chapter 15. government as regulator of the economy efficiency through government intervention...

Chapter 15

Government as Regulator of the EconomyEfficiency through government intervention

Promoting competitionMaking business pay for indirect costsDeregulation and underregulation

Equity through government interventionThe politics of regulatory policy

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Insert Table 15-1The Main Objectives of Regulatory Policy

Government as Protector of the EnvironmentConservationism: the older waveEnvironmentalism: the newer wave

Environmental protectionGlobal warming and energy policy



Insert Figure 15-1Average Temperature of the Earth’s Surface, 1850-2010

Government as Promoter of Economic InterestsPromoting business

Government promotion of business Government-provided loans Special tax breaks Traditional services: education, transportation, and defense

Tax burden has shifted from business to individuals


Government as Promoter of Economic InterestsPromoting labor

National Labor Relations Act of 1935Minimum wageMaximum work weekUnemployment benefitsNondiscriminatory hiring practices


Government as Promoter of Economic InterestsPromoting agriculture

Homestead Act of 1862Farm programs to eliminate some farming riskFederal payments account for more than a fourth of net

agricultural incomeAmerican farmers among the most heavily subsidized in

the world


Fiscal Policy as an Economic ToolDemand-side policy

Emphasizes the consumer (demand) component of the supply–demand equation.

Government spending to alleviate economic depression or recession

Generally preferred by Democratic lawmakersCan result in budget deficit/increased national debt


Fiscal Policy as an Economic ToolSupply-side policy

Emphasizes the business (supply) component of the supply–demand equation

Tax breaks for firms and upper-income individuals intended to encourage business investment with resulting increases in employment and income

Generally preferred by Republican lawmakers Can result in budget deficit/increased national debt


Fiscal Policy as an Economic ToolFiscal policy: practical and political limits

Demand-side or supply-side work most effectively with smaller government and balanced budgets

Republican and Democratic lawmakers are miles apart on how best to deal with recessionary periods



Insert Figure 15-2The Federal Budget Dollar, Fiscal Year 2013


Insert Table 15-2Fiscal Policy: A Summary of the Government’s Role


Insert Figure 15-3The Federal Budget Deficit/Surplus

Monetary Policy as an Economic ToolThe Fed

Control over money supply Raise/lower the cash reserve required of member banks Raise/lower interest rate on member banks

Fighting an economic downturn Decreasing interest rate on loans to member banks Lowering reserve rate Buying government securities (bonds, notes, etc.)



Insert Figure 15-4The Federal Reserve System


Insert Table 15-3Monetary Policy: A Summary of the Fed’s Policy Tools

Monetary Policy as an Economic ToolThe Fed and control of inflation

Opposite of fighting an economic downturnIncreasing interest rate on loans to member banksRaising reserve rateSelling government securities (bonds, notes, etc.)

The politics of the Fed



Insert Figure 15-5The Annual Rate of Inflation, 1979-2010

chapter 15. government as regulator of the economy efficiency through government intervention...

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