1. Government’s Role in the Economy
Government Intervention in the Economy

2. Problems that arise in a Free Enterprise System

3. Why Does Government Get Involved?
Businesses sometimes earn profits unfairly.
Working conditions are unsafe and/or inhumane.
Unsafe products harm consumers.
Not all Americans have economic security.
The economy can be unstable.
Damages to the environment.

4. Methods Governments Use
Governments regulate businesses
Governments make direct payments to individuals
Governments help pay for important economic activities
Governments control the amount of money they spend and the amount they receive
Governments make tax rules and collect special taxes

5. Government’s Efforts to Solve Economic Problems

6. Six Goals Ensuring Fair Business Practice Protecting Workers
Protecting Consumers
Providing Economic Security
Maintaining Economic Stability
Protecting the Environment

7. Ensuring Fair Business Practices
In the 1800’s, large companies grew larger and larger, eliminating the competition.
Formed Trusts & Monopolies

8. Monopolies & Trusts
Trusts: a group of several companies organized to benefit from the high prices they all agree to charge.
Monopoly: a single business that controls a market.

9. Monopolies Controlling Monopolies: Legal Monopolies:
1880’s people becoming very angry
Sherman Antitrust Act of 1890, outlawed agreements among companies that limit competition
Clayton Antitrust Act of 1914, outlawed many of the practices used by monopolies & trusts
Federal Trade Commission created
Legal Monopolies:
Businesses that provide services such as electricity, water, and local phone service are allowed to have a monopoly
Competition in these businesses can cause utilities to be inefficient

10. Protecting Workers Create & promote safe working conditions.
Federal Government created OSHA (Occupational Safety & Health Standards) in 1971 to enforce safety & health standards.

11. Protecting Consumers
Creation of the FDA (Food and Drug Administration) in 1927.
Established the CPSC (Consumer Product Safety Commission) in 1972.

12. Providing Economic Security
Great Depression occurs in 1929…factories close, banks fail, 12 million people were out of work.
FDR implements “New Deal” which provides many jobs and gets the economy moving again through programs like the Works Progress Administration which put millions of unemployed to work building bridges, roads, and public buildings.

13. Economic Security…
Social Security – passed in 1935, provides a monthly payment to workers or their families to replace the income lost when a person retires, becomes injured, or dies.
Public Assistance – help poor families by providing various services, such as food stamps.
Medicare

14. Maintaining Economic Stability
Business Cycle --economy goes through its “ups” of growth and “downs” of recession
Government tries to “flatten out” the ups & downs through fiscal policy & monetary policy.

15. Monetary Policy
Regulation of the money supply by the Federal Reserve System

16. Fiscal Policy
A government’s decisions about the amount of money it spends and the amount it collects in taxes

17. Protecting the Environment
Environmental Protection Act passed in 1970 helped to create the EPA, which controls pollution by making rules about what and how much can be dumped into our air, water, and soil.
Love Canal

18. Government Response

19. BBC: Masters of money – john maynard keynes

20. GOVERNMENT’S ROLE IN OUR ECONOMY

21. Government’s Role
Monetary Policy – regulation of the money supply by the Federal Reserve System
Fiscal Policy – government decisions about:
The money that is spent (programs)
The taxes collected
In a recession, government can:
cut taxes:
People will have more money, will spend and stimulate economy
Increase spending
create jobs

22. MANAGING THE ECONOMY
The Nation’s Economic Health – government uses indicators to manage economic health
inflation – general rise in price level of goods
as inflation increases, buying power is less
if too high, government can use monetary policy
Federal Reserve can raise interest rates
Gross Domestic Product (GDP) – total dollar value of all final goods and services produced within the country during in a year
final goods: those that are complete and ready for sale
rising GDP = growing economy

24. Inflation: How Much Did Things Cost in 1964?
Item
Price
Four-bedroom, two-bath house in South Bend, Indiana
$16,000
“Penthouse view” in doorman building on East 69th Street, Manhattan
$245 per month
Hershey chocolate bar
$0.05
Steak dinner at the Palm in Manhattan $8
Fruit of the Loom boxer shorts
$0.69
Ford Mustang, starting price
$2,358
Rental car, Ford Falcon
$5 per day
DeBeers one carat diamond
$500 to $1,800
One year’s tuition at Harvard
$2,400
One year’s tuition at Syracuse University
$750
Ticket to “Goldfinger” with Sean Connery $1

25. MANAGING THE ECONOMY The Federal Budget
In 2001, the federal government spent $1.8 trillion, 2014: 3.5 trillion! (down from $3.77)
Benefit payment to individuals (social security, Medicare, Medicaid, public assistance)
National defense (military)
Interest on money that is borrowed (deficit)
Other (education, loans)

26. A great website

27. This chart accounts for 34% of the federal budget.

29. 2014 Federal Budget Receipts: $3.02 trillion (9% increase from 2013)
Spending: $3.5 trillion (1.2% increase from 2013)
Deficit: $483 billion (29% decrease from the previous year)
What assumptions can you make from these numbers?

30. Revenue – Government Income
Sources of Federal Income
Income Tax
Personal income
Social Security Tax
Excise Tax- taxes on cigarettes, alcohol, gasoline
Raise money
Regulate consumption of “bad” goods

32. MANAGING THE ECONOMY Sources of Federal Income
Tariffs, Fees, and Sales
Taxes on land
Taxes on imports
Balancing the Budget
Deficit: when government spending is greater than income
Surplus: government income is greater than spending

33. MANAGING THE ECONOMY The National Debt:
current national debt: over $12 trillion
we must pay interest on it
Should we fix it? How?

39. How Much is a Trillion??? “How Much is a Billion”
Secret Life of A Food Stamp Activity