Chapter 16 Section 1 Government Intervention in the Economy Our US economy is a capitalistic economy Private citizens own and use the factors of production to seek a profit ID: 642019
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Slide1
The Government’s Role in Our Economy
Chapter 16Slide2
Section
1:
Government Intervention in the Economy
Our U.S. economy is a
capitalistic
economy.
Private
citizens
own
and use the factors of production to seek a profit.
Free Enterprise
is another term to describe our economy.
Competition is allowed to flourish in our economy with little or no government interference
.
Economic freedom: The freedom to own property, make a profit, and to make choices about what to produce, buy, and sell. Slide3
Consumer Driven
In our economy the consumer is very important and is known as the sovereign, they are the “king” or ruler of the economy
Capitalism thrives on competition - the struggle between buyers and sellers to get the best products at the lowest prices
Competition rewards the most efficient producers
Why?Slide4
Adam Smith is known as the father of economics
The Wealth of Nations (written by Adam Smith) described the principles of economics for the first time
Smith believed that the government should let the economy run itself.
Laissez-faire
, “to let do
”
, “hands off”
Government should
not
interfere
in the market placeSlide5
Reasons the gov’t is involved in the economy
Businesses have sometimes earned profits unfairly.
Working conditions have sometimes been unsafe and inhumane.
Unsafe products have harmed consumers.
Not all Americans have had economic security.
The economy has been unstable.
The environment has been damaged.Slide6
Methods governments use
Regulate businesses
Make direct payments to individuals
Own resources and produce goods and services
Help pay for important economic activities
Control the amount of money they spend and the amount they receive in taxes
Make tax rules and collect special taxesSlide7
Government Intervention
Place limits on individual freedoms
Affects our freedom to buy and sell, to make a profit, and to do as we wish with our own property TaxesUsed to pay for government programs, but take large parts of citizen’s incomes
The question is: How much should the government regulate business?Slide8
Section 2:
Government’s
Efforts to Solve Economic Problems
Government plays several important roles in our economy
One role is to provide goods and services that private businesses do not provide
Most goods and services that businesses provide are called private goods
Goods that when consumed by one individual cannot be consumed by another
Consumption of private goods is subject to the exclusion principle
A person is excluded from using that good or service unless they pay for itSlide9
The government offers public goods
Goods that can be consumed by one person without preventing the consumption of the good by another
Consumption of public goods is subject to the non-exclusion principle
No one is excluded from consumption whether they paid or not
Examples: libraries, public parks, museums, highways
Government provides these services because private businesses would not. They wouldn’t make a profit.
How does the government pay for these services?Slide10
Maintaining Competition
Markets work best when there are a large number of buyers and sellers
An oligopoly is a market situation where a few firms control the
market
Auto industry, Cell phone networks
A monopoly is where one person or company is the sole provider of a good or service
Why would this not be beneficial to consumers?Slide11
The government will try to deal with monopolies through antitrust laws
These are laws that try to control monopoly power and preserve and promote competition
In 1890 the Sherman Antitrust Act banned monopolies and other business combinations that prevent competition
Standard Oil Company in 1911
AT&T in 1981Slide12
Sometimes in our economy it makes sense to have a monopoly
This will often lead to a natural monopoly
Market situation in which costs of production are minimized by having a single firm produce the product
The firm must agree to be regulated by the government
Gas, electricity and water are usually delivered by natural monopoliesSlide13
Other government roles
Government also plays an important role when it comes to advertising and product labeling
The Federal Trade Commission (
FTC
) deals with problems of false advertising and product claims
The Food and Drug Administration (
FDA
) deals with the purity, effectiveness, and labeling of food, drugs, and cosmetics.Slide14
Product safety is another important role that the government plays in our economy
The Consumer Product Safety Commission (
CPSC
) recalls products that pose a safety hazard
Cars?
The Environment Protection Agency (
EPA
) regulates how much and what kind of pollution can be dumped into the environment.Slide15
Protecting Workers
Government also protects workers in the workplace
OSHA - enforces safety and health standards in the workplace
The
Jungle
– Upton Sinclair
Government provides economic security (or assistance)
Social Security - monthly payments that go to a worker or their family if that worker retires, becomes injured or dies.
Welfare
SNAP -
Food
StampsSlide16
Section
3
Managing the Economy
Government decisions about how much money it spends and the amount it collects in taxes are referred to as
fiscal policy
Fiscal policy affects the economy because the government spends tax revenues on different expenditures like Social Security, Medicare, Military, Highways, etc.
The federal budget is the government’s play for how money will be raised and spent
Who proposes it? Who approves it?Slide17
Social Security was the largest single spending category for the government
This expense is only expected to keep growing in the near future
Why? Remember Chapter 1…Medicare is also likely to rise - 4th largest expenditureNational defense is the 2nd largest category of federal expendituresSlide18
The federal government usually runs a budget
deficit
, meaning that they bring in less revenues than they spend in expendituresA surplus is the opposite...spending is less than revenues
The total amount of money that the government owes to lenders is called the
national debt
.
Interest and federal budget?Slide19
The government also tracks
inflation
A general rise in price level of goods to see how fast prices are risingGDP (Gross Domestic Product) is also measured by the governmentTotal dollar value of all final goods and services produced in a year within the country
Helps the government determine how well (or not so well) our country’s economy is doing
If inflation is up and GDP is down, the country is not doing very well