The U.S. Economy Public and Private Sectors
Total Page：16
File Type：pdf, Size：1020Kb
The U.S. Economy Public and Private Sectors Chapter 4 Chapter 4 Objectives • By end of chapter you should be able to – Define and explain the relative importance of five shares of functional distribution of income – Define and explain personal distribution of income – Understand the top and bottom 20% of distribution of income – State categories of household spending and income Chapter 4 Objectives • By end of chapter you should be able to – Explain advantages of corporations – Explain how government promotes business and competition – How government alters income distribution – Explain effects of positive and negative externalities – Explain role and methods government and central bank use to reduce unemployment and inflation Chapter 4 Objectives • By end of chapter you should be able to – Differentiate between government purchases and transfer payments • And importance over time – ID Government sources of revenue and categories of spending – ID State and Local government sources of revenue and categories of spending Chapter 4 Terms • Functional distribution • Sole proprietorship of income • Partnership • Personal distribution • Corporation of income • Stock • Durable goods • Bond • Nondurable goods • Limited liability • Services • Principal – agent • Plant firm problem • Industry Chapter 4 Terms • Monopoly • Average tax rate • Externality • Payroll taxes – Positive • Corporate income tax – Negative • Payroll taxes • Public goods • Sales and excise taxes • Government purchases • Property taxes • Transfer payments • Personal income tax • Marginal tax rates Elements to An Economy • Consumers • Businesses • Government • This chapter looks at all three in detail Remember The Wealth Of The U.S. Think • If you were an economist, do you see problems with the previous graph? – If yes, what are the problems? – If no, why are there no problems? • If you were an economist and you were creating a theory, is this type distribution good, bad or neutral for an economy? – Why? Please elaborate • What are your theories as to why there is so much of a difference in income Remember The Wealth Of The U.S. Households as Income • About 115 million households in U.S. • Household is one or more persons occupying a housing unit • Households and persons are – Ultimate suppliers of economic resources – And major spenders in the US economy Households as Income • Income received by households is categorized – How it is divided and how it is earned Household Income • How can you, or someone in your household make money? Households as Income • Functional distribution of income – How a nations income is apportioned • Wages and salaries • Proprietors income • Rents • Interest • Corporate Profits – Or according to function performed by income receiver • These are payments for FACTORS OF PRODUCTION – Labor, land, capital, entrepreneurs Households as Income • Functional distribution of income – Wages • Paid to laborers or owners of businesses – Rents and Interest • Paid to owners of property resources – Real property, bonds, savings accounts – Profits • Paid to owners of corporations and unincorporated businesses – Stock or owners equity – This is where billionaires become billionaires Please Answer • What is your opinion about stocks and the stock market? – Where did the opinion come from? Households as Income – Profits • Paid to owners of corporations and unincorporated businesses – Stock or owners equity – This is where billionaires become billionaires Functional Distribution of Income Functional Distribution of Income Personal Distribution of Income • How money is divided among individual households • Divided by quintiles, or five numerically equal parts • Quintiles are compared • Comparisons show vast unequal distribution of income Personal Distribution of Income • How money is divided among individual households 2011 Compare Personal Distribution of Income • How income is divided among individual households • 12.6% of inc to 40% households 49% $ to top 20% 72% $ to top 40% • Income in US • $13,401,868,693,000 • 72+% to top 40% • $9,649,345,458,960 to top 40% – About $214,429 per household annually • 3,752,523,234,040 – Average about $50,000 per household Answer • In economic terms, what are most of the families in this area? – Upper – Middle – Lower class – Please explain your answer and why you answered the way you did • What would the United States be like if we had a significantly smaller middle class? Household Income Real World Moment • Federal reserve had been pumping $85 billion into US economy each month – 72% to top 40% wage earners • Where do they put their money? • With the “tapering” of the stimulus money by the Feds, what would you expect to happen? Conclusion • If the government cuts off the $85 billion in stimulus to the economy each month, what will happen? – Simple supply and demand in the stock market PA Distribution Of Income Households as Spenders • Disposal of income – Taxes about 12% • 46% pay no tax and