Overview

This chapter examines the economic role of government, focusing on its promotion and regulation of economic interests and its fiscal and monetary policies. Directly or indirectly, the federal government is a party to almost every economic transaction in which Americans engage. Although private decisions by firms and individuals are the main force in the American economic system, these decisions are influenced by government policy. Washington seeks to maintain high productivity, employment, and purchasing power; regulates business practices that would otherwise harm the environment or result in economic inefficiencies and inequities; and promotes economic interests. The main ideas presented in the chapter are the following:

• Through regulation, the U.S. government imposes restraints on business activity that are designed to promote economic efficiency and equity.
• Through regulatory and conservation policies, the U.S. government seeks to protect and preserve the environment from the effects of business firms and consumers.
• Through promotion, the U.S. government helps private interests to achieve their economic goals.
• Through its taxing and spending decisions (fiscal policy), the U.S. government seeks to maintain a level of economic supply and demand that will keep the economy prosperous.
• Through its money-supply decisions (monetary policy), the U.S. government--through the "Fed"--seeks to maintain a level of inflation consistent with sustained controllable economic growth.