12.13.1 Commonly accepted responsibilities of gove

rnment in the economy arethings
like economic goals. The four basic economic goals are to regulate
business, provide public goods, promote citizens economic well-being,
and to stabilize the economy. They regulate business to prevent
abuses, protect consumers, limit negative externalities, and promote
competition. Providing public goods has responsibilities from the
government to private companies. They promote economic wealth by
working to improve the standard of living. The federal government
acts to stabilize the economy by moderating the business cycle and
responding to market failures.

12.13.2 The government produces some goods and services that are available
to- and
consumed by- all citizens. The price system failed to assign the cost
of public goods among all consumers. The government accomplishes this
by charging tax to all citizens for the cost of public goods, even if
some people did not use the goods and services directly. They make
sure that all public goods and services like education, are available
to all people.

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12.13.3 Subsides are payments to private businesses by the government.

Taxes are
payments to the government by businesses. The government uses these
as regulations to prevent pollution, discrimination, and other
problems that affect citizens. Loose regulations tend to increase
supply and strict regulations tend to decrease supply.

12.13.4 Federal, state, and local governments all receive most of their
revenues from
taxes. Individuals and businesses pay income taxes, property taxes,
estate taxes, sales taxes, excise taxes, gift taxes, and tariffs.

State and local governments also receive revenues in the form of fines
paid by individuals from breaking laws within state and local

12.13.5 Proportional taxes are also flat rate taxes. It takes the same
percentage of
income from individuals at all income levels. A progressive tax takes
a larger percentage of income from a high income person. Regressive
taxes take a larger percentage of income from members of high income
groups. In the past these may have worked better than they would now
because way back when, more people were at an average income than
now. Now there is a huge gap between those with high income and low
incomes, therefore it would affect the lower income people negatively
and more.

12.13.6 Government regulations, rules, are used to prevent pollution,
discrimination, and
other problems. Loose government regulations tend to increase supply
and strict regulations tend to decrease supply. Higher production
costs prevent producers from supplying as many goods and services.

12.13.7 Externalities are side effects that can happen from the production
goods. These effects may happen for people not directly connected
with the production or consumption of the goods. They can also be
positive or negative. A negative externality exists when someone who
does not make or consume a certain product nonetheless bears part of
the cost of its production. In these negative situations the price
system fails to assign the entire cost of production to the producers
and consumers of the products. A positive externality exists when
someone who does not sell or buy a certain product nonetheless
benefits from its production. In this positive situation the price
system fails to assign the entire cost of production to all those who
benefit from that production.

12.13.8 The role of the government in income distribution is to try and
reduce the gap
between rich and poor. The government uses systems like transfer
payments to do so. Transfer payments in where the government takes
money collected from one group of citizens and distributes it to
another group of citizens. These work by the government making
specific aid programs that distribute income to anyone who meets
certain qualifications.

12.13.9 State and local governments rely on property taxes, as well as
other taxes.

Property taxes normally apply to houses, factory buildings,
condominiums, and the land on which these are built and undeveloped
real estate holdings. Some states also collect taxes on personal
property like boats and jewelry. Local government depends on property
taxes to help finance education, police and fire protection, and
sanitation. Property rights can sometimes be unequal. It does take
in account the person’s income. Town, and cities that raise a large
amount of money, produce quality public goods. Those who raise less,
sometimes have inadequate public goods and services.

12.13.10 Special interest groups are organizations of citizens who work
together to
achieve their common goals, often by influencing the government.

Interest groups try to influence economic policy by giving money to
members to vote for a particular candidate. Interest groups represent
diverse ethnic groups, minorities, labor unions, farmers and business
people. They are considerably influencing because they represent the
votes of millions of members.

12.14.1 Indicators of economic health:
-Gross domestic product (GDP)- the total value of all final goods and
services produced within a country in a given year.

-Unemployment-Individuals that are not paid or do not receive a profit
because they will not or cannot hold a job.

