1. Chapter 3: American Free Enterprise Essential Question: What role should __________ play in a _________________ economy?

2. Section 1: Benefits of Free Enterprise What is free enterprise? An ____________ in which ____________ are made in a free market by ______ ________ and _________.

3. Basic principles of Free Enterprise 1. _______________ People respond to incentives in predictable ways. This is a ______________ made by economists. It’s not being _____, it’s ____________ Rewards risk-taking and ______________ Encourages making good decisions because each business is responsible for its own __________________

4. Basic principles continued 2. __________________ ▫Markets are free and open to everybody ▫Low barriers to entry ▫Allows economic mobility

5. Basic principles continued 3. ____________________ ▫Everyone has the same _________ ▫The economy can maximize its use of ______________ ▫Restrict who can do certain jobs and you are losing _________ and _______________!

6. Basic principles continued 3. Private _________ is protected ________ People have an incentive to use their property ________ or lose ___________________.

7. Basic Principles continued 4. Freedom to _____________________ ▫right of _________________ ▫Voluntary _______________

8. The Role of the Consumer Economists assume voluntary exchange Nobody makes _______ and ______ enter the _______. They voluntarily choose to do so. Consumers send important signals in the marketplace. If no one is buying a product, what can we conclude? If a store can’t keep something in stock, what can we conclude?

9. Interest Groups Consumers may choose to join interest groups such as the Consumers Union Many businesses are interest group members

10. Economic Freedom & The Constitution We think of many of our economic rights and freedoms as part of “what it means to be American” ▫Freedom of _________ ▫Freedom to ____________ ▫Legal protection of that property (____________) ▫Eminent ___________ ▫_____________ ▫Free __________ (easy to enter and leave the marketplace)

11. Role of Government in the Marketplace We have an economic system based on free enterprise, but it’s not a totally free market Congress passes laws in the public interest ▫Public health & safety ▫Free (open) access to information  Consumer health & safety such as ingredients lists & nutritional information Public disclosure laws ▫Give info about a product to consumers

12. Examples of Government Involvement Major Federal Regulatory Agencies ▫FDA ▫Federal Reserve (The Fed) ▫EPA ▫FAA ▫OSHA ▫EPA ▫See p. 54

13. Are regulations always good? They… ▫Protect _________ ▫Protect the ____________ But they can also… ▫Raise ________ ▫Stifle _________ ▫Raise ________________

14. Section 2: Promoting Growth and Stability Economic transactions are tracked by the government so they have an idea of how quickly or slowly the economy is growing Economics focuses on decisions made that affect the nation’s whole economy (_______________) AND looks at decisions made by businesses and households (________________)

17. How do we know if the economy is doing well? Tracking the business cycle ▫Is GDP (_______________) increasing or decreasing? ▫Is unemployment up or down? ▫Are exports increasing or decreasing? ▫What about the value of the dollar? Economics is a social science ▫________

18. Promoting Economic Strength The government works to keep the economy strong in 3 main ways: 1. _____________  UNemployment of approximately 5% is considered healthy  Government may take steps to create jobs if unemployment is too high  2. ______________  Is GDP increasing?  Should we raise or lower taxes?  Should we increase or decrease government spending (monetary policy) 3. _________ and _________ Stable ________ bank __________ stable ______________ Economic Citizenship: many of these decisions are made by leaders we elect. Our choices matter and elections have consequences!

19. Government’s Role continued Helps promote technological progress ▫Encourage ___________ ▫Laws that ____________ ▫______, _____________ ▫Laws such as the Morrill Land Grant Act ▫Government research such as as that carried out by ▫________ and the NIH & CDC, etc. Part of the American psyche: American Work Ethic

20. Section 3: Providing Public Goods This is one of the reasons why we have government Some goods & services wouldn’t be available if the government didn’t provide them such as: Paved roads Bridges Schools (?) Police & fire protection Instead, these are public goods ▫Benefit to each individual is less than the cost that each would have to pay if it were provided privately ▫Total benefits to society are greater than the total cost (sewage system, for example) Why not? ▫Too hard _______________ __________________ ▫Too hard to ___________ who __________ from using the good/service ▫No incentive for the private sector to provide these goods  Too _____________  Not enough __________

21. The Free-Rider Problem Do people benefit from public goods who don’t help pay for them? YES! They are known as “______________” Drivers on interstate highways Public radio (NPR) Public television (PBS) Libraries Public Goods are an example of _________________ This is an instance where the market does not distribute resources ____________ In the case of public goods, if they were provided by the private sector, you might get _____________________ People wouldn’t have ______ _______ to the good or service (roads not built in rural areas) See p. 65

22. ______________: an economic side effect; people receive benefits or incur costs other than the producer or consumer Can be __________ or _____________ Consider some examples ▫A new school built in your community ▫A new prison built in your community ▫A new interstate built in your community

23. Externalities continued Remember that externalities are an example of MARKET _____________, even if they are positive externalities Why? Because the costs (negative) or benefits (positive) are ____________________. How does the government play a role? ▫Creates __________ externalities such as _____________________ ▫Takes steps to limit ____________ externalities

24. Section 4: Providing a Safety Net Why do we have ___________? ▫Free enterprise creates wealth, but it is ___________________ ▫According to the U.S. Census Bureau:  In 2013, Median Household income was $________  In 2013, the official poverty rate was _____%, the lowest since 2006  ________% of children (under 18) live in poverty

25. The government’s role Debate over the extent to which it is the job of the government to help the poor Do we have a social responsibility to take care of those who are too old or sick to work? What we think of as the welfare system began to take shape in the 1930s in response to the Great Depression It was then expanded in the 1960s as part of President Lyndon Johnson’s “War on Poverty Congress passed significant welfare reform in 1996 ▫Lifetime limit on how long you can receive benefits ▫States given more flexibility to design and run their own programs ▫State benefits are different; the rules to qualify vary from state to state and payments, etc. vary from state to state

26. Types of Redistribution Programs What we think of as _________ are redistribution programs because they take wealth from _______ and redistribute it to the __________ 1. One type are cash transfers (money given to states who then give it to individuals to spend) ▫TANF ▫Social Security  _________ people ▫Unemployment Insurance ▫Workers’ Compensation

27. Types of Redistribution Programs continued 2. Another type of redistribution program are in- kind benefits ▫Subsidized housing (Section 8, housing projects) ▫Legal aid (based on the 6 th amendment) 3. Medical Benefits Medicare Medicaid CHIP 4.Education Federal money given to states to pay for pre-K through college Pell Grants, the FAFSA program, etc.