1. Chapter 16-1 Government Intervention in the Economy

2. Section Preview How American values are reflected in our economic system How American values are reflected in our economic system Economic problems our government is working to solve Economic problems our government is working to solve Methods used by government to correct or prevent economic problems Methods used by government to correct or prevent economic problems Debate over government intervention in the economy Debate over government intervention in the economy

3. Large Scale Government Role Federal Reserve System Federal Reserve System Controls supply of money Controls supply of money Regulates banks Regulates banks Regulates businesses Regulates businesses Largest consumer of American goods and services Largest consumer of American goods and services Spends over $2 trillion per year Spends over $2 trillion per year Taxes individuals and employers Taxes individuals and employers Largest single employer Largest single employer

4. American Values/Economic Goals Individual freedoms Individual freedoms Economic freedoms, based on market system Economic freedoms, based on market system Freedom to buy and sell, to compete Freedom to buy and sell, to compete Freedom to make a profit Freedom to make a profit Markets don’t always promote the common good Markets don’t always promote the common good Government must make ground rules Government must make ground rules Insure a level playing field Insure a level playing field Regulate commerce Regulate commerce Business activities are fair and equal for all Business activities are fair and equal for all Allow everyone to prosper Allow everyone to prosper

5. Government Involvement – 6 Reasons 1. Unfair business practices price fixing false advertising 2. Unsafe/inhumane working conditions workers mistreated by employers dangerous machines or chemicals 3. Unsafe consumer products or services dangerous toys contaminated food

6. Reasons for Government Involvement 4. Many Americans are not economically secure lose jobs or cannot work cannot afford basic needs face discrimination 5. Economy can be unstable inflationrecession 6. Environment has been damaged by businesses and consumers air, water, land polluted

7. How Should Government Respond?

8. Methods Governments Use 1. Regulate businesses place restrictions on business conduct safety rules limit # of working hours for workers set up offices to enforce rules 2. Make direct payments to people in need pay for basic needs housing, medical care 3. Use own resources to provide goods and services land for the public good government corporations for the public good

9. Methods Governments Use 4. Help to pay for important economic activities subsidize farmers, airlines, cities 5. Controls taxing and spending taxes take money out of our hands government spending puts money back in also controls the supply of money 6. Makes tax rules rewards certain behavior, punishes other behaviors

10. Negatives in Government Intervention Limits individual freedoms Limits individual freedoms Limits economic freedoms Limits economic freedoms Costs a lot of money Costs a lot of money opportunity costs opportunity costs Government intervention is usually inefficient Government intervention is usually inefficient Costs more, takes more time, more paperwork Costs more, takes more time, more paperwork Right approach is controversial Right approach is controversial What is the best way? What is the best way? Balance freedoms with equality and fairness Balance freedoms with equality and fairness

11. Chapter 16-2 Government’s Efforts to Solve Economic Problems

12. Section Preview How the government ensures fair business practices How the government ensures fair business practices How the government protects workers and consumers How the government protects workers and consumers How the government provides economic security How the government provides economic security How the government assures economic stability How the government assures economic stability How the government protects the environment How the government protects the environment

13. Ensuring Fair Business Practices Free enterprise system depends upon fair competition Free enterprise system depends upon fair competition 1890s, fair competition did not exist in some industries 1890s, fair competition did not exist in some industries Steel, oil, sugar, meat, flour Steel, oil, sugar, meat, flour Trusts Trusts Companies organized to control markets and prices Companies organized to control markets and prices

14. Ensuring Fair Business Practices Monopoly Monopoly A single company that controls a market A single company that controls a market Congress passed Sherman Anti-Trust Act (1890) Congress passed Sherman Anti-Trust Act (1890) Outlawed agreements by companies to limit competition Outlawed agreements by companies to limit competition

15. Ensuring Fair Business Practices Congress passed Clayton Anti-Trust Act (1914) Congress passed Clayton Anti-Trust Act (1914) Strengthened Sherman Act Strengthened Sherman Act Created Federal Trade Commission (1914) Created Federal Trade Commission (1914) Power to break up monopolies Power to break up monopolies Not all monopolies are bad, some are legal Not all monopolies are bad, some are legal Public utilities are monopolies Public utilities are monopolies Electric, water, gas providers Electric, water, gas providers False advertising banned in 1930s False advertising banned in 1930s Cannot lie or be deceptive Cannot lie or be deceptive

16. Protecting Workers 1930s government took active role to protect workers 1930s government took active role to protect workers National Labor Relations Act National Labor Relations Act Fair Labor Standards Act Fair Labor Standards Act Limited working hours, minimum wage, collective bargaining Limited working hours, minimum wage, collective bargaining Occupational Safety and Health Administration Occupational Safety and Health Administration (OSHA) began (1971) (OSHA) began (1971) Sets and enforces safety Sets and enforces safety and health standards at work and health standards at work

