Turn on the news any night, and one of the most common things that you'll hear politicians talking about is what they believe to be the proper role of government. How much should government intervene, if at all, in the economy? Should the government leave the economy to businesses and consumers?
Regardless of what side of the political aisle you sit on, or if you choose not to pick a side, it's a given that the federal government has some role to play in the economic life of our country. Its activities fall into one of four categories:
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Stabilizing the Economy View a printable version of this interactivity. |
Government Support for Pure Research
The government also provides ongoing economic support by promoting pure research through grants and programs. This benefits scientists by giving them the money to perform research in order to push the boundaries of scientific understanding. The public benefits through innovations in a variety of fields. When it comes to pure research, people often think of health sciences like the Human Genome Project, which is funded by the National Institutes of Health (NIH). Government funding has promoted research in all types of fields. The Internet was developed as a result of funds from the U.S. Defense Advanced Research Projects Agency (DARPA) and the U.S. National Science Foundation (NSF). Government support for research can be an important stimulus for scientific achievement as well as a way to provide economic support.
Keynesian Economics
Not all economists agreed with Adam Smith's ideas about how the invisible hand of the market could correct all economic problems. One such economist, John Maynard Keynes, advocated that governments use fiscal and monetary tools to stimulate demand and get the economy going again during downturns in the business cycle. As we just saw in the Stabilizing the Economy presentation, his ideas have become part of mainstream economic thought, although that does not mean that all economists agree with them.
When you read the news, you can see evidence of Keynes' influence when people promote stimulus programs as a means to help make the economy grow during tough economic times. Stimulus programs usually rely on government borrowing. The idea is that as the economy grows, borrowing decreases and tax revenues go up as businesses grow, and these revenues go to pay back the debt. As we've seen, this is not always the case.
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The Federal Budget Process View a printable version of this interactivity. |
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Protecting Property Rights and Enforcing Contracts View a printable version of this interactivity. |
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Government Regulation View a printable version of this interactivity. |
How do government regulations impact market faulures? In this interactivity, you will discover what a market failure is, as well as its four main sources. Click the player button to begin.
View a printable version of this interactivity.