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59 terms

Government and the U.S. Economy

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The U.S. Economy and Government
Eventhough the economy relies heavely on free enterprise our government plays an important role in the operation of the economy; Goods and services count for more than 1/3rd of our nation's Grose Domestic Product
Public Sector
another turm referred to as our government
Privite Sector
another turm referred to as businesses
Role of Government in Our Economy According to Classical Economists (Hint 3 things)
~believe the government's role in the economy should be limited

~regard Supply and Demand as the most powerful and potentially benificial part of economic forces

~the best thing government can do for the economy is to keep its hand off and allow the markets to clear on their own
General view of Government Role According to Republicans
believe in the power of big businesses, thus urge the government's role in the lives of citizens to be as small as possible
General view of Government Role According to Democrats
believe government should be heavily involved in various economic issues
Other Economists Views on Governmental Role
like Paul Samuelson, believe too many problems that occur in the marketplace should be the laws of demand rather than external costs and it is up to the government to solve their own mistakes/problems
Examples of Minimal Wages
~many Democrats endorses the use of minimum wage laws to help low-income workers

~Classical Economists say such laws harm the very people they are intended to help
--By increasing labor costs, minimum wage laws make
it too expensive for many firms to hire as many low
wage workers

--As a result, those who might otherwise be employed
are not hired at all
Samuelson's (Democratic) View on Poverty
argue government-sponsored programs such as public housing and food stamps to reduce poverty
Classical Economist's View on Poverty
advocate taxing low-income families far less so they can keep more money earned
What do you think?
Should the government be run like a business that searches for the most efficient outcomes or should it strive to help as many people as it possible can?
Government's Roles in the U.S. (AMP it up!)
1) Arbiter
2) Manager
3) Participant
Arbiter
Establishing and enforcing private property rights describes this government role in the U.S. economy.
Protecting consumers describes this role of the US government.
External Costs
"Spillover Costs"
Ex: Boat Cleaning Shop whose chemicals kill the fish of
a seaside community
External Benefits
Public education, public parks, medical clinic who treat people against communicable diseases (a shot)
Functions of Government as an Arbiter
1) Ensure market Competition
2) The Sherman Antitrust Act of 1890
3) Protect Consumers
Market Competition
When competition is restricted and consumers have fewer choices which cause producers to feel pressured to reduce costs and eliminate inefficiencies
The Sherman Antitrust Act of 1890
made it illegal to create a monopoly, enter into a conspiracy to create a monopoly, or "restrain trade"
Protect Consumers
Government has been taken action to protect consumers from faulty products and deceptive advertising
Particapant
providing goods and services
Ben Bernaky
Chairman of the federal government
Regressive Tax
Social Security Tax
Todays National Debt
15.7
Money Supply
Total amount of money in circulation at any given time
Classical Economists are Often Referred to as
Republicans
NOT an Example of M2 Money
Foreign;large saving currency
Income Tax
Single large source of funding for federal government
...
Single largest source of funding for blank...
The Four Referee Roles the Federal Government Fulfills in the Economy
1) to enforce private property rights
2) to moniter external costs and benefits
3) to ensure market competition
4) to protect consumers
Social Security and Taxes
what the federal government does to manage the economy
The Two Principles of Taxation
1) the benefits-recived principle
2) the ability to pay principle
Proportional Tax
tax which the percentage of income paid in taxes is the same for all income levels
Progressive Tax
taxes a higher proportion of income from higher income
Regressive Tax
a tax for which the percentage of income paid in taxes decreases as income increases
Justifications and Criticisms of Federal Deficits and the National Debt
1) Annual Intrest payment on the national debt have been a large, growing portion of the federal budget
2) Largeportion of the federal budget
3) Deficits may reduce private investment
4)Deficits may trigger inflation
Services Banks and Financial Institutions Provide
1) Banks supply the economy with cash
2) Process checks and electronic transfers
3) Hould Reserves for Depository Institution
4) Serve as Banker to the Federal Government
5) Supervise and Regulate Banking Institutions
6) Regulate the Money Supply
How Banks Create Money
They cannot lend all the money entrusted to them because depositors have the rights to withdraw funds at any time; however expearience has shown deposits are greater than withdrawals
Roles and Responsabilities of Federal Reserve
1) issuing parer currency collecting and clearing checks
2) holding the banking system's regulating the money supply
3) along with other agencies supervising and regulating the nation's banking institutions
The Value of Money
There are two types of inflation: demand--pull and cost--push. Demand--pull inflation is when rising prices cause too much money "to chase" too few goods. Cosh-Push inflation is when rising prices result from increase in the cost of production caused by the increase of raw materials, the wage-price spiral. Inflation affects people differently; some suffer, others benefit. Those most likely to suffer are people living on relatively fixed incomes, savers, lenders, and businesses.
manager
Stabilizing the economy describes this governmental role in the US economy. Promoting economic security describes this governmental role.
participant
Providing goods and services describes this governmental role.
the republican party
political party generally considered in favor of big business most like classical economists
progressive tax
type of tax that takes a larger percentage of higher incomes and a smaller percentage of a lower incomes
regressive tax
Security tax considered to be this type of tax
property taxes
the single-largest source of funding for local governments
sales tax
the single-largest source of funding for state governments
personal income tax
the single-largest source of funding for the federal government
benefit payments
federal government spends most of its money on this
15.7 trillion
Approximately today's national debt
checking accounts
the largest component of the money supply
portability, uniformity, or divisibility
why bowling balls would not be acceptable currency
foreign currency; large savings accounts
not an example of M2 money
money supply
the total amount of money in circulation at any given time in a country
goldsmiths
Our current banking system was actually started by these professionals
the fractional reserve system
our type of banking system where banks withhold a portion of their depositors' money and loan out the rest
district reserve banks
12
7 members and a chairman
board of governors is comprised of this many board members and one of these
Ben Bernanke
the current chairman of the Fed
voting rights, and paid,fixed dividends
the two main differences between preferred and common stock