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~ The Role of the Government in the Economy ~

~ The Role of the Government in the Economy ~. Mercantilism A. D. 1600 - 1800. Society was viewed as savage and required a strong government to control society and the economy A nation gained wealth by acquiring gold and silver.

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~ The Role of the Government in the Economy ~

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  1. ~ The Role of the Government in the Economy ~

  2. MercantilismA. D. 1600 - 1800 • Society was viewed as savage and required a strong government to control society and the economy • A nation gained wealth by acquiring gold and silver. • A nation needed colonies in order to import cheap raw materials and export expensive manufactured goods.

  3. Adam Smith and LAISSEZ-FAIRE • 1723 - 1790 • Scottish philosopher • An Inquiry into the Nature and Causes of the Wealth of Nations (1776)

  4. Smith’s Theory Mercantilism • Wealth is gold • No concern for how people determine what job to take • Strong government to control economy (colonies) and society Smith • The wealth of a nation is the productivity of its workforce. • Self Interest will direct citizens to undertake economic activities that benefit society (“The Invisible Hand”). • LAISSEZ-FAIRE – The government should stay out of the operation of the economy and the economy will run itself

  5. The Progressive Movement1890 - 1920 • The power of the government can be used to improve to correct errors in the economy and society • “Trust Busting” • Pure Food Laws • Pro-Worker’s Rights Legislation

  6. John Maynard Keynes • English • 1883 – 1946 • Mathematician

  7. Gross Domestic Product GDP = The sum total of all items made within a country in a given year. GDP = C + I + G + (E – I) C = Consumer Spending I = Business Investment G = Government Spending (E – I) = Exports - Imports GDP = C + I + G + (E – I) $100 = $90 + $8 + $2 + ($2 - $2)

  8. The Government can use the ability to tax and to spend in order to control the economy. • The government can encourage or discourage consumers and business from spending money

  9. Today • The government should provide public goods and services that the private sectors cannot or will not provide. • The government should redistribute income to help the poor. • The government should protect property rights.

  10. The government should deal with positive and negative externalities. • The government should help to stop or correct market failures.

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