UNIT 6: PUBLIC FINANCE Flashcards
American government’s revenue from taxation can be divided into 2 types. What are they?
They are federal funds and trust funds
What are federal funds?
Federal funds come from the collection of different types of taxes such as income taxes, customs duty, excise taxes and so on.
What are federal funds used for/spent on?
Federal funds are spent on the G’s programs & projects such as paying salaries for state employees, running the G body, financing infra-structure projects.
What are trust funds?
Payroll taxes generate trust funds.
What are trust funds used for?
Trust funds are only used for medical & social security program.
By what ways does the Treasury/the G borrow money?
G borrows money by issuing & selling the G’s security (mostly bonds) on financial markets.
What are 2 types of debts?
Two types of debts are debt held by federal accounts and debt held by the public.
Debt held by federal accounts refer to the money borrowed from the surplus of trust funds.
Debt held by the public refer to the money borrowed from the public. It mean that G can borrow money from domestic investors & international investors. Domestic investors include local private citizens, the central banks, local governments, etc. International investors include foreign people, government of other countries, international financial institutions such as IMF & WB.
How can the G deal with the shortage of state budget?
The G can print more money to pump into the circulation, borrow more money to spend.
Where do the G’s revenue come from?
G’s revenue come from the collection of different types of taxes, in which:
Payroll taxes generate trust funds which are only used for medical and social security programs (paying pensions for retired people, supporting social families, subsidies for victims of natural disasters, accidents)
Other types of taxes: income taxes, customs duty, excise tax, etc generate federal funds which are used for infra-structure, paying salaries for state employees, running the G body.
How does the Federal Government borrow money?
G can borrow money by issuing fresh securities (mostly bonds) and selling them on financial markets or getting loans from international financial institutions such as WB, IMF.
G can sell securities by 2 ways: directly through its website or indirectly through banks and brokers.
Which sources can the G borrow money from?
G can borrow money from itself (from the surplus of the trust funds). It is called “debt held by the federal accounts”
G can also borrow money from the public by selling bonds to them. The borrowed money is called “debts held by the public”. It mean that G can borrow money from domestic investors & international investors. Domestic investors include local private citizens, the central banks, local governments, etc. International investors include foreign people, government of other countries, international financial institutions such as IMF & WB.
SUMMARY
There are some main ideas in Unit 6: G’s revenue, G’s spending, G’s borrowings.
Generally, G’s revenues come from the collection of different kinds of taxes, generating 2 types of funds (trust funds and federal funds). Specifically, trust funds are only used for medical and social security program while federal funds are used for infra-structure, paying salaries for state employees, running the G body.
Moreover, G’s borrowings have 2 types: debt held by the federal accounts & debt held by the public. The G borrows money by issuing fresh securities (mostly bonds) and the sources of public debts are from itself, from domestic and international investors.