often get a refund – Savings: • Varies by income level – National average close to 0% in 2000 - 2001 » Home equity borrowing – National average about 3.3% 2009 – 2012 – Most income goes to consumer spending – Saving and spending varies with income levels Savings Rate In The US Households as Spenders • As of 2005 Consumer Spending • Most income goes to consumer spending • Several categories – Durable goods – Non durable goods – Services • More than half of consumer spending Goods & Services • Durable goods – Life expectancy of 3 years or more • Nondurable goods – Food and clothing • Services – Insurance, medical, education, legal Categories of Spending If You Had $1,000 • What would you do with it? 1. Make a list of what you would do with the money 2. Is it a durable good, non durable good or service? 3. Break it down into percentages of type of good 4. In your rows--- 1. How much did your row have to “spend?” 2. % in non durable goods, durable goods and services 3. Did anyone “save money”? 4. As a class, how do you compare to the overall spending of the average consumer? 5. What factors contribute to the differences vs the “average consumer?” • Discussed yesterday the importance of durable good spending on an economy • Explain why durable good spending, and durable goods reports are so important to an economy. • Go to my web site – Microeconomics – Ch 4 – durable goods and their importance – Answer: 1. Why is this report, the durable goods report, so important? 2. What has it “predicted” over the last 12 years? 3. Based on the current statistics, what do you theorize will happen to the economy in the short term? Please explain Categories of Spending – All Business Population • Second component of private sector – Households is the first • Business is broken down by Legal forms and Size • Explain why businesses are important to an economy – Produce products purchased by consumers – Employ the consumers • Small businesses employ 57.2% of the non farm workforce • With employment comes pay – Create new jobs • Small business creates 81% of all new jobs – Provide innovation to the economy – Export goods overseas providing goods overseas and more domestic jobs – Pay taxes Business ENTERPRISE NUMBER OF AREA DESCRIPTION EMPLOYMENT SIZE NUMBER OF FIRMS ESTABLISHMENTS EMPLOYMENT United States 1: Total 5,734,538 7,396,628 111,970,095 United States 2: 0-4 3,575,240 3,582,826 5,926,452 United States 3: 5-9 968,075 982,019 6,358,931 United States 4: 10-19 617,089 652,662 8,288,385 United States 5: <20 5,160,404 5,217,507 20,573,768 United States 6: 20-99 475,125 648,386 18,554,372 7: 100- United States 499 81,773 354,313 15,868,540 United States 8: <500 5,717,302 6,220,206 54,996,680 United States 9: 500+ 17,236 1,176,422 56,973,415 http://www.census.gov/econ/susb/ PA Businesses ENTERPRISE EMPLOYMENT NUMBER OF AREA DESCRIPTION SIZE NUMBER OF FIRMS ESTABLISHMENTS EMPLOYMENT Pennsylvania 1: Total 231,192 297,023 4,976,193 Pennsylvania 2: 0-4 131,847 132,066 231,401 Pennsylvania 3: 5-9 41,063 41,561 269,441 Pennsylvania 4: 10-19 26,933 28,281 360,841 Pennsylvania 5: <20 199,843 201,908 861,683 Pennsylvania 6: 20-99 22,119 28,437 827,944 Pennsylvania 7: 100-499 5,292 15,897 729,406 Pennsylvania 8: <500 227,254 246,242 2,419,033 Pennsylvania 9: 500+ 3,938 50,781 2,557,160 http://www.census.gov/econ/susb/ Classifications & Definitions • Four legal forms of businesses – Sole Proprietorship – Partnership – Corporation – LLC is Limited Liability Company - May not shelter owner from liability - Most prevalent form of business in US • Run a full range from “mom & pop shop” to Exxon Mobile and Wal-Mart • What companies are the largest in the world? 10 Largest US Companies 10. Ford 5. Berkshire Hathaway 9. Valero Energy 4. Phillips 66 8. General Electric 3. Chevron 7. General Motors 2. Exxon Mobil 6. Apple 1. Wal-Mart BERKSHIRE HATHAWAY INC. Acme Brick Company IMC International Metalworking Companies Applied Underwriters Johns Manville Ben Bridge Jeweler Jordan's Furniture Benjamin Moore & Co. Justin Brands Berkshire Hathaway Homestate Companies Larson-Juhl BoatU.S. Lubrizol Corporation Borsheims Fine Jewelry Marmon Holdings, Inc. Brooks McLane Company Buffalo NEWS, Buffalo NY Medical Protective BNSF MidAmerican Energy Holdings Company Business Wire MiTek Inc. Central States Indemnity Company National Indemnity Company Clayton Homes Nebraska Furniture Mart CORT Business Services NetJets® CTB Inc. Omaha World-Herald Fechheimer Brothers Company Oriental Trading Company FlightSafety The Pampered Chef® Forest River Precision Steel Warehouse, Inc. Fruit of the Loom Companies RC Willey Home Furnishings Garan Incorporated Richline Group Gateway Underwriters Agency Scott Fetzer Companies GEICO Auto Insurance See's Candies General Re Shaw Industries Guard Insurance Group Star Furniture Helzberg Diamonds TTI, Inc. H.H. Brown Shoe Group United States Liability Insurance Group HomeServices of America, a subsidiary of XTRA Corporation MidAmerican Energy Holdings Company International Dairy Queen, Inc. Business in the U.S.