-Consumer price index (CPI)- a measure of changes in the prices of
market basket items, specific goods and services commonly purchased by
a typical family.

-Personal disposable income- Money remaining after taxes have been

12.14.2 Nominal GDP, or current GDP, is GDP expressed in the current prices
of the
period being measured. Real GDP is GDP adjusted for price changes.

12.14.3 Potential and actual GDP have several differences. Potential GDP I
based on the current price index for its period. However, actual GDP
is adjusted for price changes for the year it is studied.

12.14.4 Impact of spending on GDP: Increasing or decreasing spending is
directly proportional to GDP. When spending increases, GDP
increases. When spending decreases, DP decreases.

12.14.5 In a free enterprise system, resources, products, and money
payments are exchanged among the different actors in the economy. This
exchange can be traced in a circular flow model. The product market
represents all of the exchanges of goods and services in the economy.

The resource market represents the exchange of natural, human, and
capital resources in the economy. Households supply the resources to
businesses and the government in the resource market. Businesses then
make products, which are sold to households and the government in the
product market. Likewise, the government produces goods and services
for the benefit of businesses and households. The government produces
goods and services by using the resources that it purchases from
households in the resource market. In the resource market, businesses
and the government make payments to households in exchange for the
households’ resources. Once households receive this payment they
continue circulating the money by purchasing goods and services in the
product market. By doing this, households return money to businesses.

Businesses use the payments from households and the government to
purchase additional resources form households. The money flow
continues as businesses and households make payments to the
government. Theses payments take to form of taxes. The government uses
the payments to provide goods and services to businesses and

12.14.6 Frictional, cyclical, and structural unemployment:
-Frictional unemployment- temporary unemployment caused by factors
that are not related to business cycle.

-Cyclical unemployment- Unemployment that is caused by downturns in
the business cycle.

-Structural unemployment-unemployment that is caused by changes in
technology, government policies, long-term consumer demand for certain
products, population trends, and other factors unrelated to the
business cycle.

12.14.7 Impact of inflation:
Although inflation benefits some people, it affects most people
negatively. Inflation causes changes in the purchasing power of the
dollar, the value of real wages, interest rates, saving and
investing, and production costs. It decreases purchasing power,
reduces the value of workers’ real wages, increases interest rates,
decreases savings and investing, and increases production costs.

12.14.8 Fiscal Policy and its measures:
Fiscal Policy- the overall government program that establishes levels
of taxing, borrowing, and spending that promote the desired economic
goals for the nation. The tax rate-the percentage of a person’s
income that goes toward taxes- determines whether a tax is
proportional, progressive, or regressive.

Propoertional-“flat rate taxes” takes the same percentage of
taxes from ndividuals of all income levels.

Progressive- takes a larger percent of taxes from higher income
Regressive-Takes a larger percent of taxes from lower income

12.14.9 Expansive fiscal policy is a government policy designed to
stimulate economic activity by reducing taxes and increasing spending.

When people pay more taxes then their disposable income is less and
they have less to save or invest. Although due to expansive fiscal
policy many government funded programs are cut, and those who are
affected by that tend to vote against the politicians who cut the
programs. Contractionary (restrictive) fiscal policy increases taxes
and reduces government spending. This policy puts limits on price
increases by restricting aggregate demand. The effects of expansive
fiscal policy are that it is favored because if people have more money
to spend their taxes go down. It also has less government control in
it so therefore people like it better. People also think that it
would make the market more stable and grow faster. The effects of
contractionary fiscal policy are political and economic concerns can
make an impact on the formulation of fiscal policy in the free-
enterprise economy.

12.14.10 The United States relies on a single form of currency, but money
is produced in
two ways: Federal Reserve notes-dollars-printed by the Treasury
Department’s Bureau of Engraving and Printing, and coins, which are
generated by the U.S. Mint.

11. Banks accredits money by taking money out of other people’s accounts
when you need to withdraw large amounts of money. If you withdraw
one hundred dollars they may take it out of someone else’s account,
if you deposit money it will go straight into your account.

