Week 1 – The Government’s Role in Business”

Week 1 – The Government’s Role in Business

Overview … Capitalism – The Private Enterprise System … Capitalism – Discussion Question … Capitalism – Eras of Business … Capitalism in the US – Monetary and Fiscal Policy Overview … Capitalism in the US – Fiscal Policies … Economies Defined – The Major Types of Economic Systems … Economies Defined – Differences Between Centrally Planned and Market Economies … Economies Defined – A Discussion Question
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Summaries

  • Week 1 - The Government's Role in Business > Week 1 Overview > Week 1 Overview
  • Week 1 - The Government's Role in Business > Capitalism in the US - Monetary and Fiscal Policy Overview > Video - Monetary and Fiscal Policy
  • Week 1 - The Government's Role in Business > Capitalism in the US - Fiscal Policies > Video - Fiscal Policies

Week 1 – The Government’s Role in Business > Week 1 Overview > Week 1 Overview

  • Hello and welcome to Week 1 of Business and its Environment.
  • In order to do this, we’ll start by defining the basic elements of business models in the United States, including the private enterprise system and capitalism.
  • This will include the basic rights of business operation and how entrepreneurship plays into the capitalism model.
  • We also need to know where business in the United States has been to know where we are going, so next we will look at the history of business and the six major eras that existed over time.
  • We’ll take a look at monetary and fiscal policies and how they help drive business and economic policies.

Week 1 – The Government’s Role in Business > Capitalism in the US – Monetary and Fiscal Policy Overview > Video – Monetary and Fiscal Policy

  • First of all, what is fiscal policy? By definition, fiscal policy is changes in government expenditures and taxation to achieve particular macroeconomic goals; that is, to achieve stable prices, low unemployment, and high & sustained growth.
  • Since aggregate demand is composed of consumption, investment, government spending, and net exports, an increase in government spending has a direct, immediate effect on aggregate demand; a tax cut, which will encourage spending on the part of households and businesses, has an indirect effect on aggregate demand as consumption and investment rise.
  • TIME TO THINK: If you were a politician, which type of policy, expansionary or contractionary, would you like better? Well, if I were a politician, and my primary objective was to get re-elected to office, I’d want the policy that’s more popular with the voters.
  • What will the voters like better: tax cuts, and more spending on their favorite programs, or higher taxes and cuts to their favorite programs? Well, as a politician, I would prefer expansionary policy, because voters prefer expansionary policy.
  • Expansionary fiscal policy – lower taxes and/or higher government spending – adds to our deficit and in turn, our debt.
  • As aggregate demand increases, the economy moves to full employment and potential GDP. If there’s an inflationary gap, where equilibrium GDP is higher than the full employment level, and unemployment is so low that it’s likely to cause inflation, contractionary policy would be appropriate response.
  • A Classical economist would probably ask, “Why not just wait for aggregate supply to move, and allow it to correct the economy?” If you do not believe that the economy will self-adjust, or even if you think that it may self-adjust, but only over very long time, then you probably prefer a more active, hands-on policy to help things along.

Week 1 – The Government’s Role in Business > Capitalism in the US – Fiscal Policies > Video – Fiscal Policies

  • First of all, what is fiscal policy? By definition, fiscal policy is changes in government expenditures and taxation to achieve particular macroeconomic goals; that is, to achieve stable prices, low unemployment, and high & sustained growth.
  • Since aggregate demand is composed of consumption, investment, government spending, and net exports, an increase in government spending has a direct, immediate effect on aggregate demand; a tax cut, which will encourage spending on the part of households and businesses, has an indirect effect on aggregate demand as consumption and investment rise.
  • TIME TO THINK: If you were a politician, which type of policy, expansionary or contractionary, would you like better? Well, if I were a politician, and my primary objective was to get re-elected to office, I’d want the policy that’s more popular with the voters.
  • What will the voters like better: tax cuts, and more spending on their favorite programs, or higher taxes and cuts to their favorite programs? Well, as a politician, I would prefer expansionary policy, because voters prefer expansionary policy.
  • Expansionary fiscal policy – lower taxes and/or higher government spending – adds to our deficit and in turn, our debt.
  • As aggregate demand increases, the economy moves to full employment and potential GDP. If there’s an inflationary gap, where equilibrium GDP is higher than the full employment level, and unemployment is so low that it’s likely to cause inflation, contractionary policy would be appropriate response.
  • A Classical economist would probably ask, “Why not just wait for aggregate supply to move, and allow it to correct the economy?” If you do not believe that the economy will self-adjust, or even if you think that it may self-adjust, but only over very long time, then you probably prefer a more active, hands-on policy to help things along.

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