| 1) How Does Government Make a Market Economy Possible? |
 |
 |
Establishing law and order |
|
|
Defining rules of property and enforcing those rules |
|
|
Enforcing contracts to protect property rights |
|
|
Governing rules of exchange so that property may be transferred |
|
|
Setting market standards to protect exchanges |
|
|
Providing public goods to solve problems of collective action |
|
|
Creating a labor force that is skilled and educated |
|
|
Ameliorating externalities which are unintended social consequences |
|
|
Promoting competition to maintain a market instead of monopoly. |
|
|
Governments provide solutions to market failure, and produce public goods. |
|
| 2) What are the Goals, Tools and Politics of Economic Policy? |
|
A) Public Order and Private Property |
|
|
States provide much of the regulation under our federalist system. |
|
|
America places special emphasis on private property, encouraging home ownership. |
|
B) Business Development |
|
|
Government promotes business through promotional policies, earlier by developing infrastructure for markets, and more recently through grants-in-aid. |
|
|
Promotional policy encourages individuals to behave in certain ways, often providing money as incentive. |
|
|
Logrolling occurs when two or more members help each other pass each others' legislation. |
|
|
Omnibus bills combine many smaller bills in order to make them all easier to pass. |
|
|
Promoting business development by competition fights monopolies and benefits workers and consumers. |
|
|
19th century politics were almost exclusively promotional. |
|
|
Subsidies and contracting are primary tools for promotional policy today. |
|
|
Regulatory tools provide incentives for behavior through direct coercion. If promotional policies are the carrots, regulations are the sticks. |
|
|
Regulations tend to be dominated by coalitions desiring more or less regulation of different sectors. |
|
|
Deregulation has been the trend of late, with interest groups having a dominant role. |
|
C) Maintaining a Stable and Strong Economy: |
|
|
Monetary policies manipulate the growth of the entire economy by controlling the availability of money to banks. |
|
|
The supply and demand for money affects the overall economy. |
|
|
The autonomy of the Federal Reserve System allows it to stimulate or put a brake on the economy, particularly through the setting of interest rates. |
|
|
Fiscal policies include government's taxing and spending powers. |
|
|
All taxes discriminate, hitting some people harder than others. |
|
|
Tariffs were the dominant tax of the 19th century, giving way to the income tax in the 20th century. |
|
|
The rich-poor gap continues to widen, and the 2003 tax cuts will accelerate this trend. |
|
