Chapter 9

Section 1

Civics: Government and Economics in Action3  Government ◦ The government plays an important role in the American economy, by making rules, spending money, and taxing individuals and corporations.  Economic Freedom ◦ The freedom to own property, make a profit, and to make choices about what to produce, buy, and sell.

 Six reasons why the American government had to become involved in the economy.  1. Businesses have sometimes earned profits unfairly. ◦ Price fixing ◦ Misleading advertising  2. Working conditions have sometimes been unsafe and inhumane. ◦ Long hours for low pay ◦ Unsafe machinery

 3. Unsafe products have harmed consumers. ◦ Bacteria in food. ◦ Unsafe household products or toys. ◦ Misleading medicine.  4. Not all Americans have had economic security. ◦ The unemployed became poor, or homeless. ◦ Discrimination

 5. The economy has been unstable. ◦ Recessions/ Depressions ◦ Inflation ◦ Natural Disasters  6. The environment has been damaged. ◦ Pollution ◦ Wildlife are in danger.

 Six ways the government can fix economic problems.  1. Governments regulate business.  Rules for business conduct.  Regulatory agencies.  2. Governments make direct payments to individuals.  Give money to people who need to pay for food, shelter, medical, or other basic needs.

 3. Governments own resources and produce goods and services. ◦ Own land ◦ Run businesses  4. Governments help pay for important economic activities. ◦ Give money to private businesses

 5. Governments control the amount of money they spend and the amount they receive in taxes. ◦ Taxes take money from the economy ◦ Spending puts it back  6. Governments make tax rules and collect special taxes. ◦ Can change the tax rates. ◦ Change taxes to reward or punish.

Civics: Government and Economics in Action10  The market system does not always promote the common good  Government regulations also put some limits on individual freedoms ◦ It also has a large price tag ◦ Critics accuse the government of using more time, more money, and more paperwork than is necessary.

Civics: Government and Economics in Action12  In a free-enterprise system there were no rules for the operation of businesses ◦ Trust: a group of several companies organized to benefit from the high prices they all agree to charge. ◦ Monopoly: a single business with sole power over the prices in the market.  The game called “Monopoly” debuted in 1935

Civics: Government and Economics in Action13  Controlling Monopolies ◦ American became angry about the growth of monopolies; price had become unreasonable. ◦ The Sherman and Clayon Antitrust Acts banned unfair monopolies.  Allowing Legal Monopolies ◦ The government does not oppose all monopolies; public utilities are monopolies  Banning False Advertising, 1938 ◦ Congress banned “unfair or deceptive practices”

Civics: Government and Economics in Action14  Safe Working Conditions ◦ National Labor Relations Act (1935) ◦ Fair Labor Standards Act (1938) ◦ Occupational Safety and Health Administration (1971)  Safe Products ◦ Food and Drug Administration (1927) ◦ Consumer Product Safety Commission (1972)

Civics: Government and Economics in Action15  The Great Depression ( ) ◦ Long period of economic hardship  Franklin Roosevelt ◦ The New Deal  Social Security Act, 1935: A monthly payment program for workers. This program served as insurance to injury, unemployment, or death.  Public Assistance: Cash payments and various services provided to those in need by federal, state, and local governments.

Civics: Government and Economics in Action16  Business Cycle ◦ The repeated series of “ups” of growth and the “downs” of recession.  Monetary Policy ◦ Regulation of the money supply by the Federal Reserve System  Fiscal Policy ◦ The government’s decisions about the amount of money it spends and the amount it collects in taxes.

Civics: Government and Economics in Action17  The Environmental Protection Agency ◦ Created 1970 by Environmental Protection Act. ◦ The agency control pollution by making rule about what and how much can be dumped into the air, water, and soil.

Section 2

Civics: Government and Economics in Action19  Federal government constantly checks the health of the economy  Variables the Government Checks: 1.Inflation: The general rise of the price level of goods and services. 2.Gross Domestic Product: GDP is the total dollar value of all final goods and services produced with the country in a year.

