The Role of Government in the Economy

I.How does the United States government promote & regulate marketplace competition? Enforcing antitrust legislation to discourage the formation of monopolies - one business is not allowed to control an industry… If it did, it would have no reason to benefit the consumer. So the government will disband (break-up) a monopoly.

 EX: There cannot be only one oil company or they could raise the price too high for consumers to benefit. All of the electric companies cannot merge into one & charge a really high price… Etc…

II. The U.S. Government protects consumer rights & property rights  All individuals have the right of private ownership, which is protected by contracts that are enforceable by law --  A contract includes an offer (what is given or done) & acceptance (agreement that you want the offer), & is signed by both parties.

 Consumers may take legal action against violations of consumer rights – E.g., sue for broken contracts.  Government agencies establish guidelines that protect public health & safety – E.g. EPA, FDIC, FTC, & the Dept. of Homeland Security.

Generalizations The government promotes & regulates competition in the marketplace, as well as passes laws & creates agencies to protect consumer rights & property rights.

III. How does the government influence economic activity, & what role does the 16 th Amendment play in taxation?  Ways the government influence economic activity: taxing, borrowing, & spending

Taxing Government tax decreases Increases funds for private & business spending Government tax increases Decreases funds available for spending 16th Amend.---The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Government borrowing Reduces funds available for borrowing by individuals & businesses Increased government borrowing Decreased government borrowing Increases funds available for borrowing by individuals & businesses for borrowing by individuals & businesses

Government Spending

Generalization The government taxes, borrows, & spends to influence economic activity.

IV. What is the role of the Federal Reserve System in the US Economy?  Federal Reserve System / Bank (“The Fed”)- the central bank of the United States, which has the duty of watching over the US Economy. The Fed has the following roles…

The Four Roles of the Fed: › to maintain the value of the national currency (dollar) › regulates banks to ensure the soundness of the banking system & the safety of deposits › manages the amount of money in the economy to try to keep inflation low & stable › acts as the federal government’s bank.

 The Business / Economic Cycle - the economy naturally moves up & down like the prices of goods. Its pattern is called the business cycle

1.When the economy is improving (high employment, low government spending, lower taxes) it goes through a period of expansion & continues to grow until it reaches a peak. 2. After the economy peaks, it naturally begins to go down (low employment, high taxes & government spending) & goes through a period of recession. It continues to decrease until it hits a low point called a depression.

The Business Cycle

Ways the Government / Fed Can Influence the Economy:  The government can influence the economy’s position on the business cycle by issuing currency & regulating the amount of money in circulation. This job is controlled by the Federal Reserve Bank (The Fed).  The role of the Fed is maintaining a stable economy The Fed acts as a banker’s bank by controlling how much money banks have to use & by confirming deposits & debits to accounts.

Why does the government issue currency & which government agencies are responsible for creating it?  Money - is defined as anything that is generally accepted as a method of payment. › When the United States government issues coins & currency, people accept it in exchange for goods & services because they have confidence in the government to back up the money. › Only the US Government issues money as a means to facilitate this exchange.

Why does the government issue currency & which government agencies are responsible for creating it? › The three types of money generally used in the United States are Federal Reserve notes (currency or paper money) Change (Coins) checks & debit cards (that access back accounts with $ in them)

What types of goods & services do governments provide to the people & how do governments pay for the goods & services they provide?  Public Goods & Services: Characteristics of most goods & services provided by government are: 1. Provide benefits to many at once – they cannot be denied to anyone.

What types of goods & services do governments provide to the people & how do governments pay for the goods & services they provide? 2. Would not be available if individuals had to provide them  Include: interstate highways, schools, postal service, police & fire stations, & national defense B. Governments pay for public goods & services with tax revenue, borrowed funds, & through fees (e.g., park entrance fees)

The 16th Amendment to the Constitution  authorizes (permits) Congress to tax personal & business incomes, or money earned.

Generalization Government provides certain public goods & services that individuals & businesses acting alone cannot provide efficiently.

16th amendment provides public GoodsServices

Government agencies that regulate business include the following FCC (Federal Communications Commission) - regulates the radio / tv / media industries EPA ( Environmental Protection Agency) – regulates pollution & environment laws FTC ( Federal Trade Commission) – prevents unfair methods of competition against consumers FDIC (Federal Deposit Insurance Corporation) – although it’s not a part of the government, the FDIC works along side of the gov’t to insure money in the banks against bank failures & regulates the banking industry *notes on second sheet