Entrepreneurs are willing to take the risk of a business failing and losing money to produce goods and services with the possibility of making a profit. There are 3 ways that entrepreneurs organize their businesses in the United States.

#1- Proprietorship

Proprietorships are the most common type of business in the United States- 3/4’s of all businesses are proprietorships. Proprietorships are run by a single individual called a proprietor. The advantage of a proprietorship is that all decisions can be made by and all profits can be kept by the owner. However, a proprietorship is limited by the ability and resources of the owner. Additionally, the owner has unlimited liability in a proprietorship, which means that the owner assumes all risks, and if the business fails, debts must be paid, even if the debt is more than what the owner invested.

#2- Partnership

A partnership is a business run by two or more individuals. In a partnership, there are more financial and talent resources because more people are involved. Partners share in decision making and responsibility, but the profits and risks are shared too, plus partners may not always agree on what to do. If the business fails, everybody has unlimited liability and owes the full debt collectively, not just their part.

#3- Corporation

A corporation has its own legal identity separate from its owners, and are treated like a person by the government, meaning that corporations owe taxes and can be sued (If Facebook or Instagram loses a lawsuit, the company owes damages, not Mark Zuckerberg). State governments grant charters, or licenses to operate, to corporations, which allow them to own property, make contracts, and sell stock (shares of ownership) to investors (stockholders). Stockholders have limited liability, meaning that they are not responsible for a corporation’s debt (if the corporation fails, investors owe only what they invested), but stockholders typically do not make decisions for the corporation. Corporations cost a lot to establish, but can raise a lot of money by attracting more people to invest in the company.

The government provides goods and services that either provide benefits to many people at the same time (Interstate highways, postal service, police and fire protection, street lights and traffic signs, pollution control, water and sewer maintenance) or would likely not be available if individuals had to provide them (national defense).

Governments pay for goods and services in three ways. The first way is through tax revenue- primarily the income tax at the national level, income and sales taxes at the state level, and real estate and personal property taxes at the local level.

Governments also pay for goods and services through borrowed funds. Governments borrow money by selling bonds (a government’s promise to repay a loan) to investors. The national government sells treasury bonds, and state/local governments sell municipal bonds.

Governments also pays for goods and services through collecting fees from licences (business, driving, fishing, hunting, guns), passports, building permits, court appearances, traffic/parking tickets, park admission, and garbage collection.

The economy goes through business cycles, or “ups” and “downs”- the “ups” are times of expansion and economic boom, while the “downs” are times of recession, or slowdown. Times of expansion and boom bring increased production and spending; while times of slowdown or recession bring decreases in production and spending.

Rapid expansion can lead to inflation, which is when the price of goods goes up, causing the value of money to go down. A deep recession can lead to job losses, but inflation decreases could lead to expansion. A recession lasting more than 2 years is called a depression, which is a severe recession that brings on severe unemployment and an extreme drop in prices.

The government uses fiscal policy to influence and stabilize the economy, which includes several different methods, such as the power to tax individuals and businesses (a power given to Congress by the 16th Amendment) and the power to spend and borrow money.

To slow down rapid expansion, the government can lower the amount of money in circulation by raising taxes, decreasing government spending, and/or increasing government borrowing.

To speed up a slowing economy, the government can increase the amount of money in circulation by cutting taxes, increasing government spending, and/or decreasing government borrowing.

There are 3 types of financial institutions. The first type is a bank. Banks are either owned by stockholders (commercial banks) or the people who put their money in the banks (mutual savings banks) and offer many services, including savings and checking accounts, loans, and investment services. Examples of banks are Bank of America, Chase, and Wells Fargo.

The second type of financial institution is a savings and loans institution. Savings and loans institutions are set up to accept deposits and make loans for buying homes and land, but do offer checking accounts. An example of a savings and loans institution is Freddie Mac.

There are also credit unions. Credit Union are non-profit institutions that offer the same services as a bank, but only to its members, who usually work for a certain business or a government. Examples of credits unions are Navy Federal, SalemVA, and Member One.

Financial Institutions have three major functions. These institutions receive deposits, or allow individuals and businesses to deposit money in savings or checking accounts for safe keeping and/or future spending.

These institutions also make loans, or lend money to and set up a repayment play for individuals and businesses to make purchases.

Lastly, financial institutions charge and collect interest. Financial institutions pay interest (a charge for the use of money) to customers in return for them making deposits, but also charge interest on loan payments. The interest rates on loans is higher than the interest rates on deposits and operating costs, which is how financial institutions make a profit.

