BACKGROUND ON ECONOMIC

POLICY CHAPTER 18

Sherean Ali, Claire Edelson, Christian Lyon, & Lisa Reimann

ECONOMIC POLICIES• Monetarism=inflation occurs when too

much money is chasing too few goods. • Economic Planning=plans like wage and

price controls or direction of investment, can improve the economy.

• “Reaganomics”= combination of monetarism, lower federal spending, and supply-side economics will stimulate the economy.

• Keynesianism= spend more money when in a recession and cut spending when there is inflation & economy performance

BACKGROUND ON CHAPTER “Troika” (OMB, CEA, Treasury) +

President + “The Fed” + Congress = Work together to make Econ Policies

Pocketbook Issue= economic conditions are strong association of amount of success the incumbent party has for staying in the White House & seats held by WH party in Congress.

Economic choices made by politicians are shaped generally by ideological differences in parties. All politicians want low unemployment & no inflation

DEFICIT DEBT & GPPDeficit=governments spends more

money than it collects in taxes in a given year

National Debt= total amount of deficits since 1st Presidency

GDP=total of all goods & services produced in country in a given year

Raising Taxes & Cutting Spending can reduce deficit and create progress to lower national debt

THE FEDERAL RESERVE BOARD (EST. 1913)

monetary policy Board of Governors: 7

members appointed by President and

confirmed by Senate 14 year term. The chairman

is appointed or reappointed every 4 years from the board.

the fed can increase and decrease money supply and interest rates

selling and buying federal government securities

reserve requirements Discount rate

"Greenspan Says U.S. May Soon Reach Borrowing Limit - Bloomberg." Bloomberg - Business & Financial News, Breaking News Headlines. Web. 03 Jan. 2011. <http://www.bloomberg.com/news/2010-06-18/greenspan-says-u-s-nearing-limits-on-borrowing-capacity-restraint-needed.html>.

"FRB: Chairman Bernanke." Board of Governors of the Federal Reserve System. 18 Nov. 2010. Web. 03 Jan. 2011. <http://www.federalreserve.gov/aboutthefed/bios/board/bernanke.htm>.

CONGRESS AND FISCAL POLICY Expansionary: ↑ gov’t spending & ↓ taxes Contractionary: ↓ gov’t spending & ↑ taxes Fiscal year: October 1st to September

30th

10/1/10-9/30/11 is “fiscal 2011” or “FY 2011”

Budget Enforcement Act of 1990

THE BUDGET Budget 1974 Congressiol Budget Act

Feb. Presidential budget submitted to 1 House & 1 Senate committee

Committees w/analysis from Congressional Budget Office (CBO)

Budget Resolution congressional decision on where to cap government spending.

Entitlements Reagan ’81 cuts to authorization &

appropriations

TAXES Majoritarian politics (everyone pays

them) Client politics (exemptions,

exclusions and deductions) US taxes are slightly progressive lighter burden than much of the

world

INCOME TAX & REFORM 1913 16th Amendment b/c 1895

unconstitutional Taxes remained high after WWII The tax reform of 1986 shifted

industry savings to people and cut down on legal and illegal tax evasion.

Deductions work like subsides Cut out loopholes and lowered rates Loopholes are client politics