Government Regulation

Government Regulation

• “Safety first vs. Safety second” is the big question

• Government makes laws that regulate every part of the economy

• Banks

• Factories

• Stores

• Schools

• Why does the government regulate the economy?

• Protect:

• Workers

• Consumers

• Businesses

• Environment

• Protection via regulation comes with a cost

• More regulation = Less Productivity (less $$$)

• Less regulation = More Productivity (more $$$)

• Balancing act

• There are no solutions. There are only trade-offs

• Government makes law — Government agency enforces law (regulates)

• Consumer Product Safety Commission (CPSC): 

• enforces federal safety standards 

• Environmental Protection Agency (EPA): 

• establishes and enforces pollution standards

• Federal Aviation Administration (FAA): 

• regulates and promotes air transportation safety, including airports and pilot licensing

• Federal Deposit Insurance Corporation (FDIC): 

• insures bank deposits, approves mergers, and audits banking practices

• Federal Trade Commission (FTC): 

• ensures free and fair competition and protects consumers from unfair or deceptive practices

• Food and Drug Administration (FDA): 

• administers federal food purity laws, drug testing and safety, and cosmetics

• National Labor Relations Board (NLRB): 

• prevents or corrects unfair labor practices by either employers or unions

• Occupational Safety and Health Administration (OSHA): 

• develops and enforces federal standards and regulations ensuring working conditions

Government Regulation of the Economy

Gov’t Involvement & Global Economy

- Protection: Property Rights & Consumer Rights

- Court System for Civil Law Cases

- Contracts

- Agencies

- Enforce Laws

-FCC (TV & Radio)  -OSHA

-EPA (environment) -FAA (aviation)

  -FDA (food & drugs)

-FTC (business)

- Monopoly: controlling all of one product (aka: trust)

- No competition

- Business can name their own price = VERY BAD

- Standard Oil (1870-1911)

- Gov’t wants competition

- enforces anti-trust legislation – stops monopolies

- helps new businesses get started

- allows global trade

Global Economy (exchanging goods with other nations)

Why?

- Get goods we cannot produce

- Buy goods at a lower price (more competition)

  - Sell goods to other countries

- Create more jobs

- More buyers         More Production         More Workers

Virginia’s Economic Specialty

- Electronic Circuits, Coal, Aircraft Parts (1.3%)

Effects of Technology on the Global Economy

- Easier to exchange goods/services

- Cheaper to exchange goods/services

The Federal Reserve

The Federal Reserve

• Review - Economic Flow: 
• Circular Flow of money between:
• Firms (all businesses)
• households (all consumers)
• Gov’t programs (taxes)

• Inflation: The devaluation of money as the supply increases
• Supply up Price down
• Federal Reserve is the “Banker’s Bank”
• Where bank’s go to borrow $$$
• Regulate Banks
• Manage the Banking System
• Protect your deposits

• Maintain the value of the dollar
• Big Idea: “The Fed” can stimulate or slow down our economy
• Stimulate (or increase consumer spending)
• Lower the bank’s Reserve Requirement
• More $$$ - Banks            More $$$ - People
• Lower Interest Rates
• More $$$ - Banks            More $$$ - People
• Slow Down (or stop inflation)
• Do opposite on Requirement & Rates

Inflation

Inflation

• More money ► Increases demand 

• more money ► more spending

• Supply has not changed

• Prices go up — but why?

Non-Inflation Scenario:

• 100 Customers

• 100 Watermelons

Inflation Scenario

• 1,000 Customers

• 100 Watermelons

• Customers must compete — not with violent weapons

• The weapon is money — the most $ wins …or the highest bidder

Why did the number of Customers increase?

• Money was added to the economy

• How?

• The Federal Reserve (The Fed) = Banker’s Bank

• This where money starts

• The Fed Loans to banks

• Banks loan to people

Interest Rates (cost of taking a loan)

• High = less borrowing

• Low = more borrowing

• More borrowing ► more $$$ ► more spending (customers competing)

• Inflation = Prices go up

Why cause inflation?

