Transcript Origins of Modern Fiscal and Monetary Policy

January 12th
Agenda
• CBM
• In the News
• Entrepreneurship Posters &
Presentations
• Monetary Policy Power Point
In the News
•
•
Oil Prices: After watching the price of crude oil
collapse by more than 65% to a 12-year low, there are
signs that OPEC may have had enough. OPEC may
constrain production/supplies to raise the price of
crude.
U.S. Economy looking good through 2020
– Fundamentals are looking solid:
– Fewer Americans are drowning in debt:
– Corporate America isn't overly exuberant
•
•
Dow & S&P 500
Nasdaq
Lottery to $1.4 Billion (1:292 Million chance)
–
–
–
–
–
–
–
–
–
–
Things you could buy…
Avon (AVP): $1.2 billion. La-Z-Boy (LZB): $1.1 billion
U.S. Steel (X): $1 billion.
Pep Boys (PBY): $999 million
Caesars Entertainment (CZR): $972 million.
Red Robin Gourmet Burgers (RRGB): $812 million.
Lands' End (LE): $750 million..
Crocs (CROX): $672 million.
Barnes & Noble (BKS): $662 million
Men's Wearhouse (MW): $585 million.
Tonight:
President Obama’s final State of
the Union Address
Entrepreneurship Products
•
Picture of your product
•
Written description of your product
•
Estimated cost to produce your product (How
much startup capital will you need?)
•
At what price will you sell your product?
•
Who is your target audience?
•
A supply and demand graph illustrating your
product (Think about your equilibrium price)
Entrepreneurship
New Product Ideas by YOU!
Fiscal and Monetary Policy
Economics
Chapter 14
Origins of Modern Fiscal
and Monetary Policy
• Fiscal Policy: Government policy
regarding taxing and spending
• Monetary Policy: The FED policy
aimed at regulating amount of
money in circulation and interest
rates
• Before 1930, government rarely intervened in the
economy – good or bad times included
Classical Economics - Hayek
• Founded by Adam Smith – “laissez-faire”
• Focus on free market
• Recessions caused by outside influences – wars,
crop failures etc…
• Government should keep taxes low and spending
down
• Friedrich Von Hayek – Austrian School – No
government intervention in markets
Keynesian Economics
• Founded by British Economist John Maynard
Keynes – father of macroeconomics (1930s)
• Downward economic spiral
• Believed that fiscal policy (govt spending)
could stimulate overall demand during
recessions – cut taxes or boost government
spending (deficit spending)
• FDR used fiscal policy to end Depression
Fight of the Century –
Keynes vs. Hayek
• http://www.youtube.com/watch?v=GTQnarz
mTOc&safety_mode=true&persist_safety_mo
de=1&safe=active
• On your paper, make a T chart. Write down
ideas and differences as you watch the video.
Chicago School - Friedman
• American economist Milton Friedman – Chicago
School of Economics
• Believed control of money supply = key to
stabilizing economy
• Use of monetary policy to expand and contract
the money supply
• Depression was caused by drop in money supply
• “Great contraction” – falling prices, rising
unemployment and declining incomes
• FED should have expanded the money supply
Monetarism – Chicago School
• Rapidly growing money supply = inflation
– Demand for goods rises
– Firms can’t keep up
– Prices rise
• Slowing growing money supply = deflation
– Spending and investment slow as prices drop and
inventories grow
What role should the government play in
helping the economy reach full employment,
stable prices and economic growth?
• Each group will analyze the question from one
school of thought
– Classical Economics – Hayek/Smith
– Keynesian Economics – Keynes
– Monetarism – Friedman
• Your answer should take into account the 3
main economic indicators – GDP,
Unemployment and Inflation