12.14.12 Interest rates have an impact on society because if their rates go
up and
thus making people have to pay more money. This makes people think
about opening up a savings account or even credit cards. The
percentage rate
increases making people pay more interest on the loans. This makes
people more
hesitant towards loaning and interest rates.

12.14.13 The Federal Reserve system is structured through many different
banks. It
has several different commercial banks around the country. The
Fed watches
over the money sent to member banks and district banks. Some of
its main
functions are clearing checks and loaning reserves. The Fed
oversees the
checks written everyday by check clearing. It also checks
checking accounts.

When banks need loans they have to get in touch with the Fed.

When people
make large deposits in the bank, those banks have to in turn get
loans form the Fed. Some loans can be for hurricanes,
earthquakes, etc. Those
large withdraws clean out cash reserves in banks, but the
Fed loans money to
depository institutions to get money put back in the banks.

12.14.14 The monetary policy is the plan to expand or contract the money
supply in
border to influence the cost and availability of credit. It also
aggregate demand.

15. Monetary policy measures that are available to the Fed is money
availability of credit, and aggregate demand. Money supply and
credit are
regulated by the Federal Reserve system, and also aggregate demand
regulated by it too.

12.14.16 The banking system regulates the money supply by restricting the
amount of
money in circulation in the economy. If there is more money in the
bank, then
the economy is good and activity is up, but if there is not a lot
then the economy
is low and activity is down.

12.15.17 Monetary Policy is designed to promote economic growth. The
federal Reserve makes money easier to raise by loaning interest
rates, which
increases the demand for money. They expand the economy by
supply and spending. Concretionary Monetary Policy is used when
inflation is
encouraged. It is designed to stabilize prices and slow the
economy. The
interest rate is raised, thus slowing demand, which slows down

12.15.1 A global economy is one, in which Nations and Corporations within a
nation buy and sell products between other countries. The same
economic factors apply as within a national economy, but there is
often more restrictions, and laws governing them.

12.15.2 Balance of Trade is the difference between a nation’s and exported
products. When more imports come in, fewer exports go out. This is a
trade deficit. A trade surplus is when more exports go out then
imports come in.

12.15.3 Developing nations face a problem because they always face a trade
deficit. They have to develop the means to “produce” products that
are in demand by other nations, and must rely on the other nations to
supply products they can not produce themselves. Therefore they must
borrow more then they receive as income. They are almost in a deficit

12.15.4 Balance of Payments are the annual accounting recovery of all
payments and receipts occurring between its businesses and government,
and their residents, business governments of other nations.

12.15.5 Absolute Advantage is when a nation can produce a country with
greater efficiency that it’s trading partner. The trading advantage
between 2 trading partners is the Comparative Advantage. The product
that offers trading advantage between partners.

12.15.6 When the American Currency is devalued, this means that the dollar
is worth less when compares to the currency of another nation. Hence
America’s products become cheaper to other nation, and the other
nations products are more expensive to America. When the reverse is
true, then the American Currency Appreciates. Therefore, America’s
Products are more expensive to other nations, and the other nation’s
product becomes cheaper to America.

12.15.7 Trade Barriers are tools to protect domestic industry and jobs from
foreign competition. Tariffs are taxes on products that are
important. Import quotas are limits on the amount of goods that can
be imported. Voluntary trade restriction is a binding agreement
between two nations that does not require congressional approval.

Embargo is a law to prevent imports from a specific place and exports
to a specific country.

12.15.8 Tariff is a trade barrier in the form of tax on imported goods.

Quota is a trade barrier in the form of a tax via a fix amount of a
good that can be available. Exchange rate are relative value of the
currency of one nation to another nation. Most favored Nation Status
is a reciprocal trade between America and its trading partners.

America awarded this status pays the same preferred tariffs other MEN
partners. The tariffs lower the tariffs that are not MEN partners.


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