The United States Economy

Our System

• The U.S. Economy is a mixed-market economy. It is based on:

• free markets• private property• profit• competition• consumer

sovereignty

Free Enterprise

• In the U.S. economic system people are free to start and own their own businesses

• Entrepreneur is someone who starts his own business

• There are 3 types of businesses:

• Sole Proprietorship (1 owner)• Partnership (2 or more

owners)• Corporation

Corporations• Corporations are very

different from other types of businesses:

• treated like a person under the law

• it must pay taxes and obey the law or face punishment

• its independence gives its owners legal protection

• Ownership is measured in shares

• There may be numerous owners

Individuals

• Individuals get cash from:• selling their labor (to

business and government)• selling natural resources

(to business and government)

• Individuals use cash to:• buy products (from

business)• pay taxes (to government)• savings (financial capital

invested in business)

Business

• Business gets cash from:• profits from selling

products (to individuals, other businesses and government)

• Investment of financial capital (from individuals’ savings)

• Business uses cash:• pay for resources and labor

for production• pay taxes (to government)

The Government

• The U.S. Government gets cash from:

• taxes (paid by individuals and business)

• loans (from individuals, business and other governments)

• Government uses cash to:

• provide public goods and services

Public Goods and Services

• Public Goods and Services are provided by the government for the use of everyone. Ex:

• national defense• police• schools• public transportation• Post office• Interstate highways

Public or private?

Public or private?

Public or private?

Public or private?

Public or private?

Public or private?

Public or private?

How the Government got so big

• 16th Amendment created the income tax• this greatly increased the money available

to the government• it made it possible for government to

become a more active player in the economy

Tax and Spend• Higher Taxes:• government can spend

more• spending more increases

demand, employment and production

• higher spending can lead to inflation (rise in prices that comes with growth)

• Lower Taxes:• government spends less• reduces demand, may slow

the economy’s growth

Just borrowing

• Government borrows more money:

• less money available for individuals and business to borrow

• can lead to less private sector employment and growth

• Government borrows less:• more money available for

private sector borrowing• can lead to more people

buying homes and businesses creating new jobs

National Debt