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Government and the Economy

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  1. Government andthe Economy Unit Six

  2. Government’s Role in Our Economy Chapter 16

  3. Article I, Section 8 of the Constitution • Congress has the power to • Coin money • Collect taxes • Borrow money • Set up a postal service • Build roads • Regulate commerce • Congress has the power to lay a foundation on which a market economy could flourish

  4. Reasons the Government is Involved • There are a number of important ways the government’s efforts have solved economic problems! • Some businesses have earned profits unfairly • Working conditions have been unsafe and inhumane • Unsafe products have harmed consumers • To ensure economic security to all Americans • To stabilize the economy • To protect the environment

  5. Ensure Fair Business Practices • In the late 1800s, Congress made attempts to control monopolies • Companies cannot combine to control the market • Businesses that provide vital services have had legal monopolies • How are these legal monopolies avoidable? • In 1938, Congress banned false advertising

  6. Protect Workers and Consumers • To ensure safe working conditions for employees • National Labor Relations Act of 1935 • Occupational Safety and Health Administration (OSHA) was created in 1971 • To ensure the products we buy are safe • Food and Drug Administration (1927) makes sure the stuff we eat and drink is safe • Consumer Product Safety Commission (1972) keeps an eye on toys, tools, and household products

  7. Who is really in charge? Pharmacies are big business today.

  8. Provides Economic Security • Began with FDR’s New Deal: a series of government programs that helped people dealing with the Great Depression • Social Security Act, passed in 1935 • Welfare • GI Bill and government loans for college

  9. Stabilize the Economy • A part of the free-enterprise system is instability—sometimes the economy is up and sometimes it is down (recession) • Monetary Policy: The Federal Reserve System (the Fed) controls the supply of money available, sometimes through interest rates • Fiscal Policy: what the government decides to spend and what they decide to tax (that’s their income!)

  10. Environmental Protection • The Environmental Protection Act of 1970 created the EPA to protect our air, water, and soil

  11. Methods Governments Use • Regulate businesses through laws and create agencies to enforce these laws (Environmental Protection Agency) • Make direct payment to individuals for food, shelter, medical care, etc. (Social Security) • Own resources (national parks) and produce goods and services (hydroelectric power from the Hoover Dam) • Pay for important economic activities (loans and grants for small businesses) • Balance spending and collect taxes

  12. How do we know if we’re in good shape? • Inflation: when prices rise—if prices go up, spending goes down • Gross Domestic Product (GDP)—the value of a country’s goods and services; a rising GDP means the economy is growing • The Federal Budget—where is the money going? • How much income does the government have? • Income taxes—from our paychecks • Excise Taxes—on specific products (like gas) • Tariffs—taxes on imported products • Fees—charges for specific services (like visiting Yellowstone) • Sales—selling government land, buildings, etc.

  13. The Federal Reserve System Chapter 17

  14. Creation • Why? Several financial panics occurred in the late 1800s and early 1900s and people were worried about the safety of their money in the bank • When? Passed by Congress in 1913 • Where? Twelve Federal Reserve Districts supervise banks in their area (we’re a part of the 4th District and its headquarters is in Cleveland) • Who? There’s a Board of Governors with seven members; appointed by the President for 14-year terms

  15. Functions of the Fed • It’s the government’s bank • They cash the checks that we write • Keep an eye on other banks to make sure they are following the law • Loan money to banks • Control the supply of money available • Change reserve requirements (how much money banks need to keep on hand) • Vary interest rates • Buy and sell government bonds

  16. Public Finance Chapter 18

  17. Paying for Government • Tax Fairness: everyone benefitting should pay, right? • Types of Income Tax • Proportional: everyone pays the same amount • Progressive: the more you earn, the higher percentage you pay • Regressive: the less you earn, the higher percentage you pay

  18. Types of Budgets • Balanced: spending = tax revenues • Deficit: spending > tax revenues • Surplus: spending < tax revenues