Government`s Role in Our Economy

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Transcript Government`s Role in Our Economy

Chapter 9
Section 1

Government
◦ The government plays an important role in the American
economy, by making rules, spending money, and taxing
individuals and corporations.

Economic Freedom
◦ The freedom to own property, make a profit, and to make
choices about what to produce, buy, and sell.
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

Six reasons why the American government
had to become involved in the economy.
1. Businesses have sometimes earned
profits unfairly.
◦ Price fixing
◦ Misleading advertising

2. Working conditions have sometimes been
unsafe and inhumane.
◦ Long hours for low pay
◦ Unsafe machinery

3. Unsafe products have harmed
consumers.
◦ Bacteria in food.
◦ Unsafe household products or toys.
◦ Misleading medicine.

4. Not all Americans have had economic
security.
◦ The unemployed became poor, or homeless.
◦ Discrimination

5. The economy has been unstable.
◦ Recessions/ Depressions
◦ Inflation
◦ Natural Disasters

6. The environment has been
damaged.
◦ Pollution
◦ Wildlife are in danger.
 Six
ways the government can fix
economic problems.
 1. Governments regulate business.
Rules for business conduct.
Regulatory agencies.
 2.
Governments make direct payments
to individuals.
Give money to people who need to pay for
food, shelter, medical, or other basic
needs.
 3.
Governments own resources
and produce goods and services.
◦ Own land
◦ Run businesses
 4.
Governments help pay for
important economic activities.
◦ Give money to private businesses

5. Governments control the amount of
money they spend and the amount
they receive in taxes.
◦ Taxes take money from the economy
◦ Spending puts it back

6. Governments make tax rules and
collect special taxes.
◦ Can change the tax rates.
◦ Change taxes to reward or punish.


The market system does not always promote
the common good
Government regulations also put some limits
on individual freedoms
◦ It also has a large price tag
◦ Critics accuse the government of using more time, more
money, and more paperwork than is necessary.
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
In a free-enterprise system there were no
rules for the operation of businesses
◦ Trust: a group of several companies organized to benefit from
the high prices they all agree to charge.
◦ Monopoly: a single business with sole power over
the prices in the market.
 The game called “Monopoly” debuted in 1935
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
Controlling Monopolies
◦ American became angry about the growth of monopolies; price had
become unreasonable.
◦ The Sherman and Clayon Antitrust Acts banned unfair
monopolies.

Allowing Legal Monopolies
◦ The government does not oppose all monopolies; public utilities are
monopolies

Banning False Advertising, 1938
◦ Congress banned “unfair or deceptive practices”
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
Safe Working Conditions
◦ National Labor Relations Act (1935)
◦ Fair Labor Standards Act (1938)
◦ Occupational Safety and Health Administration (1971)

Safe Products
◦ Food and Drug Administration (1927)
◦ Consumer Product Safety Commission (1972)
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
The Great Depression (1929-1941)
◦ Long period of economic hardship

Franklin Roosevelt
◦ The New Deal
 Social Security Act, 1935: A monthly payment program for
workers. This program served as insurance to injury,
unemployment, or death.
 Public Assistance: Cash payments and various services provided
to those in need by federal, state, and local governments.
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
Business Cycle
◦ The repeated series of “ups” of growth and the “downs” of
recession.

Monetary Policy
◦ Regulation of the money supply by the Federal Reserve System

Fiscal Policy
◦ The government’s decisions about the amount of money it
spends and the amount it collects in taxes.
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
The Environmental Protection Agency
◦ Created 1970 by Environmental Protection Act.
◦ The agency control pollution by making rule about what and
how much can be dumped into the air, water, and soil.
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Section 2


Federal government constantly checks the
health of the economy
Variables the Government Checks:
1.
2.
Inflation: The general rise of the price level of goods and
services.
Gross Domestic Product: GDP is the total dollar value of
all final goods and services produced with the country in a
year.
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

2003 Federal Budget: $2.14 trillion
Federal Budget:
◦ The government’s plan for how much it will raise and spend
money.
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
Income Taxes
◦ State and local governments rely mostly on sales tax and
property taxes
◦ Federal government relies mostly on personal income taxes
and social security taxes.

Excise Taxes
◦ Charged on specific products
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
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


Taxes on certain goods are called excise
taxes.
This tax is also meant to regulate
consumption of a certain product.
Tariffs are taxes on imported goods.
Fees are charges to users of certain
services.
Sales of government owned property is
another way to generate revenue.

Balancing the Budget
◦ Deficit: the amount in a year by which government spending is
greater than government income.
◦ Surplus: the amount in a year by which government income is
greater than government spending.

The National Debt
◦ The total amount of money the government owes to lenders.
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
http://www.usdebtclock.org/

The Employment Act, 1946
◦ States the government’s intention to promote employment,
production, and purchasing power.

Promote the “General Welfare”
◦ Found in the preamble to the Constitution


Full Employment: every person who wants to
should have a job
Price Stability
◦ The government makes the ground rules for the
market economy
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
Circular Flow
◦ Economic cycle between individuals and businesses

Adding Government to the Circular Flow
◦ The government plays a central role in the circular flow of our
market economy.
 Taxes and fees are exchanged for goods and services
◦ Businesses pay taxes on their profit and property
◦ Individuals pay taxes on their income, etc.
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
National Income Accounting:
◦ The process by which our nations keeps track of its overall
income and spending

Gross Domestic Product
◦ Economic Growth: an increase in the production of goods and
services, which provides citizens with a higher standard of
living.
◦ Inflation: an increase in the overall price level
◦ Deflation: a decrease in the overall price level
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
Characteristics of a Good Tax
1.
2.
3.
4.


Efficient and economical
Reasonable
Must treat the tax payer fairly and equitably
Certainty
Benefits Received Principle
Ability to Pay Principle
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
Proportional Tax
◦ Requires each taxpayer to pay the same proportion or
percentage of their income in taxes.

Progressive Tax
◦ Takes a higher percentage of taxes from a person with a higher
income than it does form a person with a lower income

Regressive Tax
◦ Takes a larger percentage of tax from the income of a person
with a lower income than it does from a person with a higher
income.
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
Direct Taxes
◦ A tax on income

Indirect Taxes
◦ Generally ends up as part of the price a consumer pays for a
product.

Tax Impact
◦ Taxes affect the individuals, consumers, and businesses
◦ Taxes are often “passed on” to the consumer
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
The Goals are Government Economic
Stability Policies:
1. Promote Economic Growth
2. Maintain Stable Prices
3. Ensure Full Employment
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 People’s
person buying decisions
are private-sector decisions.
 Public-sector decisions are buying
decisions that are made by a
government.
 Public-sector decisions reflect
public goals.
Balanced Budget
1.
•
Requires that the government does not spend more than the
tax revenues received.
Deficit Budget
2.
•
A budget where the government spends more than the tax
revenues received.
Surplus Budget
3.
•
A budget where the government spends less than the tax
revenues received.
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National Priorities

◦
The government has two options to control spending:
1. Increase/Decrease Taxes
2. Increase/Decrease Spending
Spending Patterns
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Entitlement programs provide benefits to people who are
entitled by law to receive them.
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Most state and local governments are direct
expenditures.
If spending is cut, people get frustrated.
State and local governments turned to the
federal government for assistance.
Most state and local revenues come from
property taxes and sales taxes.
Education counts for more than one third of
state and local expenditures.