ECONOMIC POLICYA BRIEF OVERVIEW

HONORS GOVERNMENT

TWO TYPES OF POLICY

FISCAL POLICY

• TAXING AND SPENDING CONSIDERATIONS. FISCAL POLICY IS CONDUCTED BY CONGRESS AND THE PRESIDENT.

MONETARY POLICY

• REGULATION OF MONEY SUPPLY BY THE FEDERAL RESERVE BOARD (“THE FED”) ADJUSTING INTEREST RATES TO INCREASE OR DECREASE INFLATION.

TAXING• TWO TYPES:

• PROGRESSIVE TAXES

• A TAX THAT RISES IN PERCENTAGE TERMS AS INCOME RISES

• CAN ANYONE GIVE AN EXAMPLE?

• INCOME TAX

• REGRESSIVE

• A TAX THAT FALLS IN PERCENTAGE TERMS AS INCOME RISES

• CAN ANYONE GIVE AN EXAMPLE?

• SALES TAX

SPENDING

• WHERE IS THE MONEY SPENT?

• DIRECT BENEFIT PAYMENTS TO INDIVIDUALS (SOC. SECURITY, MEDICARE, MEDICADE, ETC.) APPROX. THIS IS MANDATORY OR NON-DISCRETIONARY SPENDING

• NATIONAL DEFENSE – APPROX. 18% (DESCRESIONARY)

• NET INTEREST: APPROX. 6% IS NON-DESCRESTIONARY

• NON-DEFENSE DISCRETIONARY SPENDING

• GRANTS TO STATES, FEDERAL OPERATIONS, ETC.) APPROX. 17%

ENTITLEMENTS

• ALSO KNOWN AS “UNTOUCHABLES”

• FEDERAL MONEY THAT IS:

• PROVIDED TO THOSE WHO MEET ELIGIBILITY REQUIREMENTS

• AUTOMATICALLY SPENT EACH YEAR WITHOUT CONGRESSIONAL REVIEW

• SOME HAVE A BUILT IN “COLA” WITHOUT AN ANNUAL REVIEW

• EXAMPLES WOULD BE MEDICARE, SOCIAL SECURITY, FEDERAL PENSIONS

• THESE ACCOUNT FOR MORE THAN TWO-THIRDS OF THE FEDERAL BUDGET

DEFICIT SPENDING

• BUDGET DEFICIT: INCURRED WHEN GOVERNMENT EXPENDITURES (SPENDING) EXCEEDS REVENUE (INCOME) DURING A ONE YEAR PERIOD

• WHAT SOLUTION CAN YOU PROPOSE TO STOP THAT PROBLEM?

• NATIONAL DEBT: THE AMOUNT OWED BY THE FEDERAL GOVERNMENT (THE ACCUMULATION OF PAST BUDGET DEFICITS)

• SO WHAT IS OUR DEBT?