• Less borrowing ► less $$$ ► less spending

• Less business action ► need fewer workers ► less spending 

• Economy shrinks (bad)

• More borrowing ► more $$$ ► more spending (customers competing)

• Economy grows (good)

• RULE: Don’t print too much money (inflation)

• Don’t keep interest rates low for too long

Types of Economies

Traditional Economy (survival)

- Economy based on customs & history

- People do what their ancestors have done 

- Ex. Inuits, ancient tribes

Free Economy (consumer based economy)

- Private property

- Profit driven

- Competition

- Consumer Sovereignty (power)

- Individual Choice

- Minimal Gov’t involvement

- Ex. Australia

Command Economy (gov’t based economy)

- Gov’t owns property

- No Competition

- No Individual Choice

- Gov’t makes all decisions

- Lots of Gov’t involvement

- Ex. North Korea, Cuba (rare)

Mixed Economy (both free and command)

- Individuals & biz make choices (private sector)

- Gov’t makes choices (public sector)

- Gov’t involvement (free < mixed < command)

- Ex. USA (most common economy)

The difference between economies = Gov’t Involvement

Supply and Demand

Supply and Demand

Consumer Sovereignty

Consumer: People that buy things

Sovereignty: Power

-People determine what is made through our purchases

-We determine what businesses succeed

Supply & Demand – determines price of goods/services

Supply: amount of a good/service producers will sell

Demand: amount of a good/service consumers will buy

TBS - Tax, Borrow, Spend

 

Economics: Tax, Borrow, Spend

• Introduction to Government Involvement: Discusses the impact of government actions on the economy.

• Spending and Economic Growth: When consumers spend, production increases, leading to more jobs.

• Gross Domestic Product (GDP): Over the last century, GDP has consistently increased due to higher production and sales.

• Consequences of Reduced Spending: Lack of spending leads to decreased production and job losses.

• Role of the Federal Reserve (FED): The FED prints money and influences the economy through interest rates.

• Bank Reserve Requirements: Adjusting bank reserve requirements affects how much money banks can lend.

• Government's Economic Tools: The government can influence the economy through taxes, spending, and borrowing.

• Paradox of Government Involvement: Contradiction exists in government actions affecting the economy positively or negatively.

• Impact of Raising Taxes: Higher taxes reduce disposable income, leading to decreased spending and economic shrinkage.

• Impact of Lowering Taxes: Reducing taxes increases disposable income, encouraging spending and economic growth.

• Government Spending: The government invests in various sectors, including education and infrastructure, stimulating the economy.

• Examples of Government Spending: Funds are allocated to teachers, construction workers, and agricultural producers.

• Consequences of Low Government Spending: A lack of government spending results in lower income for workers and reduced economic activity.

• Tax Money Utilization: Tax revenue is used for public services, which can benefit the economy even if taxes are high.

• Trade-offs in Taxation: Higher taxes can fund important services but limit individual spending power.

• Government Borrowing Explained: The government borrows money to fund services when tax revenue is insufficient.

• Savings Bonds: Individuals can lend money to the government through savings bonds, earning interest over time.

• Finite Money Supply: The economy has a limited amount of money, which can be impacted by government borrowing.

• Effects of High Government Borrowing: Increased borrowing can limit available funds for consumers, leading to reduced spending.

• Consumer Spending vs. Government Spending: Consumers are often viewed as better at allocating resources effectively compared to government.

• Inefficiency in Government Spending: Government spending may not always lead to the most productive outcomes.

• Potential for Economic Growth: Allowing consumers to spend freely can lead to better economic growth.

• Consequences of Government Borrowing: High borrowing decreases consumer funds, affecting overall economic activity.

• Balancing Government Spending and Borrowing: The challenge lies in finding the right balance between government involvement and market efficiency.

• Conclusion on Government's Role: The paradox remains whether government intervention is beneficial or detrimental to the economy.