Government and the Economy. Role of Government: Providing Public Goods Private Goods: must be purchased to be consumed; can’t be consumed by anyone else.

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Presentation transcript:

Government and the Economy

Role of Government: Providing Public Goods Private Goods: must be purchased to be consumed; can’t be consumed by anyone else Items we buy & replace Ex: clothes; food; haircuts; auto care; insurance; etc. Public goods: multiple people can consume; doesn’t matter if you pay Gov’t provides them: hard to charge for public goods Ex: public parks; public libraries; museums; highways; street lighting

Maintaining Competition Monopoly: sole provider of good/service When there is no competition, monopoly charges any price it wants Gov’t tries to encourage competition via anti-trust laws: laws to control monopoly power & promote competition 1890: Sherman Antitrust Act 1914: Clayton Act

Mergers Merger: combination of 2+ companies to form a single business Depending on the companies, gov’t might step in to prevent it

Regulating Market Activities Natural monopolies: cost of production lessened by having single firm produce product Firm agrees to gov’t regulation in return for having market all to itself Advertising & Product Labels Can’t lie about product Can’t lie about contents (allergies) FDA, FTC

Product Safety Recall: company pulls product off market/ agrees to change it to make it safe

Poverty Guidelines/ Programs Food stamps WIC- help w/ nutrition, health care (kids up to 5) Other programs like income assistance (elderly, blind/ disabled), Workfare (work for welfare benefits), progressive income tax, etc.

What do you think? (L) 1. In your opinion, to what extent should the government be allowed to regulate economic activity? 2. In your opinion, who are the most important people in an economy?

Measuring the Economy

Real GDP Real GDP accounts for inflation (prices go up over time  SEEMS like economy has grown)

Business Cycle Business Cycle: economy grows over time, not at constant rate (series of ups/ downs) Peak: highest point Trough: lowest point Recession: GDP going down for 6 mo. (Depression: long/severe recession) Expansion: economy growing

Unemployment Unemployment rate: % of people in civilian labor force who are not working but are looking for work Frictional – “in between” jobs Seasonal – caused by weather Technological – lose job to machine Cyclical – job cut due to recession

Fiscal Policy Changes in government spending/ taxes

Consumer Price Index (CPI) CPI- measure change in price over time of specific group of goods/ services Inflation: overall increase in prices + decrease in value of dollar

Stocks and Stock Markets Why do stock prices change? Supply/ demand Mostly based on expectations Stock Market Indexes Dow-Jones Industrial Average Standard & Poor’s

Stock Market & the Economy “Bull Market” - rapid, high growth, high profit- stock prices rise “Bear Market” – slow growth, low stock prices Video – Stock Exchange