Macroeconomics Macroeconomics Prof. KoneProf. Kone

Presentation: Group 6Presentation: Group 6

Rong Chen

Crystal Ratcliff

Ning Chen

Claudia Lujan

Kelvin Sime

What does the Government Do?What does the Government Do?

Governmental branchesGovernmental branches

Economic SectorsEconomic Sectors

How does the size of the public sector in How does the size of the public sector in various countries compare? various countries compare?

What does the Government Do?What does the Government Do?

Government takes place in every economyGovernment takes place in every economy

Responsible for economic policies Responsible for economic policies

Standardizes and shapes more policies than Standardizes and shapes more policies than policies that are made at local and state levels.policies that are made at local and state levels.

Solving Public IssuesSolving Public Issues

Minimizes problems including working Minimizes problems including working out market imperfections, externalities, out market imperfections, externalities, and public good issues.and public good issues.

Decreases interferences due to Decreases interferences due to business cycles.business cycles.

Proclaims the actions by firms or Proclaims the actions by firms or consumers to be fraudulent or illegal. consumers to be fraudulent or illegal.

Citizens call on the government for Citizens call on the government for protection against the periods of dry protection against the periods of dry spells or lack of income within a spells or lack of income within a business.business.

Goods and ServicesGoods and Services Police protection and the Police protection and the

national defense are national defense are examples of public services examples of public services that are provided by the that are provided by the Government.Government.

Here, the consumption of a Here, the consumption of a good by one person will not good by one person will not minimize the quantity or minimize the quantity or quality available for others. quality available for others.

The issuance of the above The issuance of the above mentioned public goods and mentioned public goods and services eliminates the free services eliminates the free rider problem that would rider problem that would occur if private firms occur if private firms provided the goods.provided the goods.

Spending and Control of MoneySpending and Control of Money

Upheld by the Government.Upheld by the Government.

Monitoring of Government Monitoring of Government spending and money supply is spending and money supply is done to prevent budget deficits. done to prevent budget deficits.

Fiscal and Monetary policies are Fiscal and Monetary policies are what make up the what make up the macroeconomics standpoint.macroeconomics standpoint.

These policies are attempts to These policies are attempts to control business cycles.control business cycles.

Competition within the EconomyCompetition within the Economy

The Government promotes competition The Government promotes competition and regulates industries in which free and regulates industries in which free market competition may not exist.market competition may not exist.

Monitors other industries to promote Monitors other industries to promote competition.competition.

Free market Free market meaning the price of an meaning the price of an item is arranged by the mutual consent item is arranged by the mutual consent of sellers and buyers, with the supply of sellers and buyers, with the supply and demand of that item not being and demand of that item not being regulated by a government.regulated by a government.

Institutions

Commerce DepartmentFederal Reserve

Treasury Department

Congress / Presidential RoleCongress / Presidential Role

Regulate / Provide public and private policies.Regulate / Provide public and private policies. Provides leadership in formulating fiscal policyProvides leadership in formulating fiscal policy CongressCongress

Sets government spending and taxesSets government spending and taxes Passes laws related to economic conduct.Passes laws related to economic conduct.

Office of ManagementAnd budget

Justice Department

FederalReserve

Council of EconomicAdvisers

Federal Trade Commission

CommerceDepartment

International TradeCommission

Treasury Department

Central Leadership

Controls money supply and credit conditionControls money supply and credit condition Monitors the economy and advices the presidentMonitors the economy and advices the president Administers federal policy regulating industriesAdministers federal policy regulating industries Enforces legal setting of businessEnforces legal setting of business Oversees national banksOversees national banks

Roles

Economic SectorsEconomic Sectors

The government plays a role in The government plays a role in every economy, but in some every economy, but in some countries, the public sector plays a countries, the public sector plays a larger role in the economy than in larger role in the economy than in the United States.the United States.

There are two different kinds of There are two different kinds of economic system; one is called economic system; one is called centrally planned economy and the centrally planned economy and the other is called Market economy. other is called Market economy.

The size and influence of the public The size and influence of the public sector ranges from the market sector ranges from the market economies of the United States to economies of the United States to the centrally Planed economy of the centrally Planed economy of Cuba.Cuba.

Con’tCon’t

In the United States, we have the Market In the United States, we have the Market economic system, in this system, the public economic system, in this system, the public sector plays a small role in the economy sector plays a small role in the economy and it relies on individual actions to solve and it relies on individual actions to solve economic problems. economic problems.

By contrast, we have Cuba, which By contrast, we have Cuba, which implements the Centrally Planned implements the Centrally Planned economic system in which the state or economic system in which the state or government controls the factors of government controls the factors of production and makes all decisions about production and makes all decisions about their use and about the distribution of their use and about the distribution of income.income.

Comparison of Public Sector Sizes in Comparison of Public Sector Sizes in Various CountriesVarious Countries

Market EconomyMarket Economy United States United States

Less than 25% of the U.S Less than 25% of the U.S Outputs goes towards Outputs goes towards Government Expenditures.Government Expenditures.

Centrally Planned Centrally Planned Economy Economy CubaCuba

About 75% of Cuba’s About 75% of Cuba’s Output goes towards Output goes towards Government ExpendituresGovernment Expenditures

The Size of the U.S. Public SectorThe Size of the U.S. Public Sector

Why is the U.S. considered a market economy?Why is the U.S. considered a market economy? People can own businessPeople can own business People can be private land ownersPeople can be private land owners People are entitled to purchase what they wantPeople are entitled to purchase what they want U.S. rely on the decisions of individualsU.S. rely on the decisions of individuals

United States has relatively small public sectors.United States has relatively small public sectors.

The Size of Cuba’s Public The Size of Cuba’s Public SectorSector

Why is Cuba considered a Why is Cuba considered a Centrally Planned economy?Centrally Planned economy? People are NOT free to start a People are NOT free to start a

businessbusiness Can only buy what the government Can only buy what the government

has available for them to buy.has available for them to buy. They work as employees of the stateThey work as employees of the state Rely on Government to answer Rely on Government to answer

economic question for all individualseconomic question for all individuals Public Sector is the principal Public Sector is the principal

component of the economy.component of the economy.

The Size of Germany’s Public The Size of Germany’s Public SectorSector

Although Germany may have a Although Germany may have a market economy it’s Public market economy it’s Public Sector plays a more significant Sector plays a more significant role compared to the U.S.role compared to the U.S.

Germany’s Government fosters Germany’s Government fosters social programssocial programs Regulates business hoursRegulates business hours Ports minimum pricesPorts minimum prices Imposes rent controlImposes rent control Regulates hiring and firing of Regulates hiring and firing of

employeesemployees

The EndThe End