Consumers and producers obviously make decisions that mold the economy, but there is a third major
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to consider: the role of government. Government has a powerful
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on the economy in at least four ways:
Direct Services. The postal system, for example, is a federal system
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the entire nation, as is the large and complex establishment. Conversely the
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and maintenance of most highways is the responsibility of the individual states, and the public educational systems,
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a large funding role by the federal government, are primarily
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for by state or city governments. Police and fire protection and sanitation services are
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the responsibilities of local government.
Regulation and Control. The government regulates and controls private
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, in many ways, for the
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of assuring that business serves the best interests of the people
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a whole. Regulation is necessary in areas
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private enterprise is granted a monopoly, such as in telephone or electric service. Public policy
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such companies to make a reasonable profit,
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limits their ability to raise prices unfairly, since the public depends on their services. Often control is exercised to protect the public, as for example, when the Food and Drug Administration bans
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drugs, or requires standards of
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in food.
Stabilization and Growth. Branches of government including Congress attempt to control the extremes of boom and bust of inflation and depression, by
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tax rates, the money supply, and the use of credit. They can also
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the economy through changes in the amount of public spending by the government itself.
Direct Assistance. The government
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businesses and individuals with many kinds of help. For example, tariffs permit certain products to remain relatively
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of foreign competition; imports are sometimes taxed
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American products are able to compete better with certain foreign goods.