Transcript Economic Functions

Economic Functions
5.2.1 – Identify the functions and relationships among
various institutions (e.g. business firms, banks, government
agencies, labor unions, and corporations)
Objective:
I can categorize newspaper
headlines as examples of
each of the six functions of
the government.
Essential Question:
What role
does the government
play in the economy?
• In order to ensure and support economic
freedom, as well as political freedom, the
founders of our nation envisioned a very
limited role for the government in economic
affairs.
• In a market economy such as the one
established by our Constitution, most
economic decisions are made by individual
buyers and sellers, not by the government.
• But that doesn’t mean the government
doesn’t do ANYTHING. Economists have
identified six major functions of the
government in market economies.
Legal and Social Framework
• Create laws and provide courts
• Provide info and services to help the
economy function better
• Establish a monetary system
• Define and enforce property rights
Maintaining Competition
• Create and enforce anti-trust laws (against
monopolies)
• Regulate natural monopolies
Provide public goods and services
• Provide goods and services that markets
are unable or unwilling to provide, such as
national defense
Redistribute Income
• Higher income tax rates for the rich than
the poor
• Provide social security and aid to
dependent children
• Medicare
• Medicaid
Correct for Externalities
• Taxes to reduce negative externalities such
as environmental pollution
• Subsidies to encourage positive
externalities such as education
• Externalities exist when some of the costs
or benefits associated with the production
or consumption of a product “spill over” to
third parties other than the direct
producer or consumer of the product
Stabilize the Economy
• Use government budgets and/or the
money supply to promote economic
growth
• Control inflation
• Reduce unemployment
Economic Functions of the Gov’t.
• Citizens, interest groups, even political
leaders all disagree about how bug a role
the government should perform within
each of these functions.
• Over time, as our society and economy
have changed, government activities
within each of these functions have
expanded.
Economic Functions of the Gov’t.
• All levels of government work to
maintain the legal and social framework
to provide public goods and services.
• The state and national governments have
the major responsibility to maintain a
competitive framework, redistribute
income, and deal with externalities.
• The national government has the
responsibility for stabilizing the economy.
Task
• Go back to the brainstormed list on the
board.
• Categorize the activities you listed. Which
heading do they fit under?
• Now get the strips of paper out of the
envelopes. Place them under the
appropriate headings.
Essential Question:
What role
does the government
play in the economy?
Objective:
I can categorize newspaper
headlines as examples of
each of the six functions of
the government.