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The Role of Government in the Economy
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Part I
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How does the United States government promote & regulate marketplace competition? Enforcing antitrust legislation to discourage the formation of monopolies - one business is not allowed to control an industry… If it did, it would have no reason to benefit the consumer. So the government will disband (break-up) a monopoly.
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EX: There cannot be only one oil company or they could raise the price too high for consumers to benefit. All of the electric companies cannot merge into one & charge a really high price… Etc…
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How does the United States government promote & regulate marketplace competition? Engaging in trade with the global economy - worldwide markets in which the buying & selling of goods & services by all nations takes place Review: VA & the USA specialize in certain products & services, so we must trade to: Obtain goods & services that they cannot produce themselves Buy goods & services at a lower cost/opportunity cost Sell goods & services to other countries for profit Create jobs
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How does the United States government promote & regulate marketplace competition? Supporting business start-ups by giving tax breaks & money (grants) to help businesses develop
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Government agencies that regulate business include the following: FCC (Federal Communications Commission) - regulates the radio / tv / media industries EPA ( Environmental Protection Agency) – regulates pollution & environment laws FTC ( Federal Trade Commission) – prevents unfair methods of competition against consumers FDIC (Federal Deposit Insurance Corporation) – although it’s not a part of the government, the FDIC works along side of the gov’t to insure money in the banks against bank failures & regulates the banking industry
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Other ways the United States government protects consumer rights & property rights All individuals have the right of private ownership, which is protected by negotiated contracts that are enforceable by law -- A contract includes an offer (what is given or done) & acceptance (agreement that you want the offer), & is signed by both parties.
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Other ways the United States government protects consumer rights & property rights Consumers may take legal action against violations of consumer rights – E.g., sue for broken contracts. Government agencies establish guidelines that protect public health & safety – E.g. EPA, FDIC, FTC, & the Dept. of Homeland Security.
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Generalizations The government promotes & regulates competition in the marketplace, as well as passes laws & creates agencies to protect consumer rights & property rights.
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Part II
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What types of goods & services do governments provide to the people & how do governments pay for the goods & services they provide? Public Goods & Services: Characteristics of most goods & services provided by government are: Provide benefits to many at once – they cannot be denied to anyone.
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What types of goods & services do governments provide to the people & how do governments pay for the goods & services they provide? Would not be available if individuals had to provide them Include: interstate highways, schools, postal service, police & fire stations, & national defense Governments pay for public goods & services with tax revenue, borrowed funds, & through fees ( e.g., park entrance fees)
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Generalization Government provides certain goods & services that individuals & businesses acting alone cannot provide efficiently.
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Part III
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How does the government influence economic activity & what role does the 16 th Amendment play in taxation? Ways the government influence economic activity: taxing, borrowing, & spending
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The 16th Amendment to the Constitution authorizes (permits) Congress to tax personal & business incomes, or money earned.
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Generalization The way that the government taxes, borrows, & spends to influence economic activity.
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Taxing Government tax decreases Increases funds for private & business spending Government tax increases Decreases funds available for spending
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Government borrowing Reduces funds available for borrowing by individuals & businesses Increased government borrowing Decreased government borrowing Increases funds available for borrowing by individuals & businesses for borrowing by individuals & businesses
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Government Spending
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Part IV
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What is the role of the Federal Reserve System in the US Economy? Federal Reserve System / Bank (“The Fed”)- the central bank of the United States, which has the duty of watching over the US Economy. The Fed has the following roles…
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What is the role of the Federal Reserve System in the US Economy? – maintain the value of the national currency (dollar) – regulates banks to ensure the soundness of the banking system & the safety of deposits – manages the amount of money in the economy to try to keep inflation low & stable – acts as the federal government’s bank.
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The Business / Economic Cycle - the economy naturally moves up & down like the prices of goods. Its pattern is called the business cycle Depression
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– When the economy is improving (high employment, low government spending, lower taxes) it goes through a period of expansion & continues to grow until it reaches a peak. – After the economy peaks, it naturally begins to go down (low employment, high taxes & government spending) & goes through a period of recession. It continues to decrease until it hits a low point called a depression.
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Ways the Government / Fed Can Influence the Economy: The government can influence the economy’s position on the business cycle by issuing currency & regulating the amount of money in circulation. This job is controlled by the Federal Reserve Bank (The Fed). The role of the Fed is maintaining a stable economy The Fed acts as a banker’s bank by controlling how much money banks have to use & by confirming deposits & debits to accounts.
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Ways the Government / Fed Can Influence the Economy: Printing more money does not make the dollar stay strong – in fact it does the opposite. The more money in circulation, the lower the value of the dollar becomes. As a result consumers can not buy as many goods because of inflation, or the increase in the cost of goods & services.
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Generalizations – Not in Notes To slow down the economy (to keep from peaking and going into recession) 1. Increase the reserve requirement 2. Raise the discount rate 3 Sells government securities To stimulate the economy – (to keep from going into Depression) 1. Lower the reserve requirement 2. Lower the interest rate 3 Purchase government securities
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Why does the government issue currency & which government agencies are responsible for creating it? Money - is defined as anything that is generally accepted as a method of payment. When the United States government issues coins & currency, people accept it in exchange for goods & services because they have confidence in the government to back up the money. Only the US Government issues money as a means to facilitate this exchange.
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Why does the government issue currency & which government agencies are responsible for creating it? The three types of money generally used in the US are: Federal Reserve notes (currency or paper $$) Change (Coins) Checks & debit cards
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