This document discusses the various roles of government in the economy including as a regulator, protector of the environment, and promoter of economic interests. It outlines how the government regulates businesses to promote efficiency and competition. It also discusses the government's role in protecting the environment through legislation aimed at clean air/water and the creation of the Environmental Protection Agency. Further, it examines how the government promotes different sectors of the economy such as business, labor, and agriculture through loans, subsidies, and other programs. The document concludes by exploring fiscal and monetary policy as economic tools used by the government through tax breaks/spending and controlling the money supply/interest rates respectively.

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Chapter 15

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Government as Regulator
of the Economy
Efficiency through government intervention
Promoting competition
Making business pay for indirect costs
Deregulation and underregulation
Equity through government intervention
The politics of regulatory policy

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Government as Protector
of the Environment
Conservationism: the older wave
Dual use of federal lands: recreation and resource use
Environmentalism: the newer wave
Clean air, water, and land legislation
Environmental Protection Agency, 1970
Global warming and energy policy
 Carbon-based greenhouse gases
 Kyoto Protocol, 1997
 Republican unwillingness to address the problem

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Government as Promoter
of Economic Interests
Promoting business
Government-provided loans
Special tax breaks
Subsidies
Traditional services: education, transportation, and defense

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Government as Promoter
of Economic Interests
Promoting labor
National Labor Relations Act of 1935
Minimum wage
Maximum work week
Unemployment benefits
Nondiscriminatory hiring practices

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Government as Promoter
of Economic Interests
Promoting agriculture
Homestead Act of 1862
Farm programs to eliminate some farming risk
Federal payments account for more than a fifth of net
agricultural income
American farmers among the most heavily subsidized in
the world
Strong support for subsidies from rural members of
Congress

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Fiscal Policy as an Economic Tool
Demand-side policy
Emphasizes the consumer (demand) component of the
supply–demand equation.
Government spending to alleviate economic depression or
recession
Generally preferred by Democratic lawmakers
Can result in higher budget deficits and an increased
national debt

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Fiscal Policy as an Economic Tool
Supply-side policy
Emphasizes the business (supply) component of the
supply–demand equation
Tax breaks for firms and upper-income individuals intended
to encourage business investment with resulting increases in
employment and income
Generally preferred by Republican lawmakers
Can result in higher budget deficits and an increased
national debt

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Fiscal Policy as an Economic Tool
Fiscal policy: practical and political limits
Republican and Democratic lawmakers are far apart on how
best to deal with recessionary periods
Both parties enact policies that increase the national debt

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Monetary Policy as an
Economic Tool
The Fed
Control over money supply
 Raise/lower the cash reserve required of member banks
 Raise/lower interest rate on member banks
Fighting an economic downturn
 Decreasing interest rate on loans to member banks
 Lowering reserve rate
 Buying government securities (bonds, notes, etc.)

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Monetary Policy as an
Economic Tool
The Fed and control of inflation
Opposite of fighting an economic downturn
Increasing interest rate on loans to member banks
Raising reserve rate
Selling government securities (bonds, notes, etc.)
The politics of the Fed
Is the Fed representative?
Is the Fed accountable?

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