| Chapter 2 Outline |
| I. WHAT DOES GOVERNMENT DO? |
| A. Government Spending |
| 1. Governments in the United States spend large amounts of money to providea vast array of government services. |
| a. The largest items at the federal level are retirement and disability insurance, defense, health, interest, and income security. |
| | 1. Health and net interest have been the fastest growing categoriesduring the last decade. |
| b. The largest items at the state and local level are education, health and welfare, and transportation. |
| B. Government Purchases |
| 1. Government purchases accounted for 40 percent of government spending in1992. |
| a. The largest share of government purchases, 55 percent, was for the hiring of government employees. |
| C. Government Transfers |
| 1. Government transfers account for 37 percent of all government spending. |
| 2. A transfer payment is a payment made with no expectation of something inexchange. |
| 3. The two types of transfer payments are cash and in-kind. |
| a. In-kind transfers are payments for the purchase of specific goods and services. |
| D. Taxes and Other Revenue |
| 1. Government spending is financed by government revenues or borrowing. |
| 2. The main sources of revenue for the federal government are individualincome taxes, social security taxes, and corporate income taxes. |
| 3. State governments depend primarily on sales and excise taxes and the individual income tax. |
| 4. Local governments depend primarily on the property tax. |
| 5. Charges, fees for government-provided goods and services, are an important revenue source for all levels of government. |
| E. Government Borrowing |
| 1. When government revenues fall short of government expenditures, there is adeficit and government must borrow. |
| 2. Deficits are more likely for the federal government than for state governmentsas most state governments have constitutions requiring a balanced budget. |