Government Involvement In The Economy

2 approaches for gov. involvement in the economy":

laissez-faire and Keynesian Economics

laissez-faire approach

suggests that government interference is not necessary since the economy will naturally fix itself

• anti-government involvement

1 pro of laissez-faire approach

1. Encourages innovation and personal freedom 

   gives business more freedom to grow and compete and individuals can make their own financial decisions

3 cons of the laissez-faire approach

1. Monopolies may form

   without rules, big businesses can dominate and reduce freedom

2. Inequality

   rich get richer while the poor continue to struggle

3. No safety net 

   fewer social programs can leave the vulnerable people unprotected

who created Keynesian economics?

 British economist, John Maynard Keynes during the 30s

Keynesian Economics

It suggests that the government should interfere when the economy is stuck (due to a lack of spending leading to a recession and eventually depression) by spending money.

3 pros of keynesian economics

1. Helps during recessions 

   Gov. spending can create jobs and boast the economy when demand is low 

   (attempts to put money into the economy)

2. Stabilizes the economy 

   Reduces the fluctuation of the business cycle

3. Protects groups at risks

   Introduces social programs to help people during hardships

4. Multiplier effect

3 cons of keynesian economics

1. Can lead to debt

2. Can lead to inflation 

3. Can be unfair (bailouts) 

2008 economic crisis

• The gov. of United States and Canada used taxpayer dollars to bail out big banks and corporations while ordinary people suffered 

• public was angry due to a lack of accountability 

• Banks gave loans to people who could not afford them and believed house prices will rise:

  • home will be worth more in the future

  • if the borrower can’t pay, the bank can repossess the house and sell it for more

• banks bundled these risky loans and sold them to investors 

• house prices began to fall

when did Franklin Roosevelt become president of the US?

In 1933

Roosevelt’s New Deal

Goal: did not pull the United States out of the Depression, however, it helped many Americans survive

• first time gov. been involved in the economy

• follows Keynesian economics

Roosevelt’s new deal included 3 things:

1. built infrastructure and parks

2. public work programs for jobless people and farmers

3. Social Security Act provided social assistance programs such as old age pension, unemployment insurance, and financial assistance for dependent mothers and children

 

when did prohibition end in the US?

1933

Bennett’s New Deal

Goal: a last minute effort to gain support in the 1935 election against Mackenzie King

• Many voters felt that Bennett’s policy change was a desperate attempt to win votes and not a true shift in political views

Bennett’s New deal included 5 things:

1. progressive taxation so that people who earned more money paid more tax

2. insurance to protect workers against illness, injury, and unemployment 

3. legislation for workplace that regulated work hours, minimum wage, and working conditions

4. revision of the old-age pension to support workers over the age of 65 years old

5. agricultural support programs to help farmers and the creation of the Canadian Wheat Board to regulate wheat price

who won the 1935 election?

Mackenzie King returned to power in the 1935 election.