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Section 2: The American Free Enterprise System
Section 3: US Government's Role in Free Enterprise
Section 4: Government's Income and Expenditures
Section 5: US Fiscal Policy
Section 6: US Monetary Policy
100
An economic system where few restrictions are placed on business activities and ownership. In this system, governments generally have minimal ownership of enterprises in the market place. This system aims for limited restrictions on trade and minimal government intervention.
What is a free enterprise system?
100
Examples are Cash Transfers (Social Security, Unemployment Insurance, Workmen's Compensation, Temporary Assistance for Needy Families); In-Kind Benefits (food stamps, free food, low cost housing); Medical Assistance (Medicare, Medicaid); Education
What are ways government redistributes income among the population?
100
To fund programs that help improve the general welfare of its citizens. The government also collects taxes to pay for the day-to-day operations of the government.
What are reasons the government collects taxes?
100
The government often uses this to stabilize the economy. The government uses two “tools” known as Taxation and Spending as ways to accomplish this.
What is fiscal policy?
100
This includes the Board of Governors, District Reserve Banks, Member Banks, Federal Advisory Council, and Federal Open Market Committee.
What are the five main components of the Federal Reserve?
200
Examples are government protection, economic freedom, variety of goods, responsive prices, investment opportunities, and government help for the economy.
What are benefits of the free enterprise system?
200
Examples include infrastructure (roads, bridges) transportation, recreation areas, and dams.
What are public goods?
200
Citizens benefit because the government provides a variety of programs that assist those who are in need. By doing so, people may be more able to support themselves and maintain healthy lifestyles, as well as purchase items needed for survival.
What are benefits to collecting taxes?
200
These policies expand the economy. Examples include increasing government spending and decreasing taxes.
What are expansionary policies?
200
a) Serves as government's bank b) Serves other banks c) Monitors banking system d) Regulates money supply
What are the Federal Reserve's roles?
300
Examples are profit motive, voluntary exchange, private property rights, competition, and self-interest.
What are the principals of the free enterprise system?
300
The government encourages these things because both stimulate economic activity, creating jobs and expanding markets and availability of goods.
What is government support of entrepreneurs and innovation?
300
Spending that is required by law. Examples include Social Security and Medicare.
What is mandatory spending?
300
The Fed encourages banks to make loans so people have more money to buy goods and boost economic activity. It does this by adjusting the amount that the banks are required to keep on reserve. It also adjusts the discount rate, which is the interest rate the Fed charges to banks that loan money from the Fed. Banks will sometimes lend money from the Fed if the amount of cash they have on hand is in danger of falling below the RRR. If the Fed wants to increase money in circulation it might reduce the discount rate. Increasing the discount rate will discourage banks from lending their reserves because the banks will not wish to loan money from the Fed at the higher interest rate in order to maintain the reserve requirement. The most widely used tool by the Fed is open market operations, which refers to the purchasing and selling of government securities (bonds) to adjust the money supply. If the Federal Open Market Committee (FOMC) wishes to increase the amount of money in circulation, it will authorize the Federal Reserve Bank of New York to buy government securities on the open market. If the FOMC wishes to decrease the level of money in circulation, it sells bonds back to the bond sellers.
What are the tools the Federal Reserve uses to implement monetary policy?
400
He emphasized a very strong “hands off” sentiment regarding the government in his writings of the market economy. Therefore, the concept of limited government is very prevalent in the American economy.
Who is Adam Smith?
400
a) It is usually unrealistic to make private citizens pay to use the good. b) It is unrealistic to prohibit those who won't pay to use the good from actually using the good. c) Many citizens can utilize the good without decreasing the benefits of any one citizen. It generally does not cost any more to produce the good for a large group as it does for a small group.
What is a public good?
400
This type of spending is money that the government can make decisions about how to spend. Examples include education and research.
What is discretionary spending?
400
When there is a large national debt, the government has less money to help stimulate the economy and less money to spend on programs that are needed to help the disadvantaged and other programs that benefit society. When there is a large national debt, the government has less money to help stimulate the economy and less money to spend on programs that are needed to help the disadvantaged and other programs that benefit society. A large national debt can also lower the confidence that investors and other countries have in a country's economy.
What are the effects of the national debt on the economy?
400
This is carried out by the Federal Reserve to adjust the amount of money circulating in the economy. This in turn will affect interest rates. Interest rates then influence how much is being spent in the economy as well as how much is invested.
What is monetary policy?
500
Examples are the government requiring labels on products, such as nutritional labels on food products, warnings on products that could cause serious injury, and collecting safety information on products.
What is protecting rights of consumers?
500
To keep the economy stable and efficient while continuing to grow to meet the needs of the increasing population.
What are goals of the government?
500
a) Federal taxes cannot vary from state to state. b) No taxes on church services c) No taxes on exports (goods going out of the U.S.) d) No taxes unless they are divided among the states according to each state's population
What are limitations on taxes?
500
First, proposals for money are given to the Office of Management and Budget (OMB). Then the OMB works with the President to draw up the budget, taking into account the requests from agencies for funding. The President then presents the budget to Congress. Then Congress studies the budget and makes modifications. Congress then presents bills to the President for his approval. If he vetoes them, Congress can try and override the vetoes with a 2/3-majority vote but if this cannot be done, then the President and Congress must cooperate to work out a budget that both sides will agree to.
What are the steps that comprise the budget process of the U.S. Government?
500
The government does this because it wants to plan how much we will spend based on how much it has available to spend.
What is reason for budgeting?