Transcript The Economic Functions of Government

The Economic Functions of
Government
Council for Economics Education
&
Henry B. Stobbs, MFA
Copyright Notice
Original Content 2008 Council for Economic
Education and modified for classroom use by
the author. Certain materials in this
presentation are prepared with the fair use
exemption of the U.S. Copyright Law and have
been prepared with the multimedia fair use
guidelines and are restricted from further
use.
Concepts
•
•
•
•
•
Competition
Economic stabilization
Externality
Income redistribution
Public goods & services
Standards (NCEE)
• Standard 16: There is an economic role for
government in a market economy whenever
the benefits of a government policy outweigh
its costs. Governments often provide for
national defense, address environmental
concerns, define and protect property rights,
and attempt to make markets more
competitive. Most government policies also
redistribute income.
Standards (NCEE)
• Standard 20: Federal government budgetary
policy and the Federal Reserve System’s
monetary policy influence the overall levels of
employment, output, and prices.
Standards (NSCG, Grades 9 – 12)
• I.B.4: The relationship of limited government
to political and economic freedom.
• II.C.2: Character of American political conflict.
• III.B.2: Major responsibilities of the national
government in domestic and foreign policy.
Objectives
As a result of this lesson, you will be able to:
1. Classify government economic activities
according to the six economic functions of
government.
2. Analyze governmental economic actions
within the liberal (progressive)/conservative
framework.
Purpose
The purpose of this lesson is to examine the
economic functions of government.
The (Economic) Constitution of the
United States of America
… in Order to form a more perfect Union,
establish Justice, insure domestic Tranquility,
provide for the common defence, promote the
general Welfare, and secure the Blessings of
Liberty to ourselves and to Posterity, do ordain
and establish this Constitution…
Now, exactly how are we going to pay for it all?
Six Economic Functions of Government
1.
2.
3.
4.
5.
6.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income
Six Economic Functions of Government
1. Maintain the legal and social framework
– Define and enforce property rights
– Establish a monetary system
Six Economic Functions of Government
1. Maintain the legal and social framework
2. Maintain competition
– Create and enforce antitrust laws
– Regulate natural monopolies
Six Economic Functions of Government
1. Maintain the legal and social framework
2. Maintain competition
3. Provide public goods and services
– Public goods and services are those that
markets will not provide in sufficient
quantities
Six Economic Functions of Government
1.
2.
3.
4.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
◦ Reduce negative externalities
◦ Encourage increased production of goods
and services that have positive
externalities
Six Economic Functions of Government
1.
2.
3.
4.
5.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
– Reduce unemployment and inflation
– Promote economic growth
Six Economic Functions of Government
1.
2.
3.
4.
5.
6.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income
◦ Redistribute income from people who have
higher incomes to those with lower incomes
Six Economic Functions of Government
1.
2.
3.
4.
5.
6.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income
Time to Check Your Skills
1.
2.
3.
4.
5.
6.
Classify the Headlines
Federal Reserve Raises Key Interest Rate ___
Congress Raises tax rates for Top Income Brackets
___
EPA Plan to Reduce CO2 Emissions ___
Homeland Security Funding Increased ___
President Says More Spending Will Fight
Recession ___
Agency Blocks merger of Two Airlines ___
Classify the Headlines
7. City Police Increase Neighborhood Patrols ___
8. Lawsuit Establishes Patent Rights ___
9. Legislature Passes Funding for Subsidized Housing
___
10. New Info from Government Agency Helps
Consumers Choose Wisely ___
11. Songwriter Sues Singer: Says Songs Stolen ___
12. County Funds Free Flu Vaccinations ___
Let’s Check!
1. Federal Reserve Raises Key Interest Rate E
2. Congress Raises tax rates for Top Income
Brackets F
3. EPA Plan to Reduce CO2 Emissions D
4. Homeland Security Funding Increased C
5. President Says More Spending Will Fight
Recession E
6. Agency Blocks merger of Two Airlines B
Let’s Check!
7. City Police Increase Neighborhood Patrols C
8. Lawsuit Establishes Patent Rights A
9. Legislature Passes Funding for Subsidized
Housing F
10. New Info from Government Agency Helps
Consumers Choose Wisely B
11. Songwriter Sues Singer: Says Songs Stolen A
12. County Funds Free Flu Vaccinations D
Conservative Perspectives
versus
Progressive Points of View
CONSERVATIVE PERSPECTIVE
• Government’s economic role is severely
limited
• Economic and political freedom undermined
by excessive reliance on government
• The government’s ability to solve social and
economic problems is weak
• Faith in government to solve problems is
unreasonable
Progressive (Liberal) Perspective
The market’s ability to solve complex social
and economic problems is limited
Government can do a great deal to overcome
weaknesses in the marketplace
Less concerned with the effects of
government action on personal liberty
The price system is unfair
Support income redistribution
Time for An Activity
Economics is
soooo dreamy!
Legislature Passes Funding for Subsidized Housing
Let’s re-examine this headline. What would a
progressive think of it? How would a
conservative regard it? Answer in complete
sentences, please.
Headline A
New Info from Government Agency Helps
Consumers Choose Wisely
Headline B
Agency Blocks Merger of Two Airlines
Assessment
Assessment
1. Public goods and services are
a) All goods and services paid for by the
government
b) Goods and services provided by publicly held
companies
c) Goods and services that would not be
adequately provided by the market.
d) Goods and services that are available to the
public.
Assessment
2. Establishing and enforcing clearly defined property
rights is an example of government
a) Providing a social and legal framework.
b) Maintaining competition
c) Providing public goods and services
d) Redistributing income
Assessment
3. Smoke from a factory drops ash all over your car.
Government’s economic function in this case is to:
a) Stabilize the economy
b) Maintain competition
c) Provide public goods and services
d) Correct a negative externality.
Assessment
4. The Federal trade Commission recommends that
the Smokin’ Hot Computer Corporation be broken
into several smaller, independent companies. This
is an example of the government’s function of:
a) Maintaining competition
b) Redistributing Income
c) Maintaining the Legal and Social framework
d) Providing public goods and services
Assessment
5. The fed announced today that it will cut a key
interest rate by two basis points. This is an example
of the government’s function to
a) Correct for externalities
b) Stabilize the economy
c) Redistribute income
d) Maintain the legal and social framework
Assessment: Extended Response
6. Federal regulations now require Internet radio
stations to pay substantial royalty fees (fees to
artists and songwriters) for the music they play.
Some stations were not able to pay the fees and
have gone “off the air.” What economic function of
government is this an example of? Who benefits
from the regulation? How? Why? Who loses
because of the regulation? How? Why? What
argument would you make for and against the
regulation?
Homework
Many city governments subsidize the
construction of sports stadiums as a way
to attract or hold on to sports teams.
First, write an argument for this practice,
using the economic functions of
government to support your claim. Then
present an alternative view, arguing
against your initial claim. (20 points, plus
up to 3 extra if typed)
Works Cited
Council for Economic Education. “Lesson 4:
What Are the Economic Functions of
Government?” 2008 Council for Economic
Education.