Government's Role in Economy

The Economic Functions of Government (SSEF5)

4th of July Celebration 2013 (My Mom's hometown!) Wrightsville, GA

Six Economic Functions of Government

1. Maintain the Legal and Social Framework

2. Maintain competition

3. Provide Public goods and services

4. Correct Externalities

5. Stabilize the economy

6. Redistribute income

1. Maintain The Legal and Social Frame Work

-Define and enforce property rights

-Establish monetary system

2. Maintain Competition

-Create and enforce antitrust laws

-Regulate Natural Monopolies

3. Provide Public Goods and services

• Public goods and services are those that markets will not provide in sufficient quantities

4. Correct for externalities

• Reduce negative externalities

• Encourage increase production of goods and services that have positive externalities

• (Ponce on the Atlanta Belt Line)

5. Stabilize the Economy

• Reduce Unemployment and inflation

• Promote economic growth

6. Redistribute Income

• Redistrubte income form people who have higher incomes to those with lower incomes

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Multiple Choice

Federal Reserve Raises Key Interest Rates

• Maintaining the Legal & Social Framework

• Maintaining competition

• Providing Goods and Services

• Correcting Externalities

• Stabilize the Economy

Multiple Choice

Congress Raises Tax Rates for Top Income Brackets

• Maintain the legal and social framework

• Maintain competition

• Provide public goods and services

• Correct externalities

• Redistribute income & Stabilize the economy

Multiple Choice

EPA PLAN to Reduce CO2 Emissions

• Maintaining the Legal & Social Framework

• Maintaining competition

• Providing Goods and Services

• Correcting Externalities

Multiple Choice

Homeland Security Funding Increased

• Maintain the legal and social framework

• Provide public goods and services

• Correct for externalities

• Stabilize the economy

• Redistribute income

Multiple Choice

President Says More Spending Will Fight Recession

• Maintain the legal and social framework

• Provide public goods and services

• Correct for externalities

• Stabilize the economy

• Redistribute income

Multiple Choice

President Says More Spending Will Fight Recession

• Maintain competition

• Provide public goods and services

• Correct for externalities

• Stabilize the economy

• Redistribute income

Multiple Choice

City Police Increase Neighborhood Patrols

• Maintain competition

• Provide public goods and services

• Maintain the legal and social framework

• Stabilize the economy

• Redistribute income

Multiple Choice

Lawsuit Establishes Patent Rights

• Maintain competition

• Provide public goods and services

• Maintain the legal and social framework

• Stabilize the economy

• Redistribute income

Multiple Choice

Legislature Passes Funding for Subsidized Housing

• Maintain competition

• Provide public goods and services

• Maintain the legal and social framework

• Stabilize the economy

• Redistribute income

Multiple Choice

New Info from Government Agency Helps Consumers Choose Wisely

• Maintain competition

• Provide public goods and services

• Maintain the legal and social framework

• Stabilize the economy

• Redistribute income

Multiple Choice

Country Funds Free Flu Vaccinations

• Maintain competition

• Provide public goods and services

• Maintain the legal and social framework

• Stabilize the economy

• Redistribute income

Multiple Choice

Songwriter Sues Singer: Says Songs Stolen

• Maintain competition

• Provide public goods and services

• Maintain the legal and social framework

• Stabilize the economy

• Redistribute income

Multiple Choice

The Federal trade Commission recommends that the Smokin’ Hot Computer Corporation be broken into several smaller, independent companies. This is an example of the government’s function of

• Maintaining competition

• Redistributing Income

• Maintaining the Legal and Social framework

• Providing public goods and services

Multiple Choice

Public goods and services are

• All goods and services paid for by the government

• Goods and services provided by publicly held companies

• Goods and services that would not be adequately provided by the market.

• Goods and services that are available to the public

Multiple Choice

Establishing and enforcing clearly defined property rights is an example of government

• Providing a social and legal framework

• Maintaining competition

• Providing public goods and services

• Redistributing income

Multiple Choice

Smoke from a factory drops ash all over your car. Government’s economic function in this case is to:

• Stabilize the economy

• Maintain competition

• Provide public goods and services

• Correct a negative externality.

Multiple Choice

The fed announced today that it will cut a key interest rate by two basis points. This is an example of the government’s function to

• Correct for externalities

• Stabilize the economy

• Redistribute income

• Maintain the legal and social framework

Open Ended

Federal regulations now require Internet radio stations to pay substantial royalty fees (fees to artists and songwriters) for the music they play. Some stations were not able to pay the fees and have gone “off the air.” What economic function of government is this an example of? Who benefits from the regulation? How? Why? Who loses because of the regulation? How? Why? What argument would you make for and against the regulation?

Think about your answer

• These regulations are an example of government policy aimed at establishing and enforcing property rights.  

• The protection of property rights is an element of the legal and social framework government establishes.  

• In this case, singers and songwriters benefit from the legal protection in question; the regulation maintains their property rights and their incentive to produce music.  

• Radio station operators and listeners lose, because there are fewer Internet radio stations and less choice for listeners.