DTW GED PREP

In a capitalist economy, the ownership of businesses and industries is primarily in private hands, meaning that individuals and companies own and operate businesses with minimal government interference. Prices and wages are determined by the forces of supply and demand in a free, competitive market. The goal in such an economy is to maximize profits, with competition acting as a key driver for innovation and efficiency. In contrast, a socialist economy is characterized by government ownership of all businesses and industries, where the government sets prices and wages. This system aims to reduce income inequality and provide public services by controlling the production and distribution of goods and services.

A mixed economy is a blend of both capitalist and socialist elements, where some industries are privately owned and others are publicly controlled. This allows for a balance between individual entrepreneurship and government regulation. The United States, for example, operates primarily as a capitalist economy, but it also includes certain government interventions and public services that are typical of a mixed economy. Most other Western nations, such as those in Europe, also have mixed economies where the government plays a significant role in sectors like healthcare, education, and transportation.

In a capitalist or mixed economy, the government requires revenue to fund its various operations and public services. The primary sources of government revenue are taxes and the sale of bonds. Income tax is a percentage of an individual’s or business’s earnings that is paid to the government. This tax can be progressive, meaning that the rate increases as income increases. Sales tax is another form of taxation, where a small percentage is added to the price of goods or services sold to consumers. Sales taxes are typically levied by state and local governments.

Another source of revenue for the government is the sale of government bonds. A bond is essentially a loan made by an investor to the government. In exchange for purchasing a bond, the investor agrees to lend money to the government, which will pay interest on the bond over time. Investors can cash in the bond at any time, but the longer they hold the bond, the more it will be worth due to the interest accumulated over time.

Governments use the revenue they collect to meet various expenses. The federal government in the United States has a wide range of responsibilities, which include financing the military, paying government employees, funding public education, and administering programs such as Medicare, Medicaid, and Social Security. Additionally, the federal government is responsible for regulating businesses, enforcing safety standards, maintaining national parks, and supporting scientific research and the arts.

At the state level, taxes help fund services such as law enforcement (e.g., state police), infrastructure (e.g., highways and bridges), and education. Each state has the autonomy to determine the types of taxes it will impose and the rates at which they are set. For example, Pennsylvania charges an income tax but does not impose sales tax on clothing, which reflects how different states have unique tax systems.

Local governments also rely on taxes to fund services that directly affect their communities. Local city taxes often go toward public services such as maintaining schools, garbage collection, and municipal parks. These taxes are typically levied by the local government to meet the needs of the community.

To manage the national economy, the federal government plays a crucial role in regulating the economy. This includes setting tax rates, determining interest rates, and ensuring that businesses operate fairly and ethically. For example, the government sets minimum wage laws, regulates workplace safety standards, and enforces fair business practices. It can also take action against businesses that engage in fraud or illegal practices. An example of this is the government’s ability to penalize large financial institutions that have been found guilty of defrauding customers across multiple states.

At the state level, governments regulate specific industries to ensure they operate within legal boundaries. For example, a state may require businesses in certain sectors, like healthcare or construction, to follow particular safety standards or licensing requirements. These regulations help protect consumers and maintain the integrity of the market within each state.

In summary, the economic structure of a country like the United States is largely capitalist, with a mix of government regulation and intervention. The government generates revenue through taxes and bonds, which are then used to fund public services and regulate the economy. This mixed approach aims to balance the benefits of private enterprise with the need for public oversight and welfare programs.

THE ROLE OF GOVERNMENT IN THE NATIONAL ECONOMY

Directions: Complete the task below as instructed.

1. Review each of the items listed. Determine whether each one is a responsibility of the federal government or the state/local government. Place each item in the appropriate column of the chart.
   (Note: On the actual GED® test, you will need to click and “drag” the items into their correct positions on the chart.)

FEDERAL GOVERNMENT FUNCTIONS

• Equip the armed forces
• Pay the president’s salary
• Regulate interstate commerce
• Enforce national safety standard
• Provide funding for scientific research
• Manage social security

STATE/LOCAL GOVERNMENT FUNCTIONS

• Maintain the national park (often maintained by federal government, but if it’s a state park, then state/local)
• Support the highway patrol
• Collect property taxes
• Finance municipal school
• Fund garbage collection