1. Government and the Economy Chapter 23

2. Roles of the Government Providing public goods Maintaining Competition Regulating market Activity

3. Providing Public Goods Public goods – can be consumed by one person without preventing others from consuming it. The non exclusion principle – no one is excluded from the benefits of a good The Government is responsible for providing public goods and providing money to pay for them (usually by taxes).

4. Maintaining Competition Monopoly – a sole provider of a good or service. Government stops monopolies because competition protects consumers by keeping prices reasonable. Government prevents monopolies by anti-trust laws like the Sherman Anti-Trust Act. It banned monopolies and other business combinations that prevented competition. Government can stop mergers that will hurt competition.

5. Growing Economy – when businesses produce more goods and services and hire more people therefore people have money and buy more. GDP – measure of the economy’s output. IT is a money value of all of the final goods and services produced in a country in a year. Real GDP – shows production without prices. Inflation can cause GDP to rise without an actual increase in production. Real GDP gives a very clear judge of the economy.

6. Business Cycles Business cycle – the ups and downs in business activity Expansions are when real GDP goes up. Recessions are when real GDP goes down.

7. UNEMPLOYMENT Civilian Labor Force – workers 16 years and older who are working or actively looking for work. Unemployment Rate – percent of people in the civilian labor force who are not working but looking for jobs Fiscal Policy – changes in government spending or tax policies to help unemployment.

8. INFLATION Inflation – sustained increase in the level of prices. It reduces the purchasing power of money. TO measure inflation we use the Consumer Price Index. It is a price sample of 400 common items each month.

9. STOCKS AND STOCKMARKETS You can make profits in stocks in two ways, dividends and capital gains. Prices of stock changes based on demand. Stock market indexes – a statistical measure of how stocks do over time. Two examples are the Dow Jones Industrial Average and the Standard and Poor’s. Tracking these stocks gives an idea about the stock market as a whole.

10. Stock Exchanges Stock exchange is a location where shares of stock are bought or sold. You do not have to go to the market, a stock broker can buy or sell stock for you. New York Stock Exchange – most of the stocks in the U.S. are sold on the NYSE located in Wall St. Bull Market or Bear Market? Bull Market means that stock prices rise and people are optimistic. Bear Market means that stock prices fall because people are pessimistic.