Transcript Chapter 18 Economic Policy

Chapter 18
Economic Policy
US Government AP
The Economy

Hard to predict how policy will
impact the economy over the long
term
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Natural business cycle
The Business Cycle
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Over time a
business
gains and
loses

This is
normal
The Impact of Government

Policy goal is to keep the line as
straight as possible, with steady
growth

Becomes a valence issue
The Debt
To eliminate it:
Raise taxes or Reduce spending
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Or a combination of both
Enter valance—Dem’s vs Rep’s
1990’s
We had a budget
surplus
Dems
-start new programs
Had to
compromise
(did both)
Rep’s
-give a tax cut
The players in Fiscal Policy
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OMB
CBO
Congress
President
Cabinet Departments
Agencies (GAO)
Interest groups
Other Players-Monetary Policy
1.
The Federal Reserve Board

Sets interest rates
Is independent
Congress
Approves taxes
Approves the budget (CBO)
Foreign policy laws (NAFTA)
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2.
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Triple play…….
1.
2.
3.
OMB Director
Chair of the Council of Economic
Advisors
Treasury Secretary
These 3 offices are the closest advisors to
the President on the economy
Economy and Elections
“Pocket Book” issues during an election
help/hurt incumbents (2008)
1. Unemployment
2. Inflation
3. Older voters/Fixed income
Econ and Elections II
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Makes politicians tempted to look at
short term policy
Try to improve it at election time
IMPOSSIBLE TO DO
D= ↓ unemployment R= ↓ inflation
The “Perfect” Policy
1.
2.
3.
Have nice Govt. programs
Have less debt (Lower spending)
Keep taxes low
mission: impossible
6 Economic theories
1.
2.
3.
4.
5.
6.
Monetarism
Keynesianism
Planning
Supply Side tax cuts
Reaganomics
Ideology/Theory
5 theories
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Each President chooses advisors
who have his point of view on
policies
The Budget
1.
2.
3.
4.
5.
October 1 to September 30
Executive branch and Congress
President/OMB put it out
Congress (H/S) go over it—put
ceilings in place
Changes are usually small
Entitlements
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Most of the Budget is money that
must be spent (66%)
Social Security
Medicare
Bond payments
The Budget-The End
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Is out of control
Deficit spending allows the budget
to be whatever it “needs” to be
Current deficit: $15 trillion
(Growing at $1.3 million a minute today)
(your share?-$50,000)
The “Perfect” Policy
1.
2.
3.
Have nice Govt. programs
Have less debt (Lower spending)
Keep taxes low
mission: impossible
3 Things that Matter in Economic
Policy
1.
2.
3.
The economic health of the nation
(real vs. perceived) (interest group)
The types of govt. spending (client,
interest group)
Taxes- rates and distribution of
benefits (majoritarian or client)