Government Spending: Why Do We Spend the Way We Do?
An update and computer application of
Lesson 5 from Focus on Economics: Civics and Government.
Teacher Edition
Go to the Student Version

Introduction

Income after taxes is used for two purposes: spending and saving. The benefit of consuming things today versus the benefit of consuming some things later through savings reflects the economic problem of scarcity. As result, choices must be made. This holds true not only for individuals but for the federal government, too.

Historically, the founders of our country strongly believed in a limited role for government and a strong belief in individual freedom and by 1900, federal government spending amounted to less than 3% of our economy's production of goods and services. The percent of government spending relative to GDP increased during the 20th century reaching more than 45% during World War II. Now in the 21st century, federal spending equals about 20% of GDP.

This growth in the amount of spending has been accompanied by a significant change in the types of programs being funded. Only one-fourth of federal government spending is now used for the more traditional government purchase programs such as defense, transportation, physical resources, commerce, and international affairs. More than 60% is now for transfer payments such as direct payments to individuals, and grants to state and local governments. When the payment of interest on the national debt is added to this latter amount, nonpurchase related spending equals three-fourths of total federal government spending.

Grades: 9-12

Content Standard: 16

Concepts:

• Government purchases
• Government interest payments
• Government transfer payments

Objectives:

• Differentiate among the three categories of government spending-purchases, transfer payments, and interest payments.
• List examples of government purchases and government transfer payments.
• Identify some government programs that have grown significantly in recent years and some that have declined in importance during that time.
• Explain what caused these trends in government spending.

Lesson Description

Students look at definitions for the three categories of federal spending and using the internet locate examples of each. They then categorize a list of expenditures as government purchases or transfer payments. Given federal budget data, students analyze the pattern of change that has occurred over the last 40 years. Working in groups, they use the internet to ascertain what events altered government spending decisions. They listen to an interview with David Wyss to learn more about government spending priorities past, present,and future.

Materials

Copy of Visual 1

Copies for students of Activities 1, 2a, 3, and 5

Three to four copies each of Activity 4a, 4b, 4c, 4d, 4e, and 4f for group work

Procedure

Part I

1. Display a copy of Visual 1. Tell students to print a copy of Activity 1. Review the definitions of government purchases, government transfer payments, and government interest rates.
2. Direct students to http://www.infoplease.com/ipa/A0873746.html to locate examples of the different types of expenditures and write examples of each on Activity 1. Review their answers.
3. Instruct students to complete Activity 2. They are to correctly identify each expenditure by clicking on either Purchase or Transfer. If you want students to record their answers for class discussion, have them print a copy of Activity 2a.
4. Instruct students to look at Activity 3. Discuss the following:
   1. Which category of federal government spending has grown the most in importance since 1960? [Transfer payments]
   2. Which category has declined the most? [Purchases]

Part II

5. Divide the students into six groups. Assign each group one of the following time periods:
   • 1960-1975
   • 1970-1975
   • 1978-1988 (2 groups, one defense spending, one transfer payments)
   • 1988-2000 (2 groups, one defense spending, one transfer payments)
6. Have students print a copy of Activity 4 for their assigned group. Explain that each group is to use the websites listed and a copy of Activity 3 to answer the questions.
7. Have groups report their findings. Print a copy of Activity 5 for each student. Tell students to record information from other groups
8. Ask students to analyze the information they have recorded on Activity 5. Ask students what factors have caused the shift in priorities for government spending. Have them cite specific examples.
   [Depending on what world events were occurring from the 15 year war in Vietnam to the Arab-Israeli conflicts which impacted the oil supply to the fall of the Iron Curtain and the end of the Cold War, defense spending has fluctuated but has generally declined. Transfer payments have increased from the inception of the War on Poverty in the mid-60s. The development of Medicare, increased aging of the population and several severe recessions continued to put upward pressure on the transfer payment portions of the federal budget.]
9. Tell students to listen to David Wyss to learn more about government expenditures.

Closure

Discuss:

1. What are the three categories of government spending?
   [government purchases, transfer payments, interest payments on debt]
2. Give an example of each type of spending.
   [Purchases-national parks, interstates, space, etc., Transfers-food stamps, Medicare, Social Security, welfare, etc., Interest payments- interest on the national debt]
3. What government programs have grown significantly in recent years? What ones have declined in recent years?
   [Over the past forty years, defense as a percentage of government spending has been declining while transfer payments have steadily increased.]
4. Review the causes for changes in priorities in government spending over the last 40 years. (Refer to Activity 5 and discussion above for answer.)
   [Defense spending may once again take a larger portion of federal government spending. The federal deficit may increase if there is not enough revenue to pay for the new technology. Another possible outcome is that cuts would have to be made to transfers to maintain a balanced budget. Decreasing transfers is difficult because many are needs based, funded automatically by law, and not dependent on legislation year to year. The baby boomers will also be reaching retirement age and the social security system will have even more demands placed on it. Medicare will have even more people eligible plus medical costs continue to rise as new technology comes into use. However, increased defense spending can create new jobs in areas where defense contractors are located which would increase tax revenue. Some students may have other valid hypotheses.]

Assessment

The President is suggesting increased spending for a missile defense system. He is also proposing a major long- term tax cut. Predict some possible outcomes for the federal budget categories and the relative importance of each during the next ten years.
[Defense spending may once again take a larger portion of federal government spending than before. The federal deficit may increase if there is not enough revenue to pay for the new technology but it also can create new jobs in areas where defense contractors are located. The baby boomers will hit retirement age and the social security system will have even more demands placed on it. Medicare will have even more people eligible plus medical costs continue to rise as new technology comes into use. Some students may have other hypotheses that might be valid.]