4.2.4 The Government and the Economy

The Government and the Economy

​Learners can: 

• identify ways that the government is involved in economic activities

• explain how taxes are used in the local community

​Four Economic Systems

In another lesson, you learned about the different economic systems around the world. They are:

• traditional economy;

• market economy;

• command economy; and

• mixed economy.

The United States operates within a mixed economy system. The goal of a mixed economy is to balance the supply and demand of a market economy, also called a free market, while allowing the government to have a small role in the decision-making of the economy.

Multiple Choice

What type of economic system does the United States have?

• command economy

• market economy

• mixed economy

• traditional economy

The Government's Role in the Economy

Over 200 years ago, in 1788, the Founding Fathers declared the Constitution the official system of government for the United States of America.

The first Article of the Constitution outlined the job of the legislative branch. Legislative means law-making.
Members of the legislature, or law-making body, are called Congress. They are responsible for creating laws.

While Congress is responsible for making laws for the United States, it also has other powers written in the Constitution.
Some of the powers of Congress include:

• recognizing the owner of new inventions;

• making rules to become a citizen of the United States; and

• controlling trade between the states, Native Americans, and other countries.

While the most important duty of Congress is to create laws, the Founding Fathers assigned this branch of the government with additional powers.

Many of their powers explain the government's role in the United States economy, such as printing money, borrowing money, collecting taxes, and paying debts.

Printing Money

In the first Article of the Constitution, Congress was given the responsibility of creating and overseeing the Department of Treasury. The Department of Treasury is responsible for maintaining the United States economic system. They have many responsibilities, including producing money and collecting taxes.
Once money is produced, it will go to the Federal Reserve. The Federal Reserve is the nation's main bank. It has 12 different buildings throughout the United States.

After the newly printed money reaches the Federal Reserve, it is then distributed to banks throughout the country.
The Department of Treasury is responsible for maintaining the economic system of the United States of America. It is responsible for overseeing the production of the nation's money.

Match

Match the following

• the nation's main bank

• where the U.S. economic system is maintained

• 
  

  where money is printed

The Federal Reserve

Dept. of Treasury

The Bureau of Engraving and Printing

• 
  

  The Federal Reserve

• Dept. of Treasury

• 
  

  The Bureau of Engraving and Printing

What Are Taxes?

The Treasury also collects taxes, or money paid by individuals and businesses, to the government.

Taxes pay for goods and services that everyone uses.

For example, the government uses taxes to build roads, pay people in the military, and fund schools.
Many types of taxes are paid to the government. The three main types of taxes that people pay are:

• sales tax;

• income tax; and

• property tax.

The government collects taxes to help pay for programs that benefit all U.S. citizens.
EDIO VIDEO Page 5

Match

Match the following

• 
  

  the tax a person pays on the money that they earn

• 
  

  a fee paid when buying goods and services

• a yearly fee paid to the government based on the value of property owned

income tax

sales tax

property tax

• income tax

• sales tax

• property tax

​How Taxes Are Used

Taxes pay for goods and services that everyone uses. The government uses taxes to build roads, pay people in the military, and fund schools.
The government collects three main taxes: sales, income, and property.
When taxes are collected, the money is distributed to the three levels of government: local, state, and national.

• The local government is the smallest level of government. It is the community you live in.

• The state government is the state that you live in. Each state has its own government.

• The national government is the largest level of government. It is the country you live in.

Each level of government uses the money collected from taxes to pay for goods and services.
Through taxpayer money, the government ensures that programs and services are provided for its citizens.

By providing different public goods and services, the government is also helping the economy by increasing the number of job opportunities available.

The government is also responsible for managing businesses.

Protecting Producers and Consumers

The Constitution also gives Congress the power to manage commerce or the activity of buying and selling. This power was given through what is called the Commerce Clause. Through the Commerce Clause, Congress has the power to create laws about things like transportation, banking, and even environmental rules that affect businesses across state lines. Congress has also passed many federal laws and regulations or rules that businesses have to follow. The government wants to protect its consumers and producers when interacting with businesses in the market economy. Governments play an important role in the growth and success of economies. They help the economy by creating laws and rules that protect producers and consumers. 

Multiple Select

What programs and services do taxes pay for in your local community?

Choose 2 correct answers.

• the military

• 
  state universities

• 
  the fire department

• 
  correctional systems

• waste and recycling services

Word Cloud

What are 2 ways that the government is involved in the economic activities?

"Today, you learned that the government plays a role in the economy.

According to the Constitution, Congress is the branch of government responsible for overseeing the United States' economic activities.

They are responsible for printing money, collecting taxes, and establishing rules and laws that businesses must follow to protect American citizens.

Great job today!