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The Government and the Economy

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John Sheridan

on 7 March 2014

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Transcript of The Government and the Economy

The Government and the Economy
Public Goods and Services
The Government Taxes, Borrows, and Spends
Include such things as
interstate highways, postal services, and national defense
Provide benefits to many simultaneously
Would not likely be available if individuals had to provide them
Characteristics of public goods and services
Ways governments produce public goods and services
tax revenue
borrowed funds
(e.g., park entrance fees)
Government tax increases reduce the funds available for individual and business spending; tax decreases increase funds for individual and business spending.
Increased government borrowing reduces funds available for borrowing by individuals and businesses; decreased government borrowing increases funds available for borrowing by individuals and businesses.
Increased government spending increases demand, which may increase employment and production; decreased government spending reduces demand, which may result in a slowing of the economy.
Increased government spending may result in higher taxes; decreased government spending may result in lower taxes.
The 16th Amendment to the Constitution of the United States of America authorizes Congress to tax personal and business incomes.
The Federal Reserve System (the Fed) is our nation’s central bank.
As the central bank of the United States, the Federal Reserve System:
Acts as the federal government’s bank
Keeps the federal government’s checking accounts
Monitors federal government’s debts (loans taken from other banks)

Has the duty to maintain the value of the national currency (dollar)
Regulates banks to ensure the soundness of the banking system and the safety of deposits
Sets a minimum on the amount of reserves a bank must keep on deposit.
Ensures banks will have enough money available to meet the demand for withdrawals.

Manages the amount of money in the economy to try to keep inflation low and stable
If there is more money in the economy that goods and services to spend it on, increased demand for goods and services will make prices rise. (Inflation)

The Federal Reserve Bank acts as the “clearinghouse” for checks.
Life of a Check

A person living in New York writes a check to someone in northern California.
The party to whom the check is written deposits it in his/her bank.
The bank credits the depositor‘s account and sends the check to the Federal Reserve Bank of San Francisco.
The San Francisco Fed credits the amount of the check to the account that the depositor‘s bank has with them.
The San Francisco Fed sends the check to the Federal Reserve Bank of New York.
The New York Fed debits the account of the check issuer‘s bank.
The New York Fed sends the check to the issuer‘s bank, which then debits the issuer‘s account.

Consumer Rights and Property Rights
The United States government passes laws and creates agencies to protect consumer rights and property rights.
Individuals have the right of private ownership, which is protected by negotiated contracts that are enforceable by law.
Government agencies establish guidelines that protect public health and safety.
Consumers may take legal action against violations of consumer rights.
Global Economy
The worldwide markets in which the buying and selling of goods and services by all nations takes place is called the global economy.
What Are Some of the Reasons that States and Nations Trade?
(Virginia and the United States pursue international trade in order to increase wealth.)
To obtain goods and services they cannot produce or cannot produce efficiently themselves
To buy goods and services at a lower cost or a lower opportunity cost
To sell goods and services to other countries
To create jobs
Virginia and the United States specialize in the production of certain goods and services, which promotes efficiency and growth.
Recent Technological Innovations Have Made a Large Impact on the Economy
Innovations in technology (e.g., the Internet) contribute to the global flow of information, capital, goods, and services.
The use of such technology also lowers the cost of production.
Virginia and the United States pursue international trade in order to increase wealth.
Full transcript