Government Effect on Economic Behavior Section 5

Introduction Did you ever wonder why the founders of the United States formed our government & what its major economic responsibilities are? The answers are quite simple. The government was formed to address the weaknesses of our market-directed economic system. In our market-directed system, individuals and businesses experience a high degree of choice. Humans, especially Americans, tend to be very self-centered. Consequently, many make sure they are taken care of first before helping the less fortunate. Further, there are some things that the government can collectively take care of more efficiently than people or businesses can individually. Lets examine three of the major economic responsibilities of our government.

Setting the rules of the game Through legislative authority, the government rules establishing the legal relationship between parties. Through legislative authority, the government rules establishing the legal relationship between parties. The government sets monetary standards, insures bank deposits, and pursues a variety of other activities to protect public confidence. The government sets monetary standards, insures bank deposits, and pursues a variety of other activities to protect public confidence. The government’s greatest economic responsibility is to maintain competition. The government’s greatest economic responsibility is to maintain competition. The government has established anti-monopoly laws that govern competition. The government has established anti-monopoly laws that govern competition. Through government regulation, society is protested against the abuses of monopoly power. Through government regulation, society is protested against the abuses of monopoly power.

Income Redistribution Government programs Government programs Aid to Families with Dependant Children Aid to Families with Dependant Children Food Stamps Food Stamps Social Security Social Security Disaster Relief Disaster Relief Tax income of the population is redistributed to those in need through these programs and many more.

Stabilization of Income, Prices & Employment There are natural “business cycles” that cause fluctuations in employment, income, and prices. Many times business cycles will cause inflation, dislocated workers, & cause prices to rise. The government tries to stabilize these factors by setting interest rates, controlling monetary growth, setting tax rates and depreciation rates, and through government spending. Inflation is a general increase in prices and fall in the purchasing value of money.

Review United States governments major economic responsibilities. United States governments major economic responsibilities. Anti-Monopoly Laws Anti-Monopoly Laws Redistribution Redistribution Inflation Inflation Stabilization Stabilization