Government's Role in the Economy

             While consumers and producers make most decisions that mold the economy, government activities have a powerful effect on the U.S. economy in at least four areas.

 Stabilization and Growth.

            The federal government guides the overall pace of economic activity, attempting to maintain steady growth, high levels of employment, and price stability. By adjusting spending and tax rates (fiscal policy) or managing the money supply and controlling the use of credit (monetary policy), it can slow down or speed up the economy's rate of growth which affecting the level of prices and employment. Recently, the primary economic concerns have centered around high national debt ($9 trillion), high corporate debt ($9 trillion), high mortgage debt (over $10 trillion as of 2005 year-end), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), and high external debt (amount owed to foreign lenders),  and high trade deficits.

Regulation and Control.  

      Economic regulation.  The government has sought to prevent monopolies. Congress created the Federal Deposit Insurance  Corporation (FDIC) which presently guarantees checking and savings deposits in member banks up to $100,000 per depositor to prevent bank failures. A number of other industries including trucking and, later, airlines successfully sought regulation themselves to limit what they considered harmful price-cutting. Another form of economic regulation, antitrust law, seeks to strengthen market forces so that direct regulation is unnecessary. The government -- and, sometimes, private parties -- have used antitrust law to prohibit practices or mergers that would unduly limit competition.

    Social Regulations.  The Occupational Safety's and Health's Administration's provides and enforces standards for workplace safety. United States Environmental Protection Agency provides standards and regulations to maintain air, water, and land resources. The U.S. Food and Drug Administration regulate what drugs may reach the market, and also provides standards of disclosure for food products. The Occupational Safety and Health Administration protect workers from hazards they may encounter in their jobs. The Environmental Protection Agency seeks to control water and air pollution.

Direct Services.

The federal government is responsible for national defense, backs research that often leads to the development of new products, conducts space exploration, and runs numerous programs designed to help workers develop workplace skills and find jobs.

State governments are responsible for the construction and maintenance of most highways. State, county, or city governments play the leading role in financing and operating public schools. Local governments are primarily responsible for police and fire protection.

Direct Assistance. 

 It offers low-interest loans and technical assistance to small businesses and it provides loans to help students attend college. Government-sponsored enterprises buy home mortgages from lenders and turn them into securities that can be bought and sold by investors, thereby encouraging home lending. Government also actively promotes exports and seeks to prevent foreign countries from maintaining trade barriers that restrict imports. Social Security, which is financed by a tax on employers and employees, accounts for the largest portion of Americans' retirement income. The Medicare program pays for many of the medical costs of the elderly. The Medicaid program finances medical care for low-income families. In many states, government maintains institutions for the mentally ill or people with severe disabilities. The federal government provides Food Stamps to help poor families obtain food, and the federal and state governments jointly provide welfare grants to support low-income parents with children.

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