Civics: Government and Economics in Action20  2003 Federal Budget: $2.14 trillion  Federal Budget: ◦ The government’s plan for how much it will raise and spend money.

Civics: Government and Economics in Action22  Income Taxes ◦ State and local governments rely mostly on sales tax and property taxes ◦ Federal government relies mostly on personal income taxes and social security taxes.  Excise Taxes ◦ Charged on specific products

 Taxes on certain goods are called excise taxes.  This tax is also meant to regulate consumption of a certain product.  Tariffs are taxes on imported goods.  Fees are charges to users of certain services.  Sales of government owned property is another way to generate revenue.

Civics: Government and Economics in Action24  Balancing the Budget ◦ Deficit: the amount in a year by which government spending is greater than government income. ◦ Surplus: the amount in a year by which government income is greater than government spending.  The National Debt ◦ The total amount of money the government owes to lenders.

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Civics: Government and Economics in Action26  The Employment Act, 1946 ◦ States the government’s intention to promote employment, production, and purchasing power.  Promote the “General Welfare” ◦ Found in the preamble to the Constitution  Full Employment: every person who wants to should have a job  Price Stability ◦ The government makes the ground rules for the market economy

Civics: Government and Economics in Action27  Circular Flow ◦ Economic cycle between individuals and businesses  Adding Government to the Circular Flow ◦ The government plays a central role in the circular flow of our market economy.  Taxes and fees are exchanged for goods and services ◦ Businesses pay taxes on their profit and property ◦ Individuals pay taxes on their income, etc.

Civics: Government and Economics in Action28  National Income Accounting: ◦ The process by which our nations keeps track of its overall income and spending  Gross Domestic Product ◦ Economic Growth: an increase in the production of goods and services, which provides citizens with a higher standard of living. ◦ Inflation: an increase in the overall price level ◦ Deflation: a decrease in the overall price level

Civics: Government and Economics in Action29  Characteristics of a Good Tax 1.Efficient and economical 2.Reasonable 3.Must treat the tax payer fairly and equitably 4.Certainty  Benefits Received Principle  Ability to Pay Principle

Civics: Government and Economics in Action30  Proportional Tax ◦ Requires each taxpayer to pay the same proportion or percentage of their income in taxes.  Progressive Tax ◦ Takes a higher percentage of taxes from a person with a higher income than it does form a person with a lower income  Regressive Tax ◦ Takes a larger percentage of tax from the income of a person with a lower income than it does from a person with a higher income.

Civics: Government and Economics in Action31  Direct Taxes ◦ A tax on income  Indirect Taxes ◦ Generally ends up as part of the price a consumer pays for a product.  Tax Impact ◦ Taxes affect the individuals, consumers, and businesses ◦ Taxes are often “passed on” to the consumer

Civics: Government and Economics in Action32  The Goals are Government Economic Stability Policies: 1.Promote Economic Growth 2.Maintain Stable Prices 3.Ensure Full Employment

 People’s person buying decisions are private-sector decisions.  Public-sector decisions are buying decisions that are made by a government.  Public-sector decisions reflect public goals.

Civics: Government and Economics in Action34 1. Balanced Budget Requires that the government does not spend more than the tax revenues received. 2. Deficit Budget A budget where the government spends more than the tax revenues received. 3. Surplus Budget A budget where the government spends less than the tax revenues received.

Civics: Government and Economics in Action35  National Priorities ◦ The government has two options to control spending: 1.Increase/Decrease Taxes 2.Increase/Decrease Spending  Spending Patterns - Entitlement programs provide benefits to people who are entitled by law to receive them.

 Most state and local governments are direct expenditures.  If spending is cut, people get frustrated.  State and local governments turned to the federal government for assistance.  Most state and local revenues come from property taxes and sales taxes.  Education counts for more than one third of state and local expenditures.