Economic Functions of Government Q: What is the Government’s Role? A: Set the Rules of the Game…

Maintaining Legal and Social Framework Example: Create laws and provide courts, provide information and services to help economy function better, establish a monetary system, define and enforce property rights. Framework only!

Eminent Domain (Kelo v. New London)

Eminent Domain

Providing Public Goods & Services Example: Provide goods and services that markets are unable or unwilling to provide, such as national defense. Roads, Parks, Schools… Providing for Market Failures

Public Goods

Maintaining Competition Example: Create and enforce antitrust laws; regulate natural monopolies. Block Mergers that lessen competitive markets— prohibit collusion…

Maintaining Competition

Redistributing Income Example: Higher income tax rates for rich than for poor, provide social security, and aid to dependent children, welfare, Medicare, Medicaid-- Controversial!!

Kids economic future

Future of Social Security?

Correcting for Externalities Externalities: negative or positive economic side effect. Implicit or explicit costs that spill over on other people or firms Ex: Taxes to reduce negative externalities: such as penalties for environmental pollution; subsidies to encourage positive externalities, such as scholarships.

Correcting for - Externalities

Stabilizing the Economy Example: Congressional budgets & spending and the money supply to promote economic growth, control inflation, and reduce unemployment. Actions of the Federal Reserve & Bernake. Raise or lower interest rates or money supply

Greenspan in Retirement

National Debt

Last function—Spend YOUR $