Organization of the U.S. Economy

1. 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

2. 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!!

3. Free-Enterprise System • Based on 5 main individual rights: • To own private property • To make individual choices • To engage in economic competition • To make decisions based on self-interest • To participate in the economy with limited government involvement and regulation.

4. 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.

5. 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.

6. 2 Goals of Economic Stabilization • 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. • Keep inflation low. • The general rise in prices that often accompanies economic booms.

7. 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

8. 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

9. 2 Goals of Fiscal Policy • Growth of U.S. Economy • How? • Increase federal spending • Lower taxes on citizens • Theory: • Businesses will expand and hire more people • Hopeful result: • Increased growth in the economy • Lower unemployment • Economy Stabilization • How? • Increase citizens Taxes • Lower government spending • Theory: • Increased taxes will force people to save money • Keep prices low. • Hopeful result: • low inflation rates • Stable growth in the economy

10. 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!

11. 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

12. How is it working so far?