Government’s Role in the Economy Government Intervention in the Economy

Problems that arise in a Free Enterprise System

Why Does Government Get Involved? Businesses sometimes earn profits unfairly. Working conditions are unsafe and/or inhumane. Unsafe products harm consumers. Not all Americans have economic security. The economy can be unstable. Damages to the environment.

Methods Governments Use Governments regulate businesses Governments make direct payments to individuals Governments help pay for important economic activities Governments control the amount of money they spend and the amount they receive Governments make tax rules and collect special taxes

Government’s Efforts to Solve Economic Problems

Six Goals Ensuring Fair Business Practice Protecting Workers Protecting Consumers Providing Economic Security Maintaining Economic Stability Protecting the Environment

Ensuring Fair Business Practices In the 1800’s, large companies grew larger and larger, eliminating the competition. Formed Trusts & Monopolies

Monopolies & Trusts Trusts: a group of several companies organized to benefit from the high prices they all agree to charge. Monopoly: a single business that controls a market.

Monopolies Controlling Monopolies: Legal Monopolies: 1880’s people becoming very angry Sherman Antitrust Act of 1890, outlawed agreements among companies that limit competition Clayton Antitrust Act of 1914, outlawed many of the practices used by monopolies & trusts Federal Trade Commission created Legal Monopolies: Businesses that provide services such as electricity, water, and local phone service are allowed to have a monopoly Competition in these businesses can cause utilities to be inefficient

Protecting Workers Create & promote safe working conditions. Federal Government created OSHA (Occupational Safety & Health Standards) in 1971 to enforce safety & health standards.

Protecting Consumers Creation of the FDA (Food and Drug Administration) in 1927. Established the CPSC (Consumer Product Safety Commission) in 1972.

Providing Economic Security Great Depression occurs in 1929…factories close, banks fail, 12 million people were out of work. FDR implements “New Deal” which provides many jobs and gets the economy moving again through programs like the Works Progress Administration which put millions of unemployed to work building bridges, roads, and public buildings.

Economic Security… Social Security – passed in 1935, provides a monthly payment to workers or their families to replace the income lost when a person retires, becomes injured, or dies. Public Assistance – help poor families by providing various services, such as food stamps. Medicare

Maintaining Economic Stability Business Cycle --economy goes through its “ups” of growth and “downs” of recession Government tries to “flatten out” the ups & downs through fiscal policy & monetary policy.

Monetary Policy Regulation of the money supply by the Federal Reserve System

Fiscal Policy A government’s decisions about the amount of money it spends and the amount it collects in taxes

Protecting the Environment Environmental Protection Act passed in 1970 helped to create the EPA, which controls pollution by making rules about what and how much can be dumped into our air, water, and soil. Love Canal

Government Response

BBC: Masters of money – john maynard keynes

GOVERNMENT’S ROLE IN OUR ECONOMY

Government’s Role Monetary Policy – regulation of the money supply by the Federal Reserve System Fiscal Policy – government decisions about: The money that is spent (programs) The taxes collected In a recession, government can: cut taxes: People will have more money, will spend and stimulate economy Increase spending create jobs

MANAGING THE ECONOMY The Nation’s Economic Health – government uses indicators to manage economic health inflation – general rise in price level of goods as inflation increases, buying power is less if too high, government can use monetary policy Federal Reserve can raise interest rates Gross Domestic Product (GDP) – total dollar value of all final goods and services produced within the country during in a year final goods: those that are complete and ready for sale rising GDP = growing economy

Inflation: How Much Did Things Cost in 1964? Item Price Four-bedroom, two-bath house in South Bend, Indiana $16,000 “Penthouse view” in doorman building on East 69th Street, Manhattan $245 per month Hershey chocolate bar $0.05 Steak dinner at the Palm in Manhattan $8 Fruit of the Loom boxer shorts $0.69 Ford Mustang, starting price $2,358 Rental car, Ford Falcon $5 per day DeBeers one carat diamond $500 to $1,800 One year’s tuition at Harvard $2,400 One year’s tuition at Syracuse University $750 Ticket to “Goldfinger” with Sean Connery $1

MANAGING THE ECONOMY The Federal Budget In 2001, the federal government spent $1.8 trillion, 2014: 3.5 trillion! (down from $3.77) Benefit payment to individuals (social security, Medicare, Medicaid, public assistance) National defense (military) Interest on money that is borrowed (deficit) Other (education, loans)

A great website

This chart accounts for 34% of the federal budget.

2014 Federal Budget Receipts: $3.02 trillion (9% increase from 2013) Spending: $3.5 trillion (1.2% increase from 2013) Deficit: $483 billion (29% decrease from the previous year) What assumptions can you make from these numbers?

Revenue – Government Income Sources of Federal Income Income Tax Personal income Social Security Tax Excise Tax- taxes on cigarettes, alcohol, gasoline Raise money Regulate consumption of “bad” goods

MANAGING THE ECONOMY Sources of Federal Income Tariffs, Fees, and Sales Taxes on land Taxes on imports Balancing the Budget Deficit: when government spending is greater than income Surplus: government income is greater than spending

MANAGING THE ECONOMY The National Debt: current national debt: over $12 trillion we must pay interest on it Should we fix it? How?

How Much is a Trillion??? “How Much is a Billion” Secret Life of A Food Stamp Activity