Ch. 12, Section 1 – Growth of Government
Reasons
1) population growth
2) changing public attitudes - prior to the Great Depression we followed
laissez-fair economics
 New Deal – 1933
 Keynesian Fiscal Policy – 1936
 Full Employment Act. of 1946
3) rising standard of living
 Education
 Health care
 Consumer protection
4) Natural disasters, wars
Where do your tax dollars go?
Federal government
1) half goes to insurance benefits (SS and Medicare) and interest on debt
2) the rest goes to national defense, education, public hospitals, housing and
community development, and law enforcement
State and local government
1) the majority goes to education, public welfare, road construction &
maintenance
2) the rest goes to public libraries, hospitals and health care, police and fire
protection, public buildings, sanitation services, and government administration
Section 2
Role of Government
1) Regulating Businesses and products (can lead to higher prices)
 Four Purposes of government regulation (see chart on pg. 285)
1) preventing abuses – EEOC, OSHA
2) protecting consumers – FDA, FCC
3) limiting negative externalities – EPA
4) promoting competition – Sherman Anti-trust Act. 1890 (Ch. 6)
2) Providing Public Goods
3) Promoting Economic Well-Being
 Standard of living – diet, product consumption, medical care, and education
 Redistributing income – The government attempts to reduce the gap
between the rich and the poor through a system of transfer payments (i.e.
welfare)
4) Stabilizing the Economy (only Federal gov.) – comes from the
Constitution’s mandate to promote the general welfare of the people
 Moderate the business cycle – to avoid inflation or recession the
government uses both Monetary and Fiscal Policy
 Responding to market failures
1)externalities
2) the inability or unwillingness to produce some public goods
3) inadequate business competition
4) consumer inadequate knowledge of market conditions