The document discusses several key roles of the federal government in the US economy, including taxation, monetary policy through the Federal Reserve, and approaches to trade. It notes that the government raises funds primarily through various taxes, outlines different tax types, and explains monetary policy concepts like the discount rate. The document also briefly discusses major economic theories like Keynesian, Reaganomics, and Austrian approaches and the government's role in business development regarding free trade versus protectionism.
2. Business Cycle, Competition,
Monopoly, etc.
Monetary Policy, Inflation,
Federal Reserve, etc.
3. To Tax or Not To Tax – That
Is The Question!
Economic Theories
The Role of The Federal
Reserve
Free Trade vs. Protectionism
4. NOTE: We have already discussed Adam
Smith’s circular flow model and how
government, households, and businesses
work together to keep the economy moving.
Economics Part II looks at the role of
government in our economy
5. ◦ Taxes - The biggest means for
government raising funds is through
taxation
Regressive Taxes – tax the poor or
low income people a higher
percentage than the rich or high
income people (Sales tax)
Progressive Taxes – tax the rich or
higher income people a higher
percentage than poor or low income
people (Income tax) Note: The top
25% population pay 75% of all Federal
income tax.
6. Income Tax – Tax on income earned
from work or investments (FEDERAL,
& STATE)
Sales Tax – Tax on goods purchased
(STATE & SOMETIMES LOCAL)
Property Tax – Tax on real estate
(land or houses) (LOCAL)
Inheritance/Death Tax – tax on
money inherited from a deceased
person/Money of dead person
(FEDERAL & STATE)
Excise Tax – Luxury goods – racing
cars, yachts, etc. (FEDERAL &
STATE***)
7. 3. Bonds – loans to
government that can be
cashed in seven, ten, or
other time period –
PROBLEM - CHINA is
taking over our country
by buying up bonds.
8. Reagonomics or Supply-side economics
Give tax breaks to big business and give incentives for hiring
people, investing money back into businesses and giving a spark
to the economy
More jobs equate better economic conditions for everyone
Keynesian economics
Advocates government intervention and action by the central bank
to stabilize the economy
Insists that equilibrium, during times of depression, can not be
reached on its own. Government spending, specifically on
infrastructure, should be used to get the economy moving.
Austrian School
Supports laissez faire approach to government or GOVERNMENT
SHOULD LEAVE IT ALONE
Entrepreneurship is the driving force in economic development,
see private property as essential to the efficient use of resources,
and usually (if not always) see government interference in the
market as counterproductive -
Ron Paul - He is a believer in the Austrian School of economics.
9. ◦ The Federal Reserve System – regulates banks and the
amount of money in circulation as well as setting
rates that banks must pay to borrow money
Created as a way to stop banking panics and the run on
banks for money
Took much more power during the Great Depression
Jobs
Discount Rate – fee given to banks for borrowing money from
the central bank. It is in the form of a percentage – 5%
Interest Rate – fee given to consumers who borrow money from
banks. It is in the form of a percentage and is based on
Discount Rate (and consumers credit rating)
10. What is money? – Coins or paper money that is
considered legal tender by the government that
issues it.
Inflation vs. Deflation
The government can’t just print as much money
as it wants to because that would cause
inflation or the value of money would be less
due to excessive amounts in circulation
Deflation is the value of money increases due
to less money being in circulation. Scarcity =
higher value.
11. The Fed tries to control
Inflation/Deflation with its power to set
interest rates and controlling, for the
most part, how much currency is put into
circulation
13. The Government encouraging business
development
◦ Open Market vs. Protectionism
Free trade or open market takes away tariffs
and lets the market work freely
Protectionism tries to protect your own
country’s economy by governing in a way that
benefits you own businesses over other
countries’ businesses.