17. Protecting Consumers Meat-packing Industry Meat-packing Industry Upton Sinclair’s The Jungle (1906) Upton Sinclair’s The Jungle (1906) Unsafe meat-packing procedures Unsafe meat-packing procedures Congress passed Meat Inspection Act Congress passed Meat Inspection Act Food and Drug Administration established (1927) Food and Drug Administration established (1927) Ensures foods, cosmetics, drugs are safe Ensures foods, cosmetics, drugs are safe Consumer Product Safety Commission (1972) Consumer Product Safety Commission (1972) Ensures safety of consumer products Ensures safety of consumer products Toys, tools, clothing, appliances Toys, tools, clothing, appliances

18. Providing Economic Security Impact of Depression was devastating Impact of Depression was devastating FDR’s “New Deal” (1930s) FDR’s “New Deal” (1930s) Series of government jobs programs Series of government jobs programs To “jump start” economy To “jump start” economy Works Progress Administration (WPA) Works Progress Administration (WPA) Employed workers to build infrastructure Employed workers to build infrastructure Roads, bridges, public buildings Roads, bridges, public buildings Social Security Act (1935) Social Security Act (1935) Provided minimum level of income Provided minimum level of income For retired, sick, death of workers For retired, sick, death of workers Provided unemployment insurance Provided unemployment insurance

19. Social Security Act of 1935 Ida May Fuller was the first person to collect Ida May Fuller was the first person to collect She paid $24.75 in taxes between 1937 and 1939 She paid $24.75 in taxes between 1937 and 1939 She retired in 1939 and began receiving benefits She retired in 1939 and began receiving benefits Received more than $22,000 in benefits until 1975 Received more than $22,000 in benefits until 1975

20. Social Security Act of 1935 In 2004, 48 million Americans received Social Security benefits In 2004, 48 million Americans received Social Security benefits Average monthly benefit is $955.00 Average monthly benefit is $955.00 Mr. Newell’s Social Security Benefit Mr. Newell’s Social Security Benefit Contributions since 1969 – approximately $60,000 Contributions since 1969 – approximately $60,000 Expected annual benefit - $13,000 Expected annual benefit - $13,000 Age benefits begin: 62 Age benefits begin: 62 Life expectancy: 84 Life expectancy: 84 Do the math! Do the math!

21. Social Security in Danger

22. Providing Economic Security Public Assistance programs since the Depression Public Assistance programs since the Depression Local, state and federal programs Local, state and federal programs Food stamps, food programs, medical care, etc. Food stamps, food programs, medical care, etc. Childcare assistance, retraining programs for unemployable Childcare assistance, retraining programs for unemployable “New Deal” was a turning point in our history “New Deal” was a turning point in our history Greatly expanded role of government in economy Greatly expanded role of government in economy Americans now turn to government for economic help Americans now turn to government for economic help

23. Providing Economic Security Graph: 2007 Graph: 2007 The 2008 defense budget equals about 4.4 percent of the nation’s gross domestic product, Gates told the two congressional committees. “That’s actually a smaller percentage of GDP than when I left government 14 years ago following the end of the Cold War, and significantly smaller” than during the Vietnam and Korean wars, he said. In fact, since 1993, the U.S. has been spending “a smaller relative share of our national wealth” on defense even as the world has grown “more complicated and arguably more dangerous,” Gates said. The 2008 defense budget equals about 4.4 percent of the nation’s gross domestic product, Gates told the two congressional committees. “That’s actually a smaller percentage of GDP than when I left government 14 years ago following the end of the Cold War, and significantly smaller” than during the Vietnam and Korean wars, he said. In fact, since 1993, the U.S. has been spending “a smaller relative share of our national wealth” on defense even as the world has grown “more complicated and arguably more dangerous,” Gates said. --Armed Forces Journal, May 2008

24. Federal Budget

25. Maintaining Economic Stability Government now expected to prevent future depressions Government now expected to prevent future depressions Business cycle Business cycle Repeated series of growth and slowdowns or downturns Repeated series of growth and slowdowns or downturns Government aims to “flatten” business cycles Government aims to “flatten” business cycles Monetary policy Monetary policy Fiscal Policy Fiscal Policy

26. Maintaining Economic Stability Monetary Policy Monetary Policy Regulate the supply of money in circulation by the Fed Regulate the supply of money in circulation by the Fed If slowdown, Fed takes action to increase money supply and spending If slowdown, Fed takes action to increase money supply and spending 3 ways to increase money supply and spending 3 ways to increase money supply and spending Lowers reserve requirement Lowers reserve requirement Lowers discount rate Lowers discount rate Buys bonds from banks Buys bonds from banks

