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Ruchit Shah has a favorite saying: "You live, you learn." It's a fitting philosophy. especially for a young man who has lived in three different countries and eight different towns and has started two successful businesses—all before his 18th birthday.

Born in India, the University of Texas freshman heads up ClickZcn, a Web-based advertising agency he runs with his 17-ycar-old partner, Richard Hcckcr.

They pooled their resources—$280— and launched ClickZcn in the spring o1 2000. In 2001, the firm had 25 employees and earned $1.5 million in annual revenues.

"When I was a kid I always had the ambition to make a lot of money," Shah told TIME. Shah adds, "The biggest myth is that it takes money to make money. We started with 280 dollars. It doesn't take hard work, it takes smart work." (It also takes parental support: neither Shah nor Hecker were old enough to sign the initial partnership papers, so that was left to their parents.)

Shah and Hecker are now thinking about how to give something back. They plan to launch a new Web site that they hope will promote world unity through information and education.

Says Shah: "While we're looking to build our business, we're also looking to make a difference in the world."

Ruchit Shah from North Carolina

Ruchit Shah from North Carolina

fï::.rlM</ fs-uL i government sometimes stimulates the economy by spending large sums of money even when no stimulus is needed.

Furtherj some leaders might oppose increased spending or tax cuts on ideological grounds, liven when a majority of leaders can agree that a stimulus is needed, they often argue over where and how the money should be spent. As a result of these political issues, it is very difficult to get the government to act in a timely manner to stimulate the economy.

In addition* government action doesn't always have the desired effect. Sometimes it takes a long time for political leaders to agree on a plan to stimulate the economy. It takes even longer for them to pass the supporting laws appropriations, for instance—to put that plan into effect. By then, many months may have passed* and the economic situation may have changed.

Automatic Stabilizers

For these reasons, it is very difficult for the federal government to use fiscal policy to effectively stabilize the economy. Fortunately;, the economy has a number of automatic stabilizers, 'ITicse arc programs that begin working to stimulate the cconomy as soon as they arc needed, 'llie main advantage of these programs is that they are already in place and do not need further government action to begin.

Unemployment insurance programs are one example. When people lose their jobs— as in a recession—they collect unemployment payments. These payments are not very large. Still, they do give people some help until rhey can find a new job—or until the economy improves and they are hired back by their former employers.

Many welfare programs also provide automatic assistance. For example, people might begin to collect welfare or Medicaid when their income falls below a certain

fM*tir*} CjrtMn

Analyzing Visuals r Revenues collected through taxes make it possible for the government to provide services such as schools, parks, and roads—but tax dollars are not always sufficient to finance ambitious public projects. Explain the argument the cartoonist Is making about the financing ofthe construction project shown In this Image.

level. These payments are maintained to provide a minimum, standard of" living for low-income Americans. These payments help prevent consumer demand from falling even lower which would force businesses to lay off even more workers.

The fact that the federal income tax is progressive is another stabilizer. Remember from Chapter 23 tiiat progressive tax rates are lower at lower income levels. When people lose their jobs, their income goes down. This pushes them to lower income levels and puts them in a lower tax bracket. This helps ease the impact of the cut in incomc.

When the economy recovers, the opposite happens. People make more money and, therefore, need and receive less help from entitlements. Generally, automatic stabilizers go into effect much more rapidly than discretionary fiscal policies—policies that government chooses to implement.

identifying what are automatic stabilizers?


Checking for Understanding

1. Key Terms Define the following Lerms and use them in sentences related to governmental management of the economy;

surplus, deficit, bn In need budget

Reviewing Main Ideas

2. Summarize How does a government that runs a deficit raise the money nocessary to pay its debts?

3. Evaluate What is Lhe main advantage of automatic stabilizers?

Critical Thinking

4. Drawing Conclusions Do you Lhink the federal government should be required, like many staLe governments. Lo balance the budget every year? Explain.

5. Understanding Cause and Effect In a graphic organizer like the one ho low, describe the possible effects of economic sLimulus by the government.

Analyzing visuals

6. Explain Look at the graphs that show Lhe deficiL and the debL on page 555. Describe the deficiL in Lhe 1970's compared to the 1990's.


7. Research What is your share of Lhe naLional debL Loday? Search the Internet under "national dobtT for the debt total. Then divide LhaL number by an esLi-mate of the current population.

Chapter 25 Government Finances 557

Assessment & Activities

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