Embed Size (px)
Citation preview
Chapter Fifteen
Economic Policy• What do we mean when we say “economy”?
• What type of economic system do we have?
• What theories are there about the economy and the role the government should play? (4)
• What are characteristics of a “healthy” economy?
• What does “fiscal policy” mean? How does the government play a role in creating fiscal policy?
• What is meant by “monetary policy”? How does the government play a role in that?
• Give examples of different regulatory policy and different trade policies.
The Nature of the American The Nature of the American Economy - Economy - CapitalismCapitalism
Economic Health and the American Economic Health and the American DreamDream
Should the Government Act to Ensure a Should the Government Act to Ensure a Healthy Economy?Healthy Economy?
Laissez-Faire EconomicsLaissez-Faire Economics – The government should neither encourage or discourage, through laws, business practices that affect economic health.Keynesian EconomicsKeynesian Economics – During a recession, the government should increase its spending to stimulate the economy (deficit spending).
Supply-Side EconomicsSupply-Side Economics – Advocates tax cuts to stimulate the economy in times of recession.MonetarismMonetarism – Advocates that government’s proper role in promoting a healthy economy is the regulation of the supply of money to ensure that the rate of inflation remains low.
Keynesian economics
Traditional Measures of Economic Traditional Measures of Economic HealthHealth::
• Gross Domestic Product (GDP)
• Consumer Price Index (CPI)
• Unemployment
Other Measures of Economic HealthOther Measures of Economic Health:
• The Human Development Index (HDI)
• Real median household income
Measuring Economic HealthMeasuring Economic Health
National Debt• National Debt Clock What is the sequester?
Human Development Index
Tax PolicyTax Policy::
• Progressive taxProgressive tax – Takes a larger percentage of income of higher-income earners and a smaller percent from lower-income earners
• Proportional tax (flat)Proportional tax (flat) – Takes the same percentage of each taxpayer’s income
• Regressive taxRegressive tax – Takes a greater percentage of income of lower-income earners than higher-income earners
Fiscal PolicyFiscal Policy
Spending PolicySpending Policy::
• Mandatory SpendingMandatory Spending• Discretionary Discretionary SpendingSpending
Fiscal PolicyFiscal Policy
Federal Budget (2007)From the Washington Post
Total Federal Budget (2007): $2.77 trillion
Pearson Education, Inc., Longman © 2008
Government, Politics, and the Economy
• “It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy– Economic trends affect who voters vote for.– Economic conditions are the best predictor of
voters’ evaluation of the president.– Republicans worry about inflation.– Democrats stress importance of
unemployment.
Creating Fiscal Policy Through Creating Fiscal Policy Through the National Budget Processthe National Budget Process
• Budget officially starts a year and a half before beginning of fiscal year
• Office of Management and Budget sends the president’s budget priorities to the executive agencies
• Executive agencies use Presidents guidelines to formulate their funding requests
• The OMB and Pres work together to create fiscal plan for national government = drafts budget document : EXECUTIVE BUDGET
• This then goes to Congress
Creating Fiscal Policy Through the Creating Fiscal Policy Through the National Budget ProcessNational Budget Process
Deficit Spending, Debt, and Deficit Spending, Debt, and Economic HealthEconomic Health
Deficit Spending, Debt, and Deficit Spending, Debt, and Economic HealthEconomic Health
GDP: Growth of 2-2.5% economy considered strong
Monetary PolicyMonetary Policyand theand the
Federal Reserve SystemFederal Reserve System
Regulatory Policy to Prevent Market Regulatory Policy to Prevent Market FailureFailure::
• Business Regulation Business Regulation (SEC, National Labor (SEC, National Labor Relations Act (Wagner Act), Interstate Commerce Relations Act (Wagner Act), Interstate Commerce
Commission (ICC)Commission (ICC)
• Social Regulation Social Regulation (Pure Food and Drug Act, Meat (Pure Food and Drug Act, Meat Inspection Act, Fair Labor Standards Act, Consumer Product Inspection Act, Fair Labor Standards Act, Consumer Product
Safety Act)Safety Act)
• DeregulationDeregulation
Federal Reserve: Sets Monetary Policy/Body of Government Policies Aimed at Maintaining Price Stability--Raise or lower the reserve requirement, raise or lower the discount rate, buy or sell U.S. Treasury bonds
Trade PolicyTrade Policy
Two Forms of Trade PolicyTwo Forms of Trade Policy::
• Protectionist Trade PolicyProtectionist Trade Policy
- Tariffs – a special tax on imported goods
- Non-tariff trade barriers & subsidies
• Free Trade Policy Free Trade Policy (GATT and WTO, NAFTA, G-8)(GATT and WTO, NAFTA, G-8)
Trade DeficitTrade Deficit – the gap between the value of a nation’s exports and the value of its imports
The U.S. Economy and The U.S. Economy and the American Dream Todaythe American Dream Today
A Healthy Economy with Growing A Healthy Economy with Growing Income InequalityIncome Inequality
The Elusive American DreamThe Elusive American Dream
THINK ABOUT:
• Policymaking in the federal system: How does it work? (How do all national institutions get involved? --branches)
• What role do the national institutions play in policy implementation and interpretation?
PRACTICE FRQA. Define fiscal policy
B. Describe one significant way the executive branch influences fiscal policy
C. Describe one significant way the legislative branch influences fiscal policy
D. Define monetary policy
E. Explain two reasons why the Federal Reserve Board is given independence in establishing monetary policy
• A. Taxing and/or spending
The budget
B. The president proposes/prepares the federal budget
The president signs/vetoes legislation (related to taxing, spending, and borrowing)
The White House Office of Management and Budget (OMB) recommends the budget)
C. Congress passes the federal budget
Congress acts on tax and spending legislation
The Congressional Budget Office advises Congress on economic policies
• D. Regulating the money supply
Controlling inflation/deflation
Adjusting interest rates to regulate the economy
Adjusting bank reserve requirements
The cost of moneyE.It removes politics from monetary policy decision making
Congress/the president can abdicate responsibility for difficult decision-making power
The Federal Reserve Board relies on expertise when making decisions
The Federal Reserve Board makes economic policies efficiently
