1. 1 What Types of Business and What do they do? Most economists believe the market is a good way to coordinate economic activity. The primary debate among economists is: about how markets should be structured. whether markets should be modified and adjusted by government regulation.

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3. 3 Government Buys goods and services from business and buys labor services from households. Provides services to both business and households. Gives some tax revenues directly back to individuals (income redistribution). Oversees the interaction of business and households in the goods and factor markets.

4. 4 What is Government to Do? Stable Institutions and Rules Promote Competition Why Why not Externalities Positive Negative Public Goods What are these? Roads Schools Parks How to pay for them Bridge problem Specific use General use

5. 5 Income and Expenditures of the Federal Government National defense (18%) Interest (13%) Health and education (26%) Income security (33%) Other (11%) Social security taxes and contributions (36%) Corporate income taxes (8%) Excise taxes and other (6%) Individual income taxes (50%)