Transcript BOTHDebate.pps

The Role of Government
• President Bush and Congress (the senate
and the House of Representative)
I’m da
boss now
dawg!
Alright
Prez.
The Role of Government
-They run our country.
-They decide what taxes we pay,
how much they are, and when to
tax us.
-They also decide if we go war.
Real World Example of Fiscal Policies
If all things are held constant recessionary
gap the government spending would raise
the dollar value. The Inflationary gap if the
reduce spending they will lower the dollar
value. A rise in taxes cause a reduction in
aggregated demand because it reduces
consumption, investment, or net exports.
Automatic stabilizers are the tax system
itself and the government transfer system. It
includes unemployment compensation and
welfare spending.
Fiscal Policy at Abnormal Times
When a catastrophic drop in real GDP as in
Great Depression fiscal policy may be able
to stimulate aggregate demand.
Government spending is a good way to get
money into peoples hands that need it. War
is a good way to et the real GDP to increase
dramatically as in WWII.
Taxation
•
•
•
•
The US has a progressive federal
individual income tax system.
Expansionary Fiscal policy might
involve reducing marginal tax
rates.
The government by applying lower
marginal tax rates will not
necessarily lose tax revenues for
the lower marginal tax rates will be
applied to a lower marginal tax
rates because of a lower
economic growth. After all tax
revenues are the product of a tax
rate times a tax base.
Income and profits fall when
business activities come down.
Government take taxes too. It
reduces the extent of any
economic fluctuation.
Jay and Silent Bob are demonstrating
how fun taxation and the government
can be.
An Actual Scenario using Monetary Policy
• If inflation is 7% and
unemployment is 7%
and the last quarter
for GDP was 1% our
fiscal policy will be to
lower taxes and send
everyone a tax rebate
check to stimulate the
economy.
This guy is happy because he has a job cutting
lawns and he will get a tax rebate check.
Relationship changes in Aggregate Demand
and Aggregate Supply
Pichu likes graphs!
Causes and Consequences of
Change in AS and AD.
Causes AS: People would be
buying from businesses.
Consequences AS: They’d
be able to hire more
people.
Causes AD: We are cutting
taxes.
Consequences AD: People
will have money to spend
and stimulate the economy.
This car salesman will be
happy because people will
buy cars.
Standard Indicators of Economic
Fluctuations
•
•
•
•
Peaks,
Troughs,
Expansions,
Contractions…
Sources:
http://www.lib.uwaterloo.ca/discipline/econom/morelinks.html
www.google.com
http://usinfo.state.gov/products/pubs/oecon/chap7.htm
The Role of Government
• The president elects the chairman of the
Federal Reserve Board.
Dude you
da
chairman!
Alright
dawg.
The Role of Government
The Board:
Ben S. Bernanke, Chairman | Roger W.
Ferguson, Jr., Vice Chairman | Susan Schmidt
Bies | Mark W. Olson | Donald L. Kohn |
Kevin M. Warsh | Randall S. Kroszner
The seven members of the Board of Governors of the
Federal Reserve System are nominated by the President
and confirmed by the Senate. A full term is fourteen years.
One term begins every two years, on February 1 of evennumbered years. A member who serves a full term may not
be reappointed. A member who completes an unexpired
portion of a term may be reappointed. All terms end on their
statutory date regardless of the date on which the member is
sworn into office.
The Chairman and the Vice Chairman of the Board are
named by the President from among the members and are
confirmed by the Senate. They serve a term of four years. A
member's term on the Board is not affected by his or her
status as Chairman or Vice Chairman.
Real World Example of Monetary
Policies
At the end of 1933 Roosevelt had shifted
his attention to monetary matters: recovery
was to be promoted by raising the prices of
commodities in dollars, and the prices of
commodities in dollars were to be raised by
devaluing the dollar in terms of gold.
One of the most important changes
was the creation of the Federal Open
Market Committee (FOMC) to direct
open market policy.
If the monetary
authority in the United
States, the Federal
Reserve, wants to
stimulate increased
production, they would
do it by increasing bank
reserves.
The Role of the Federal Reserve in
Implementing Monetary Policy
• They make the money.
• The Federal Reserve Notes
are printed at the Bureau of
Printing and Engraving in
Washington
• The Fed provides a system
for check collection and
clearing.
I wish the fed was this excited
about their jobs.
The Roles of the Federal Reserve Board
• The Federal Reserve Board
would use their tools (the
reserve requirements, open
market operations, and
discount rates) to do what ever
was needed in the situation
according to the scenarios
below.
• If you’re in a recession you’d
use the money supply to help
get out of the recession.
• If you have inflation they’d
decrease the money supply.
Correcting Economic Fluctuations
Using Conventional Monetary
Policy:
• The Federal Open Market Committee announces changes in it’s
policy stance and begins to explicitly state it’s target level for the
federal funds rate. The statement Committee’s assessment of the
risks to the attainment of its long-run goals of price stability and
sustainable economic growth.
• The Discount Rate charged for primary credit is set above the usual
level of short-term market interest rates. It changes with inflation,
deflation, and with the average price increase or decrease because
it’s not just one thing it’s the average of all things.
• The Reserve Requirements the amount of money held by the fed in
banks. But if you’re in a peak or trough, they’ll do what’s needed.
An Actual Scenario using Monetary Policy
• If inflation is 7% and unemployment is 7%
and the last quarter for GDP was 1% our
monetary policy is that we will reduce the
money supply by asking the banks to hold
15% of deposits. If this doesn’t work we’d
sell federal bonds.
Relationship changes in Aggregate Demand
and Aggregate Supply
Pichu likes graphs!
Causes and Consequences of
Change in AS and AD.
•
•
•
•
•
Supply: Lesser unemployment because people would be spending more, so
people can make more goods which would raise the employment and real
GDP.
The aggregate demand would increase:
because they’d be spending more,
because they’d have more money,
and because they’d be working.
Standard Indicators of Economic
Fluctuations
Flux Capacitor
•
•
•
•
Peaks,
Troughs,
Expansions,
Contractions…
Sources:
http://www.lib.uwaterloo.ca/discipline/econom/morelinks.html
www.google.com