Economic Functions – 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.