Chapter 16: Government’s Role in Our Economy

Section 1: Government Intervention in the Economy

The U.S. Government can…

1. Coin money

2. Collect taxes

3. Borrow money

4. Make a postal service

5. Build roads

6. Regulate commerce

Why couldn’t it do anything else at

first?

1. haga dinero

2. reúna impuestos

3. pida dinero prestado

4. haga un servicio postal

5. construya los caminos

6. regule comercio

What are the “ground rules” for a market

economy?

¿Qué es las reglas para una economía de

mercado?

The government may only make laws that…

….protect private property against theft.

….set up corporations.

Government plays a

SMALL role!!!

…proteja la propiedad privada contra robo.

…haga corporaciones

What were the six needs for reform?

¿Qué fue las seis necesidades para la

reforma?

1. Businesses have sometimes earned profits unfairly (high prices or false advertising)

1. Los negocios han ganado a veces ganancias injustamente (los precios altos o publicidad falsa)

2. Working conditions have sometimes been unsafe and

inhumane.

2. Las condiciones de trabajo han sido a veces peligrosas e inhumanas.

3. Unsafe products have harmed consumers.

3. Los productos peligrosos han dañado a consumidores.

“Upton Sinclair's The Jungle is a vivid portrait of life and death in a turn-of-the-century American meat-packing factory. A grim indictment that led to government regulations of the food industry, The Jungle is Sinclair's extraordinary contribution to literature and social reform.”

4. Not all Americans have had economic security (no sick days)

4. No todos norteamericanos han tenido la seguridad económica (no días enfermos)

5. The economy has been unstable.

5. La economía ha sido inestable.

6. The environment has been damaged.

6. El ambiente ha sido dañado.

Read page 433

What are the six methods the

government uses to solve these problems?

1. Governments regulate businesses.

2. Governments make direct payments to individuals (welfare, food stamps, social security)

3. Governments own resources and produce goods and services (PPL)

4. Government help pay for important economic activities.

5. Governments control the amount of money they spend and the amount they receive in taxes (budget).

6. Governments make tax rules and collect special taxes.

Read page 434

What are the downfalls to government

intervention in the economy?

Negatives of Government Intervention

1.Limits individual economic freedoms.

2.Too many taxes.

3.Pushes toward command economy.

Assessment 1:Classify each example with its appropriate “Need for Reform.”

1. Ryan is laid off of work and cannot find another job.

2. Charlie suffers an accident at work and hurts his back. He cannot work for at least 3 months.

3. Melissa notices that the paper factory she works at is dumping chemical waste in to a nearby lake.

4. The Easy Bake Oven was recalled due to a burning malfunction.

5. Fictional Corporation was lying about the value of its stocks.

6. In 2008 the economy suffered a slowdown, and the housing market showed significant decline.

Assessment 2:Classify each example with its appropriate “Method Government Use.”

1. The government gives money to farmers who are suffering from a drought.

2. Financial Corporation is investigated and brought to court by the attorney general.

3. The Consumer Product Safety Commission (CPSC) recalls the Easy Bake Oven.

4. The government fines and regularly inspects the paper factory that Melissa works at.

5. The Federal Reserve System has attempted to change the health of the economy after 2008.

6. Charlie receives disability and worker’s compensation for three months. Also, Ryan collects unemployment.

16-2: Government Efforts to Solve Economic Problems

• Monopoly – a single business with total control of an industry and the prices set.

Example: Andrew Carnegie had monopoly power over the steel industry.

• Trust – a group of several companies that benefit from the high prices they agree to charge.

Carnegie J.P. Morgan

STEEL RR

How do you win Monopoly?

Why are monopolies and trusts bad in a real economy?

• No competition

• One person controls prices

• 1890s: – Steel– Oil– Sugar– Meat

Solution to Unfair Business Practices

• People demanded reasonable prices and the chance for small businesses to compete in any market.

• Sherman Anti-Trust Act (1890)– Outlawed agreements among companies that

limit competition

• Clayton Anti-Trust Act (1914)– Outlaws many of the practices used by

monopolies and Trusts

• 1938 – no false advertising

Legal Monopolies

• The government controls some businesses that offer necessities and public utilities.– Phone service– Electricity– Water

• Rates are set by law.

Protecting Workers and Consumers

Safe Working Conditions• Occupational Safety and

Health Administration (OSHA) (1917)– Sets and enforces health and

safety standards at work.