27. Maintaining Economic Stability Fiscal Policy Fiscal Policy Decisions on amount of spending and amount collected in taxes Decisions on amount of spending and amount collected in taxes Government is largest single spender Government is largest single spender Taxes reward, punish economic behaviors Taxes reward, punish economic behaviors If slowdown, Fed takes action to increase spending and cut taxes If slowdown, Fed takes action to increase spending and cut taxes Government spending creates jobs Government spending creates jobs Cut in taxes gives Americans more money to spend Cut in taxes gives Americans more money to spend

28. Protecting the Environment 1960s environmental quality was very poor 1960s environmental quality was very poor Businesses reluctant to carry cleanup costs alone Businesses reluctant to carry cleanup costs alone Environmental Protection Act passed (1970) Environmental Protection Act passed (1970) Created Environmental Protection Agency Created Environmental Protection Agency Regulates pollution levels Regulates pollution levels

29. Chapter 16-3 Managing the Economy

30. Section Preview How government measures economic health How government measures economic health Major programs paid for by government Major programs paid for by government How the federal government raises money How the federal government raises money Balance between federal spending and federal income Balance between federal spending and federal income The causes and dangers of national debt The causes and dangers of national debt

31. Government’s Economic Functions Keeps track of our economy’s health Keeps track of our economy’s health Uses monetary and fiscal policies to tweak economy Uses monetary and fiscal policies to tweak economy

32. America’s Economic Health Economic health measured by data Economic health measured by data Employment/unemployment Employment/unemployment New jobs created New jobs created Amount of money spent on imports Amount of money spent on imports Amount of money received from exports Amount of money received from exports Inflation rate is big concern Inflation rate is big concern Money loses buying power Money loses buying power Difficult to control once it begins Difficult to control once it begins People spend quickly before losing buying power People spend quickly before losing buying power Controllable using monetary policy Controllable using monetary policy

33. America’s Economic Health Economic growth is a primary goal Economic growth is a primary goal Measured using the Gross Domestic Product (GDP) Measured using the Gross Domestic Product (GDP) Total dollar value of all final goods and services produced and sold in the U.S. in one year Total dollar value of all final goods and services produced and sold in the U.S. in one year Growth means the GDP is rising, economy is expanding Growth means the GDP is rising, economy is expanding

34. Federal Budget Government’s plan for how it will raise and spend money Government’s plan for how it will raise and spend money 1998: $1.7T 1998: $1.7T 2008: $2.66T 2008: $2.66T 2010: $3.15T 2010: $3.15T 2008: $14.5T (GDP) 2008: $14.5T (GDP) Scarcity still exists Scarcity still exists Not enough $ in budget to satisfy all wants Not enough $ in budget to satisfy all wants

35. Sources of Federal Income Income Taxes Income Taxes Personal income tax Personal income tax Percentage of personal income ($10T in 2005) Percentage of personal income ($10T in 2005) Single most important source of income for federal government ($900B in 2005) Single most important source of income for federal government ($900B in 2005) Social security tax Social security tax Based on earnings Based on earnings Pays for current recipients Pays for current recipients Corporations are taxed on their income too Corporations are taxed on their income too Excise taxes Excise taxes Tobacco, alcohol, gasoline, luxury items Tobacco, alcohol, gasoline, luxury items Raise money and regulate consumption Raise money and regulate consumption

36. Sources of Federal Income Tariffs, fees and sales Tariffs, fees and sales Tariffs are taxes on imported products Tariffs are taxes on imported products Fees are payments by users of certain services Fees are payments by users of certain services Sales are of government resources Sales are of government resources Budget deficit is common (2008 budget: $239B) Budget deficit is common (2008 budget: $239B) Spending is greater than income Spending is greater than income Budget surplus is rare Budget surplus is rare Income is greater than spending Income is greater than spending

37. Balancing the Federal Budget When government overspends it goes into debt When government overspends it goes into debt National debt is what government owes to lenders National debt is what government owes to lenders Federal Budget 1972-2003 Federal Budget 1972-2003 1998 Debt: $5.5 trillion 1998 Debt: $5.5 trillion What is it today? What is it today?

38. Balancing the Federal Budget

39. The National Debt as of May 12, 2009 at 01:03 PM GMT is: The National Debt as of May 12, 2009 at 01:03 PM GMT is:$11,272,585,384,753.02 The estimated population of the United States is 306,167,754 so each citizen's share: $36,818.33. (It was $29K last year.) The estimated population of the United States is 306,167,754 so each citizen's share: $36,818.33. (It was $29K last year.) The National Debt has continued to increase an average of $3.83B per day ($2B per day last year)! The National Debt has continued to increase an average of $3.83B per day ($2B per day last year)! 5/1/08 - $9,343,008,919,413.00 5/1/08 - $9,343,008,919,413.00

40. Balancing the Federal Budget

41. The End