Government and the Economy

1. Government and the Economy Economics Chapter 11

2. In class today: • CBM #5 (Chapters 11 and 12) • Score and graph it • Get out your charts that you filled in last class after the Unit II test (Chapter 11: Govt and the Economy) • Check your answers from the power point, fill in remaining info to complete them • In class activity – Analyze political cartoons placards A-G, use 1 Role of Govt from your chart for each Placard analysis!

3. Economic powers of the US Government • To levy and collect taxes • Provide for the general welfare • Borrow money • Regulate interstate and foreign commerce • Establish bankruptcy laws • Coin money and regulate value • Fix the standards of weights and measures • Protect inventors and authors works Article 1: US Constitution gives government the following powers: Exercising these powers is called regulation

4. Protecting Property Rights • What is Private Property? • Land • Personal possessions • Physical Assets • Intellectual Property Protecting private property = key to free enterprise, because incentives (to own and develop) matter • Examples: Courts, Police, Patent and Trademark Office

5. Eminent Domain • An EXCEPTION to property rights = Eminent domain: Government right to seize property for public use • Must fairly compensate owner • 5th Amendment – guarantee due process and just compensation • Kelso v. City of New London • Supreme Court agreed that City of New London could seize property for economic development

6. Maintaining Competition • Government prohibits practices that: • Restrict competition in the marketplace • Price fixing • Bid rigging • Market division • Form monopolies • Government also monitors mergers (joining of 2 firms into 1) • Examples: Justice Department & Regulatory Agencies

7. Protecting Consumers, Savers, and Investors • Caveat Emptor – “Buyer beware” • Government provides information about products and ensures goods and services are safe • Examples: • Consumer Product Safety Commission • FDIC • FDA

8. Protecting Workers • Safeguard the interests of workers • Protect physical well-being • Examples: • Department of Labor • OSHA

9. Addressing Externalities • Positive or negative spillover effects from production or consumption • Govt can support positive externalities • Examples • providing for education • Immunization programs • Limit negative externalities • Examples • EPA policies to control pollution • Incentives • Tolls, taxes, quotas

10. Providing Public Goods • Providing goods and services to the community for free • Examples • National defense • Street lights • Highways, dams, bridges

11. Promoting Economic Stability • After the stock market crash of 1929, the US government has played an increasing role in regulating the economy to prevent booms and busts • Examples: • Maintaining dollar value • Stimulating business activity (incentives, stimulus)

12. Redistributing Income • US Census Bureau charts the distribution of income in the US • Also calculates the poverty rate = % of households below poverty threshold • Examples of income redistribution: • Welfare payments, food stamps, public housing, school lunches, Medicaid

13. Is Regulation Always Good? • Over regulation – detail make doing business unmanageable • Regulation needs to balance costs & benefits • Examples???

14. Deregulation • Removes restrictions on economic activity • Banking • Airlines • Cable TV • Electricity • Trucking • Industry becomes more competitive • Weaker companies fail or merge • Strong companies survive

15. Class Activity • Using your chart of Role of Government in the Economy • In pairs, study and rotate placards A-G • Fill in handout “Analyzing Political Cartoons About the Role of Government” • Each Placard represents ONE of the 8 Roles on your chart. Use each one only ONCE!