• Fair Labor Standard Act (1935)

– Triangle Shirtwaist Fire• Segment 1

• Segment 2

• Segment 3

Safe Products

• Food and Drug Administration (FDA) (1927)– Foods, cosmetics, and drugs

are safe and labeled correctly

– New drugs are tested

• Consumer Product Safety Commission (CPSC) (1972)– Safety rules for toys, tools,

clothes, appliances

– Recalls unsafe products

Extra Credit Writing Activity

The CPSC publishes a list of products that have been recalled because of safety issues. Go to the recalls page on the CPSC Web site for this year. Find three items related to your favorite recreational activity. Write a paragraph for each item explaining the hazard and suggest a remedy to make those products safe. Include an introduction and conclusion about the CPSC.

Providing Economic Security• Great Depression (1929)

– Factories and banks closed– 12 million people unemployed in 3 years

• The New Deal (1933)– Franklin D. Roosevelt– Created jobs– Social Security Act (1935)

• Income from retirement, injury, death, or unemployment

– Public Assistance • Food stamps, welfare

– Created increased government control in the economy

Assessment 3:

Write a persuasive paragraph for or against government intervention in the economy by writing a paragraph with:

-a main idea.

-three supporting details.

Maintain Economic Stability

• Business Cycle– Series of ups and downs– Ups = growth

• Increased production and jobs

– Downs = recession• Decreased production and jobs

– Government tries to “flatten out” the ups and downs

Maintaining Economic Stability

Monetary Policy

• Federal Reserve System

• Regulates the amount of money in the economy

• The size of the money supply affects the health of the economy.

Fiscal Policy

• The federal budget• The government is spender

and a taxer.– Highways, public assistance,

products, and services

– 25% of a person’s income

• Cut tax rates in a recession to stimulate spending

• Increase spending to stimulate jobs and income for people.

Protecting the Environment

• Environmental Protection Agency (1970)

16-3 Managing the Economy

PDN: Predict five things the government spends its money on.

• In 1835, under President Andrew Jackson, the US Federal Budget was balanced and the National Debt was paid in full. This has never happened since.

• In the economic boom of the Roaring '20s, the Federal Budget ran surpluses for ten consecutive years. This also has never happened since.

• In the 1930s and 1940s, depression and war initiated a half-century of chronic budget deficits. Money borrowed to pay these deficits steadily increased the National Debt.

• Budget surpluses became increasingly rare. During the 1970s and 1980s, the US Federal Budget ran deficits for twenty straight years. Finally in the 1990s, another economic boom enabled four years of budget surpluses. These surpluses temporarily halted the growth of the National Debt

16-3: Managing the Economy

PDN: Why is it important for the economy to get a “check up?” (3 lines)

PDN: ¿Por qué es importante mirar la salud de la economía? (3 líneas)

Vocabulary

• Inflation• Gross Domestic

Product• Federal Budget• Deficit• Surplus• National Debt

• Inflación• producto interno

totales• presupuesto federal• Déficit• Superávit• deuda pública

How does the government check the health of the economy?

• Inflation rates

• Gross Domestic Product (GDP)

• Federal Budget

Gross Domestic Product

• the total dollar value of all final goods and services produced within the country in a year

GDP Economy

GDP Economy

Four Types of Goods/Services

• Consumer GDP

• Government GDP

• Investment GDP

• Net Exports

Inflation

• The general rise in prices.

Inflation Economy

Inflation

Economy

One of the most closely watched signs of the economy’s health is the rate of inflation

- (%)

- difficult to control

- rising prices

- dollar has less power

- people demand higher pay

- businesses raise prices because of more expensive labor costs

The Federal Budget

• the government’s plan for how it will raise and spend money

• planned ahead in detail

Federal Revenue / Income-Federal Expenses/ Expenditures

Deficit or Surplus

Federal Revenue/ Income

• Personal Income Taxes– The more money you earn, the more taxes you

pay

• Social Security Tax

• http://www.phschool.com/webcodes10/index.cfm?wcprefix=mpp&wcsuffix=6163&fuseaction=home.gotoWebCode&x=0&y=0

National Debt

– U.S. National Debt Clock

National Debt

2001 = $1 trillion deficit

2002 = $3 trillion deficit

2003 = $2 trillion deficit

2004 = $5 trillion deficit

What would the nationa

Deficit

Federal Revenue = $4.5 trillion

Expenditure = $10.5 trillion

Surplus

Federal Revenue = $15 trillion

Expenditures = $7.5 trillion