The Role of the Government in the US Economy SSEF5 & SSEF6

What does the government do? Provides public goods & services: products used by everyone & no one person’s use means another person gets less satisfaction when other people use it – Highways – Flood protection – National defense – Police protection – Fire protection

Redistributes income: – Unemployment insurance – Medicaid – Medicare – WIC – Food stamps – Government housing – Social Security – Agricultural Price Supports (subsidies)

Protects property rights: – Exclusive right to determine how a resource is used, whether owned by gov’t. or individual – Can use it, buy it, sell it, rent it – Enforces contracts regarding private property – Purpose: to eliminate destructive competition over resources: provide peaceful exchange – Limits ways private property can be used if it threatens public in some way

Resolves market failures – 4 conditions must be met for market success: Competition Available information to buyers/sellers Resources free to move from industry to industry Reasonable prices --Failure if any of these is significantly altered --Restricts monopolies, mergers & trusts --Regulates water, electricity, natural gas, telecommunications, banks, stocks, food/drugs, airlines, labor, environment, nuclear energy, etc.

Government Regulation Stock Market: prohibits insider trading Banks: insures deposits, limits hours, required amount of reserve cash, etc. Nuclear & electric power: protects safety Water & natural gas: limits price increases, keeps prices low because of prohibitive start-up/capital expenses Protection from price gouging

Government Deregulation Cable television: used to be only one company. Today: Comcast, xfinity, dish network, direcTV, Uverse, etc. Competition leads to lower prices—theoretically. Telephones: formerly Bell had a monopoly. Today: Verizon, AT&T, Sprint, Vonage. New technologies developed (Skype). Airlines: (1979) created cheaper fares, but fewer airlines due to competition.

Productivity, growth & the Standard of Living Inputs & outputs: trees go in, chairs come out Productivity: the more efficient the production, the less expensive the chairs. More chairs are produced and sold. Investing in better machinery & health, education/training of employees makes the factory more efficient. Better wages and products lead to a higher standard of living for all.

Investments Investing in new equipment/technology leads to growth (expense up front, but leads to higher productivity and more efficient production=more profit, more jobs…cycle continues!) Investing in education: more expense, but more pay leads to more spending, increase in industry, more jobs, higher wages…cycle of money and wealth, growth in the economy, and the cycle continues!