The global positioning system (GPS) was originally developed for military purposes but has been made available to private companies since 2000. Allowing private companies to build new products and services using this technology has resulted in a massive increase in technological advancement in the US that provides significantly more economic benefit than the cost of operating the GPS system. Estimates place the value of GPS at $1.4 trillion from 1980 to 2019, but the federal government spends relatively little to operate the system.
Public goods are defined as products that are nonrival and nonexcludable, like the global position system (GPS) operated by the US federal government. The nonrival nature means that it isn’t costly for the government to provide the service to an additional user and the nonexcludability component means that anyone can access that service even if they don’t pay taxes to support the service. While GPS was initially developed for military purposes, the government has made the technology available for anyone with a GPS received and companies have created new products and services based on that technology.
Whenever a country enters a recession, there are two classes of responses available: fiscal and monetary policy responses. Fiscal policy responses focus on taxation and spending while monetary policy responses refer to Central Bank activity. In the United States, fiscal policy is administered by the Federal Reserve. The Fed is responsible for influencing the quantity of money and credit in the economy. During the Covid-19 pandemic, the Federal Reserve was responsible for issuing treasury bonds to finance fiscal policy decisions.
The Covid-19 pandemic and subsequent lockdowns sent the US (and world) economies into an immediate recession. The US experienced record high levels of unemployment and a massive reduction in GDP. To counteract this recession, the federal government enacted a series of expansionary fiscal policy recommendations that increased the aggregate demand curve to account for the previous reduction.
A stable financial system is an important component of an efficient market. Ensuring financial stability allows markets to allocate resources, assess and manage financial risk, and maintain employment levels close to the natural rate. When a bank has failed, the FDIC works to ensure that there are no major disruptions of financial transactions and that economic agents can continue to operate with confidence. With a strong market, the FDIC doesn’t need to intervene often, but the agency was very active during the Great Recession when a lot of banks failed. When a bank failure does occur, the FDIC works to transfer assets of one bank to an acquiring bank or they will take on those assets themselves until the find a suitable acquirer.
In the early 1900s, the banking system wasn’t as stable as we might have hoped. Banks loan out money to borrowers, but are susceptible to a panic when a lot of customers want their money held in savings. A bank run occurs when a large number of a bank’s depositors attempt to withdraw their money simultaneously because they believe the bank will become insolvent. This happened frequently enough during the Great Depression that it put pressure on the President to create an insurance program.
In order for bartering to be a successful payment of transactions, both sides must want what the other is offering and be willing to trade for it. Unfortunately, the seen above shows the difficulty of meeting the condition known as double coincidence of wants. Even though the man has Johnny Cash headshots, the young entrepreneur is only willing to accept US cash.
US currency may say “In God We Trust” but in order for the bills to mean anything, we place our trust in the US government. US currency is a type of fiat currency (as opposed to a commodity money) that has the backing of the US government. In order for something to be considered money, it must serve three general properties: store of value, a unit of account, and a medium of exchange. Each can be seen in the clip above. A lemonade seller won’t accept just anything, they want money (medium of exchange). We know the price of the lemonade because we use dollars as a measure of its worth (unit of account) and we expect those dollars to be worth the same amount over a certain period time (store of value).
When companies engage in rent-seeking behavior, they are engaging in behavior that is intended to increase their wealth without a subsequent increase in productivity. Private weather companies use government-funded data and resell that data as if it were proprietary. The same companies have also engaged in lobbying efforts to reduce competition from the National Weather Service and prevent the agency from acting as a substitute.
Public goods are defined as products that are nonrival and nonexcludable, like weather forecasts in the United States. The nonrival nature means that it isn’t costly for the government to provide the service to an additional user and the non-excludability component means that anyone can access that service even if they haven’t paid for it. Weather forecasts were traditionally provided as a public good, but some companies have been working to change the excludability criterion to turn weather forecasts into an artificially scarce good.