For example, a bank may charge a 5% interest rate to customers who they lend money to and may pay a 1% interest rate to customers for their savings or checking accounts. If the money going out to customers is $10 million, the interest paid to the bank is $500,000. If the money coming in from customers is $10 million, the interest rate paid to customers is $100,000. That’s $400,000 in revenue, so if the bank’s expenses are $200,000, that’s a $200,000 profit.

The Federal Reserve System (the Fed) is made up 37 banks across the country. The Fed has 3 responsibilities. First, the Fed acts as the federal government’s central bank by issuing currency and holding government deposits.

The Fed also regulates banks. Banks become members of and borrow from the Fed and the Fed sets a reserve requirement, which is how much money banks have to keep on hand.

The Fed also manages the nation's money supply. The Fed controls the amount of money in circulation to keep inflation low and maintain the value of the US dollar. To stimulate a slow economy, the Fed will increase the amount of money in circulation by selling bonds, decreasing the reserve rate, and/or lowering interest rates. To slow down a rapidly expanding economy, the Fed will decrease the amount of money in circulation by selling bonds, increasing the reserve requirement, and/or raising interest rates.

The US Treasury produces coins and paper currency (money), which the Federal Reserve distributes. Coins and Federal Reserve notes (dollar bills) don’t have value as metal or paper products- their value comes from confidence in the US economy.

Money can be used in three different ways. Money can be used as a medium of exchange, or a way to pay for goods and services.

Money can also be used as standard of value. By expressing value in dollars and cents, money allows products to be compared to other products.

Money is also a store of value. Money can be saved and it will retain its value to make future purchases.

Bank deposits also meet the definition of money. Customers can transfer money from their accounts with checks or debit cards.

The national government’s chief economic priority is to promote competition, which it does in several ways. First, in order to regulate competition, the government enforces anti-trust legislation. Anti-trust laws like the Sherman Act, Clayton Act, and Federal Trade Commission Act were drafted to discourage the development of trusts, or monopolies, which is when businesses join together to reduce competition and dominate an industry (like how John D. Rockefeller, J.P. Morgan, William Vanderbilt, and Andrew Carnegie dominated the oil, steel, and railroad industries in the late 1800s and early 1900s) .

The government also enforces global trade. The government makes it easier to trade with other countries & encourages competition between businesses in different countries by creating free trade agreements like NAFTA, or North American Free Trade Agreement.

The government also supports small business start-ups. The US Small Business Administration (SBA) promotes competition by helping small businesses get started and grow. More businesses lead to more competition.

The national government has established agencies to oversee business activities for the purpose of protecting consumer rights. The Federal Trade Commission (FTC) promotes free and fair trade competition, investigates unfair practices (false advertising for instance) and sets rules for product labeling. The Food and Drug Administration (FDA) makes food and drug laws, tests food, cosmetics & drugs before they go to market and makes sure that they are properly labeled. The Consumer Protection Safety Commission (CPSC) makes safety rules for toys, clothing, tools, and appliances; they can ban products or order a recall, which is an order for a manufacturer to call a product back from customers and repair/replace it.

There are also federal agencies that protect the rights of employees (workers). The Occupational Safety and Health Administration (OSHA) enforces standards to ensure safe and healthy working conditions for employees, while the Equal Employment Opportunity Commission (EEOC) administers and enforces civil rights laws against workplace discrimination.

Governments also protect property rights by enforcing sale and lease/rental contracts as well as enforcing laws against theft and property damage.

There are several positives that come from international trade. By obtaining goods and services that a region cannot produce, countries and states can trade products they can produce for products they can’t produce. For example, Virginia could trade peanuts for bananas from Ecuador.

By providing goods and services at a lower financial/opportunity cost, producers can specialize, or focus on producing a limited variety of goods/services. This lowers cost of production and prices. For example, Virginia farmers grow peanuts because it’s cost effective, but don’t grow bananas because it would be expensive.

Another positive of international trade is by selling goods and services to other countries, American companies can increase their profits.

International trade also creates jobs by bringing more profit but also more demand, and companies have to hire more workers to expand production.

There has been a downside to more international trade. United States was once the global leader in manufacturing. The country produced the most steel, made the most cars, and constructed the most furniture. But times have changed, and a lot of manufacturing jobs have moved to other countries as international trade has increased and the global economy is more linked. In response, governments at all levels have had to adjust by lobbying businesses to locate or expand in the U.S and increasing job training in growing industries.

Besides products, trade also includes the exchange of technology. Communication has improved, as the internet and smartphones have made global communication cheap and easy. Products can be bought, sold, and tracked electronically.

Shipping technology has also advanced. Planes, ships, and pipelines are used to carry products to distant markets. In addition, food preserving technologies such as refrigeration, freezing, and chemical preservatives allow for perishable foods to be shipped long distances.