chapter 9. section 1 civics: government and economics in action3 government ◦ the government...

Chapter 9

Section 1

Civics: Government and Economics in Action 3

Government◦ The government plays an important role in the American

economy, by making rules, spending money, and taxing individuals and corporations.

Economic Freedom◦ The freedom to own property, make a profit, and to make

choices about what to produce, buy, and sell.

Six reasons why the American government had to become involved in the economy.

1. Businesses have sometimes earned profits unfairly.◦ Price fixing◦ Misleading advertising

2. Working conditions have sometimes been unsafe and inhumane.◦ Long hours for low pay◦ Unsafe machinery

3. Unsafe products have harmed consumers.◦ Bacteria in food.◦ Unsafe household products or toys.◦ Misleading medicine.

4. Not all Americans have had economic security.◦ The unemployed became poor, or homeless.◦ Discrimination

5. The economy has been unstable.◦Recessions/ Depressions◦Inflation◦Natural Disasters

6. The environment has been damaged.◦Pollution◦Wildlife are in danger.

Six ways the government can fix economic problems.

1. Governments regulate business.Rules for business conduct.Regulatory agencies.

2. Governments make direct payments to individuals.Give money to people who need to pay

for food, shelter, medical, or other basic needs.

3. Governments own resources and produce goods and services.◦Own land◦Run businesses

4. Governments help pay for important economic activities.◦Give money to private businesses

5. Governments control the amount of money they spend and the amount they receive in taxes.◦Taxes take money from the economy◦Spending puts it back

6. Governments make tax rules and collect special taxes.◦Can change the tax rates.◦Change taxes to reward or punish.


The market system does not always promote the common good

Government regulations also put some limits on individual freedoms◦ It also has a large price tag◦ Critics accuse the government of using more time, more

money, and more paperwork than is necessary.


In a free-enterprise system there were no rules for the operation of businesses◦ Trust: a group of several companies organized to benefit from

the high prices they all agree to charge.◦ Monopoly: a single business with sole power

over the prices in the market. The game called “Monopoly” debuted in 1935


Controlling Monopolies◦ American became angry about the growth of monopolies; price had

become unreasonable.◦ The Sherman and Clayon Antitrust Acts banned unfair

monopolies. Allowing Legal Monopolies

◦ The government does not oppose all monopolies; public utilities are monopolies

Banning False Advertising, 1938◦ Congress banned “unfair or deceptive practices”


Safe Working Conditions◦ National Labor Relations Act (1935)◦ Fair Labor Standards Act (1938)◦ Occupational Safety and Health Administration (1971)

Safe Products◦ Food and Drug Administration (1927)◦ Consumer Product Safety Commission (1972)


The Great Depression (1929-1941)◦ Long period of economic hardship

Franklin Roosevelt◦ The New Deal

Social Security Act, 1935: A monthly payment program for workers. This program served as insurance to injury, unemployment, or death.

Public Assistance: Cash payments and various services provided to those in need by federal, state, and local governments.


Business Cycle◦ The repeated series of “ups” of growth and the “downs” of

recession. Monetary Policy

◦ Regulation of the money supply by the Federal Reserve System Fiscal Policy

◦ The government’s decisions about the amount of money it spends and the amount it collects in taxes.


The Environmental Protection Agency◦ Created 1970 by Environmental Protection Act.◦ The agency control pollution by making rule about what and

how much can be dumped into the air, water, and soil.

Section 2


Federal government constantly checks the health of the economy

Variables the Government Checks:1. Inflation: The general rise of the price level of goods and

services.2. Gross Domestic Product: GDP is the total dollar value of

all final goods and services produced with the country in a year.


2003 Federal Budget: $2.14 trillion Federal Budget:

◦ The government’s plan for how much it will raise and spend money.


Income Taxes◦ State and local governments rely mostly on sales tax and

property taxes◦ Federal government relies mostly on personal income taxes

and social security taxes. Excise Taxes

◦ Charged on specific products

Taxes on certain goods are called excise taxes.

This tax is also meant to regulate consumption of a certain product.

Tariffs are taxes on imported goods. Fees are charges to users of certain

services. Sales of government owned property is

another way to generate revenue.


Balancing the Budget◦ Deficit: the amount in a year by which government spending is

greater than government income. ◦ Surplus: the amount in a year by which government income is

greater than government spending. The National Debt

◦ The total amount of money the government owes to lenders.

http://www.usdebtclock.org/


The Employment Act, 1946◦ States the government’s intention to promote employment,

production, and purchasing power. Promote the “General Welfare”

◦ Found in the preamble to the Constitution Full Employment: every person who wants

to should have a job Price Stability

◦ The government makes the ground rules for the market economy


Circular Flow◦ Economic cycle between individuals and businesses

Adding Government to the Circular Flow◦ The government plays a central role in the circular flow of our

market economy. Taxes and fees are exchanged for goods and services

◦ Businesses pay taxes on their profit and property◦ Individuals pay taxes on their income, etc.


National Income Accounting: ◦ The process by which our nations keeps track of its overall

income and spending Gross Domestic Product

◦ Economic Growth: an increase in the production of goods and services, which provides citizens with a higher standard of living.

◦ Inflation: an increase in the overall price level◦ Deflation: a decrease in the overall price level


Characteristics of a Good Tax1. Efficient and economical2. Reasonable3. Must treat the tax payer fairly and equitably4. Certainty

Benefits Received Principle Ability to Pay Principle


Proportional Tax◦ Requires each taxpayer to pay the same proportion or

percentage of their income in taxes. Progressive Tax

◦ Takes a higher percentage of taxes from a person with a higher income than it does form a person with a lower income

Regressive Tax◦ Takes a larger percentage of tax from the income of a person

with a lower income than it does from a person with a higher income.


Direct Taxes◦ A tax on income

Indirect Taxes◦ Generally ends up as part of the price a consumer pays for a

product. Tax Impact

◦ Taxes affect the individuals, consumers, and businesses◦ Taxes are often “passed on” to the consumer


The Goals are Government Economic Stability Policies:

1. Promote Economic Growth2. Maintain Stable Prices3. Ensure Full Employment

People’s person buying decisions are private-sector decisions.

Public-sector decisions are buying decisions that are made by a government.

Public-sector decisions reflect public goals.


1. Balanced Budget• Requires that the government does not spend more than the

tax revenues received.

2. Deficit Budget• A budget where the government spends more than the tax

revenues received.

3. Surplus Budget• A budget where the government spends less than the tax

revenues received.


National Priorities◦ The government has two options to control spending:

1. Increase/Decrease Taxes2. Increase/Decrease Spending

Spending Patterns- Entitlement programs provide benefits to people who are

entitled by law to receive them.

Most state and local governments are direct expenditures.

If spending is cut, people get frustrated. State and local governments turned to the

federal government for assistance. Most state and local revenues come from

property taxes and sales taxes. Education counts for more than one third of

state and local expenditures.

chapter 9. section 1 civics: government and economics in action3 government ◦ the government...

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unfair monopolies

unsafe products