economy – Identify and explain how the action taken will
impact the major sectors of the whole economy.
3)
Benefits – Identify who will benefit from this action and to what degree will
they benefit.
4)
Costs – Identify who this action will hurt financially and to what degree will
they be affected.
The rubric for this performance task is designed for both students and teachers.
Students should self-evaluate their products by making sure all items on the left-hand
side were completed. Teachers should use the right-hand side to score the student’s
work for how well each criterion was met.
Resources
To help you with this task, there are many sources available including:

The Internal Revenue Service (www.irs.gov)

The Federal Reserve System (www.federalreserveonline.org)

Consumer Guides and Protection (www.usa.gov)

Unemployment rates (commercial website)
http://portalseven.com/employment/unemployment_rate_u6.jsp

public libraries have many of these sources as well
31