CHAPTER 1 : GOVERNMENT ACTIVITY IN THE MODERN MIXED ECONOMY Allocation of Resources

Production Possibility Curve

The Mixed Economy Characteristics of a mixed economy:

` Resources are allocated between government and private use:

For government use: Roads Schooling

Government supplies many goods and services Government regulates private economic activity Government expenditures equal to of GDP Government participates in markets as a buyer of goods and services

Fire Protection For private use: Food Clothing Units of private goods and services are forgone by individuals so that government can provide goods and services.

Functions of Government Provide items we cannot easily make available for ourselves or purchase from others in markets Law enforcement and courts

Circular Flow

Redistribute income and economic opportunity Income support for elderly, unemployed, poor

Stabilize economic fluctuations Inflation

Regulate production and consumption For improved health, elimination of excessive

Aging Populations & Public Finance Percentage of U.S. residents age 65 or older: 1950 8.3%; 2000 12.3%; 2050 21.1% Significant effects on Social Security and government-funded health care expenditures Tax rates to finance programs must increase or benefits to recipients must decline to avoid causing large federal budget deficit

How much government is enough? How much should governments do, and how much should be left to private enterprise and initiative through market sale of goods and services?