Download Chapter 9.2 Organization of the U.S. Economy

Organization of the U.S. Economy
• Why does the federal
government collect
revenue?
– Two reasons:
• Help stabilize the economy
• Promote economic growth
– Raise Gross Domestic
Product (GDP)
» Total output of goods
and services produced
in the USA
Organization of the U.S. Economy
• We have a free enterprise economy
– Business can be conducted freely.
• Little to no government interference.
• “Laissez-faire” = hands off.
– Term used to explain free enterprise capitalism.
– Free enterprise economy
• Dependent on a market in which goods and services
are exchanged openly and freely!!
Free-Enterprise System
• Based on 5 main individual rights:
1. To own private property
2. To make individual choices
3. To engage in economic competition
4. To make decisions based on self-interest
5. To participate in the economy with limited
government involvement and regulation.
Why are free enterprise economies so
good?
• Drives competition
– If you make a product, you have to make it good
enough to compete with everyone else.
• This helps keep prices low.
• This also allows companies to focus on what the
consumer wants.
– Consumer = people who buy things.
Government and the Economy
• What is the government’s role in the
economy?
– Republicans
• Government has no role!
• They need to stay out!
– Democrats
• Government needs to help stabilize the economy to
keep it from going into a recession.
– Economic downturns that turn into depressions.
2 Goals of Economic Stabilization
1. Make sure everyone capable of work has a job.
•
•
A good unemployment rate = 5% or less.
Why does everyone need to work?
–
You need to make money to spend money!
» If you are out of work, you will save all of the money
you have instead of buying things.
2. Keep inflation low.
1. The general rise in prices that often accompanies
economic booms.
How does inflation keep an economy
from working?
• If the price of goods goes
up, people stop buying
things.
– Even people with lots of
money.
– Example:
• 2000 Ford F-150
– $28,500
• 2009 Ford F-150
– $19,500
Tools for Economic Stabilization
• Fiscal Policy
– A set of government spending, taxing, and borrowing
policies used to achieve desired levels of economic
performance.
• Monetary Policy
– Set of procedures designed to regulate the economy
by controlling:
• amount of money in circulation
• Level of interest rates
2 Goals of Fiscal Policy
• Growth of U.S. Economy
– How?
• Economy Stabilization
– How?
• Increase federal spending
• Increase citizens Taxes
• Lower taxes on citizens
• Lower government spending
– Theory:
• Businesses will expand and hire
more people
– Theory:
• Increased taxes will force people
to save money
• Keep prices low.
– Hopeful result:
– Hopeful result:
• Increased growth in the economy
• low inflation rates
• Lower unemployment
• Stable growth in the economy
2009
American Recovery and Reinvestment Act
• Pres. Obama signed this
into law at beginning of
term in office.
– Intended to stimulate
American economy
• Keep us from going into
recession.
• Cost= $787,000,000,000!
What did the American Recovery
and Reinvestment Act do?
• Expansion of
unemployment benefits
– Now covered for 9
months
– Increase spending in
• Education
• health care
• Infrastructure
– Including the energy
sector
How is it working so far?