1
Applying Economics to the Real World
Student’s Name
The University of Arizona Global Campus
Course name
Course number
Instructor’s Name
Due date
, 2
Applying Economics to the Real World
Case 1: Government Spending and Taxation
How Government Spending and Composition Have Changed in Recent Decades
The U.S. federal government experienced considerable spending alterations regarding
size and financial distribution patterns throughout the last several decades. Since the mid-20th
century, the government has expanded its social welfare program delivery together with its
provision of healthcare facilities and income transfer systems. The changing demographics
alongside political choices for income redistribution and safety network establishment are the
primary forces behind this shift.
Healthcare programs and income transfer initiatives have experienced the largest growth
in federal expenditure since the 20th century. Exponential enrollment growth has been the main
result of two major health care programs: Medicare and Medicaid which provide benefits to
elderly persons and low-income families. The federal government now controls about three-fifths
of all governmental expenditures. The government expenditure mainly comes from four areas:
social security, healthcare, and national defense together with net interest expenditures on
national debt. Social Security benefits increased substantially in recent times because of aging
baby boomer generation (Springstead, 2019). Spending on interest payments for the national debt
has steadily increased due to the substantial growth of the federal debt.
Federal spending on social programs keeps rising, yet all other categories experience
diminishing percentages. The Federal government decreased its defense spending from 52.2% in
1960 to 15% in 2019 according to Gentilucci (2019). The termination of the Cold War together
with changing domestic needs resulted in this downward trend. Infrastructure spending alongside
public investment together with education expenditure has not grown at similar rates as social
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programs. The federal investment in infrastructure has decreased to 0.5 percent of GDP from its
previous level of 1 percent over the past 35 years so states and local governments finance most
infrastructure projects (McNichol, 2019).
In response to COVID-19 the U.S. government passed the large Coronavirus Aid Relief
and Economic Security Act known as CARES which amounted to $2.2 trillion during 2020. Due
to emergency relief programs the federal deficit surpassed all previous records reaching $3.1
trillion during the fiscal year 2020 (Zarroli, 2020). The government used funds from this
spending to issue stimulus checks while providing unemployment benefits to reduce the
economic impact on businesses.
Positive Effects
The increased funding of social programs delivered better living standards to many
Americans throughout the country. The programs of Social Security and Medicare have
successfully lowered old-age poverty rates (James & Engelhardt, 2019). Income transfer
programs that include unemployment benefits along with food assistance lessen the negative
effects on the public during economic downturns including both the Great Recession and the
COVID-19 pandemic.
Negative Effects
The current growing national debt combined with increasing interest payments creates an
extended danger to the economic stability of the nation. The increasing debt of the government
through borrowing will inflict costs on upcoming generations who will face increased taxation or
limited public service availability (Sutherland et al., 2012). The redirection of funds from
infrastructure projects along with educational expenditures will work against sustainable
economic progression. Inadequate spending on public infrastructure and transportation and
Applying Economics to the Real World
Student’s Name
The University of Arizona Global Campus
Course name
Course number
Instructor’s Name
Due date
, 2
Applying Economics to the Real World
Case 1: Government Spending and Taxation
How Government Spending and Composition Have Changed in Recent Decades
The U.S. federal government experienced considerable spending alterations regarding
size and financial distribution patterns throughout the last several decades. Since the mid-20th
century, the government has expanded its social welfare program delivery together with its
provision of healthcare facilities and income transfer systems. The changing demographics
alongside political choices for income redistribution and safety network establishment are the
primary forces behind this shift.
Healthcare programs and income transfer initiatives have experienced the largest growth
in federal expenditure since the 20th century. Exponential enrollment growth has been the main
result of two major health care programs: Medicare and Medicaid which provide benefits to
elderly persons and low-income families. The federal government now controls about three-fifths
of all governmental expenditures. The government expenditure mainly comes from four areas:
social security, healthcare, and national defense together with net interest expenditures on
national debt. Social Security benefits increased substantially in recent times because of aging
baby boomer generation (Springstead, 2019). Spending on interest payments for the national debt
has steadily increased due to the substantial growth of the federal debt.
Federal spending on social programs keeps rising, yet all other categories experience
diminishing percentages. The Federal government decreased its defense spending from 52.2% in
1960 to 15% in 2019 according to Gentilucci (2019). The termination of the Cold War together
with changing domestic needs resulted in this downward trend. Infrastructure spending alongside
public investment together with education expenditure has not grown at similar rates as social
, 3
programs. The federal investment in infrastructure has decreased to 0.5 percent of GDP from its
previous level of 1 percent over the past 35 years so states and local governments finance most
infrastructure projects (McNichol, 2019).
In response to COVID-19 the U.S. government passed the large Coronavirus Aid Relief
and Economic Security Act known as CARES which amounted to $2.2 trillion during 2020. Due
to emergency relief programs the federal deficit surpassed all previous records reaching $3.1
trillion during the fiscal year 2020 (Zarroli, 2020). The government used funds from this
spending to issue stimulus checks while providing unemployment benefits to reduce the
economic impact on businesses.
Positive Effects
The increased funding of social programs delivered better living standards to many
Americans throughout the country. The programs of Social Security and Medicare have
successfully lowered old-age poverty rates (James & Engelhardt, 2019). Income transfer
programs that include unemployment benefits along with food assistance lessen the negative
effects on the public during economic downturns including both the Great Recession and the
COVID-19 pandemic.
Negative Effects
The current growing national debt combined with increasing interest payments creates an
extended danger to the economic stability of the nation. The increasing debt of the government
through borrowing will inflict costs on upcoming generations who will face increased taxation or
limited public service availability (Sutherland et al., 2012). The redirection of funds from
infrastructure projects along with educational expenditures will work against sustainable
economic progression. Inadequate spending on public infrastructure and transportation and
