Economic Policymaking Chapter 17
Government and the Economy Definitions: Capitalism: An economic system in which individuals and corporations, not the government, own the principle means of productions and seek profits. Mixed Economy: An economic system in which the government is deeply involved in economic decisions through it role as regulator, consumer, subsidizer, taxer, employer and borrower.
Government and the Economy Unemployment and Inflation Unemployment rate: Measured by the BLS, it is the proportion of the labor force actively seeking work, but unable to find jobs. Inflation: The rise in prices for consumer goods. CPI: Consumer Price Index- The key measure of inflation that relates the rise in prices over time.
Government and the Economy Figures 17.1 and 17.2
Government and the Economy Elections and the Economy Economic trends affect what the voters vote for Unemployment rates affect presidential votes Political Parties and the Economy Republicans tolerate unemployment Democrats tolerate inflation
Instruments for Controlling the Economy Monetary Policy and the Fed The manipulation of the supply of money in private hands- too much cash and credit produces inflation. Money supply affects the rate of interest paid. Main policymaker is the Board of Governors of the Federal Reserve System- the Fed.
Instruments for Controlling the Economy Monetary Policy and the Fed continued The Feds instruments to influence the supply of money in circulation: Sets discount rates Sets reserve requirements Buying / selling government bonds Through the use of these actions, the Fed can affect the economy.
Instruments for Controlling the Economy Fiscal policy: Keynesian Versus Supply- Side Economics Fiscal Policy: The policy that describes the impact of the federal budget on the economy. Keynesian Economic Theory: Government spending and deficits help the economy weather its normal ups and downs. Government s job to increase demand of goods
Instruments for Controlling the Economy Fiscal policy: Keynesian Versus Supply- Side Economics, continued Supply-Side policy: The policy that says there is too much taxation and not enough money to purchase goods and services. Reduce taxation and government regulation then people will work harder, and thus create a greater supply of goods.
Obstacles to Controlling the Economy Some think politicians manipulate the economy to win reelection. But there are problems with that But things like the budget are prepared in advance of when they go into effect. Some benefits are indexed. Foreign problems can affect our economy. Capitalism can also affect the economy. So it is difficult for politicians to control the economy.
Arenas of Economic Policymaking Business and Public Policy: Subsidies Amid Regulations The changing Face of Corporate Capitalism. Lots of mergers and acquisitions since 1980- some creating transnational corporations. Corporation battle for profits from the new technology economy. Government must find ways to control the excess power in this new economy.
Arenas of Economic Policymaking Business and Public Policy: Subsidies Amid Regulations, continued Regulating Business. Antitrust policy: policies designed to ensure competition and prevent monopolies. Antitrust cases are lengthy and expensive Benefiting Business. Government may loan businesses money Government collects data that business use.
Arenas of Economic Policymaking Consumer Policy: The Rise of the Consumer Lobby Consumers historically had little government protection. FDA: Created in 1913 and approves foods and drugs sold in the U.S. FTC: Responsible for regulating false and misleading trade practices, which now includes consumer lending practices.
Arenas of Economic Policymaking Labor and Government Government historically sided with business over labor unions. NLRB: regulates labor-management relations Collective bargaining: union representatives and management determine pay & working conditions Government now provides unemployment compensation and a minimum wage.
Arenas of Economic Policymaking New Economy, New Policy Arenas The new economy is more information centered There are still differences in information equality- More men than women have access More whites than minorities have access Differences are getting wider between the races
Understanding Economic Policymaking Democracy and Economic Policymaking As voting power increased, so did the demands for government action to restrict business. Some economic freedoms were given up for the greater good of society. Economic Policymaking and the Scope of Government Liberals and conservatives have different policy ideas. One wants less government, the other wants more.
Internet Resources Council of Economic Advisors Federal Reserve Board Federal Trade Commission DOJ Antitrust Division