America’s Economy

Huge Economy:

  • over 320 million people
  • Over $17 trillion in the economy
  • Purchase about 2.5 million homes and 14 million cars/year

The federal government regulates economy.

  • Government will try to slow down the economy when it is growing too fast
  • And try to speed it up when it is growing too slow.
  • This is done through the raising and lowering of interest rates.
  • By regulating the amount of paper money in circulation


Macroeconomics- big picture of what’ going on overall

Microeconomics- behavior of a small segment of the economy (households or individual companies.

Gross Domestic Product: everything produced in the country (goods and services) valued at $14.2 trillion.

GDP is a way of measuring the health of the economy. If higher, then the economy is growing, if lower, then the economy is shrinking.

Business Cycles- The pendulum effect, a period of upswing is followed by a period of decline.

Goals of the American Economy:

  1. High employment- 4-6% is good, jobs keep people making money.
  1. Growth- keep expanding the production possibilities frontier, keep inventing new stuff or better ways to produce that stuff.
  1. Stability- Keep prices stable, no great fluctuations in the price of a specific good (example: oil)

Importance of Technology:

  • A way to improve productivity and push the ppf outward.

Inventions that have improved productivity?

Attributes of American Economy: (1st and 3rd)

Free Enterprise system

  1. economic freedom
  2. competition
  3. private property
  4. contracts
  5. voluntary exchange
  6. self-interest
  7. profit motive

Economic Rights

  • Legal equality
  • Private property rights

3/3- Role of the Government

  • Protect our contracts and our civil rights
  • Public disclosure laws- Producers must label packages.

Negative Effects of Regulation

  • Cuts into profits
  • Stifles competition in certain industries (airline, phone companies)

Government Regulation of the Economy

FTC video YouTube- a brief history of the Birth of the FTC

Macroeconomics- Crash Course


Providing Public Goods-

  • The government sometimes steps in to provide a shared good or resource when it would be impractical for consumers to pay individually.

Costs and benefits of public goods:

  • Government provides when: The total benefits to society are greater than the total cost.
  • For example, roads.

Public sector vs. private sector

  • Public sector= the part of the economy that involves the transactions of the government.
  • Private sector= the part of the economy hat involves transactions of individuals and businesses.

Free-Rider Problem

Someone who would choose not to pay for a certain good or service, but who would get the benefits of it anyway if it were provided as a public good.

Example: The military- you don't pay directly for army helmets but you enjoy the protection of the military.

You may not support a new bridge or highway, but you will still use it.

Externalities of public goods

An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.

Can be good or bad. Education= good. Acid rain=bad

Providing Safety Nets

The Big Idea: Sometimes the government has to step in to create programs to aid poor, disabled, and elderly citizens.

The Poverty Problem:

Camden, NJ

Detroit, MI

The free market system is the best at generating wealth, but it distributes it unevenly.

Leaves many under the poverty line- Amount needed to support a family.

Methods used by the government to fight poverty:

Welfare- established in the 1930’s as a way to redistribute taxes to the poor (FDR)

Redistribution Programs

  1. Cash Transfers- direct payments of money to poor, disabled, and retired people.
  2. TANF- Temporary Assistance For Needy Families
  3. Federal government gives states guidelines to follow
  1. Social Security- (est. 1935), direct payments to the elderly and disabled, collected in payroll taxes.
  1. Unemployment Insurance- cash transfer funded by federal and state governments. Provides money to eligible workers who have lost their jobs. Workers must show they have made efforts to get work during each week that they receive benefits.

The 99ers

  1. Workers compensation- cash transfer of state funds to those hurt from work.

The Price is WRONG!

In Kind Benefits- Discount programs

  • Food stamps, subsidized housing.

food stamps

subsidized housing

  • Medical Programs- Medicare (over 65) and Medicaid (people not covered by employer’s insurance)

Medicare vs. Medicaid

  • Education Programs- loans and grants for students to improve themselves through education.