Download Russ BE Enmou Gao Michael Jang Hae Sung Kang Daniel Kim

Russ BE
Enmou Gao
Michael Jang
Hae Sung Kang
Daniel Kim
Jake Robinson
Economic Policy
1. The voters want prosperity but they do not want tax increases, no government deficit, and higher
government spending. There are many public policies that can help them but certain economic
consequences must follow. People want better education, health care, environment, and health benefit but
they vote against raising taxes. Government’s job is to compromise between the two conflicting wants of
the voters and satisfy them to a certain level. However, it becomes harder as people’s standard keeps
rising.
2. List and briefly explain the four competing economic theories discussed in the textbook.
1. Monetarism--inflation occurs when there is too much money chasing too few goods (Milton
Friedman); advocates increase in money supply about equal to economic growth
2. Keynesianism--government should create right level of demand
a. Assumes that health of economy depends on what fraction of their incomes people save
or spend
b. When demand is too low, government should spend more than it collects in taxes by
creating public works programs
c. When demand is too high, government should increase taxes
3. Planning--free market too undependable to ensure economic efficiency; therefore government
should control it (John Kenneth Galbraith)
a. Wage-price controls
b. Industrial policy--government directs investments toward particular industries
4. Supply-side tax cuts--need for less government interference and lower taxes (Arthur Laffer)
a. Lower taxes would create incentives for investment
b. Greater productivity would produce more tax revenue
3. The policies of Reaganomics are designed to stimulate output and lower unemployment by increasing
production rather than demand. A key part of Reaganomics is reducing governmental intervention in the
economy. This goal can be achieved by either decreasing the number of federal agencies or by
deregulation—removing established regulations set on industries. Supply-side economics also aim at
eliminating the extraneous federal tax set on producers. Since the tax cuts in 1981, the economy
rebounded from the 1980-1982 “double dip recession,” along with a decreased cost for commodities. The
tax reductions of 1981 were seen as the source for the “Seven Fat Years.” Shortly after the cuts, nominal
revenues returned, and later surpassed, the levels before. At the same time, however, the revenues did
decrease as a part of the GDP.
4. Congress- it approves all the taxes and expenditures. It sets budgets and appropriations through
different committees such as House and Senate Budget Committees, the House and Senate Appropriations
Committees, the House Ways and Means Committee, and the Senate Finance Committee.
Federal Reserve System- its function is to regulate the supply of money and the price of money.
Federal Trade Commission- enforces federal antitrust and consumer protection laws by
investigating on any companies based on complaints, reports, etc. It tries to ensure fair and competitive
market by eliminating unfair and deceptive practices.
Security and Exchange Commission- its function is to protect investors who buy stocks and bonds. It
has powers to prevent or punish fraud in the sale of securities and regulate stock exchange.
5. The four categories of fiscal policy are spending money, the budget, reducing spending, and levying
taxes. Voters claim that the government spends too much money, and that it could reduce spending. At the
same time, voters wish for the government to spend more money on education, homelessness, childcare,
environmental protection, etc. In this scenario, voters wish for majoritarian politics without the general
costs to the public. A budget is a document regarding how much the government will collect in taxes and
spend in revenues and how those expenditures will be allocated. Specific appropriation bills that are
approved may be directed toward client politics, while the entitlements are sent towards the public by the
form of majoritarian politics. President Reagan’s federal tax cuts may be considered entrepreneurial
politics since the government pays for the general public to benefit from the lower taxes. On the other
hand, reducing federal deficit by increasing the amount of taxes and capping the amount of money spent
may be seen as client politics in which the government benefits at the people’s cost.
6) The earliest years of America, the federal government had a very low budget. City governments had
even produced larger budgets than the federal government. The federal budget continued to remain
extremely low during the early 1800’s. Once Republicans took control and the Civil War strengthened the
federal government, the budget at the federal level began to increase rapidly. In 1928, Franklin D.
Roosevelt reinforced the power of the federal government, and the budget dramatically increased. This
trend has continued through present day policy, with more defense spending and more socials programs at
the federal level. During Republican control and Democratic control of congress, there is no change in
spending habits. From 1965-2008, years in which, both Republicans and Democrats had held power; the
federal budget has increased at a fairly steady rate.
7) Congressmen have debated the best strategy to successfully balance the budget. Republicans originally
spoke of balancing the budget as a response to Lyndon B Johnson’s spending habits. However once
Republican Richard Nixon took office, Nixon decided it was much more important to fight inflation than
to balance the budget. Republicans then hoped again then Reagan’s office would also work to put in
place a balanced budget amendment. However, Reagan’s spending resulted in a deficit, and there was no
sign of any amendment. Critics complain that an amendment would harm taxpayers and citizens’ right to
sue. If the budget had to be balanced, it is hard to know how much would be lost from the federal
government if lawsuits should occur. During periods of high deficits, citizens have to make the sacrifice
of paying higher taxes and spending programs have to be cut.
8. As a result of September 11th attacks, the economic policy debates became drastically different. Since
the September 11th attacks, government spent a lot more money on security and military spending to
protect its citizens from terrorist stacks. This led economic policy debates to center around military
spending instead of domestic spending. In addition, the government increased its budget and went into a
bigger debt than before. In response, economic policy debates became more focused on increasing rather
than cutting the budget. Also, because of the September 11th attacks, many private businesses have been
struggling. The airline companies have especially struggled, and the insurance companies had to cope
with paying off significant amount of money lost in this attack. Other sectors of businesses were hard hit
as well. Because of this decreased market activity, the United States economic policy debates centered
around stimulating the economy.
9. The president stands for the entire executive branch of United States government and the citizens of the
United States. He is also seen as the leader of the government. As a result, he gets a lot more attention
than any other person in government might get. Therefore, whenever something bad or good happens
because of the government, the president gets the blame. This is no different regarding the economy as
well. In addition, although the president really doesn’t have much direct influence on economy, he is held
more accountable for the economy than Congress, because the president takes responsibility for
bureaucracy, which has a major influence over the economy. For example, the Federal Reserve controls
the major part of the United States economy by adjusting interest rates. Since bureaucracy has such as big
influence on the economy, the president, the leader of bureaucracy must take responsibility for its actions
and the results of its actions on economy.
10. The reason economics are so interwoven with politics is due to the fact that both effect different
people in different ways. Depending on a persons’ economic situation different decisions will effect them
in different ways. Politicians always must present their plans for certain things, the economy being one of
the most important. Their policies can very easily favor a certain economic group just like it can varying
age groups or regions. With this in mind political parties have taken different stances trying to appeal to
different economic groups in order to gain the most votes, causing economics to become an essential part
of politics.
1. Battle in Seattle-The Battle of Seattle refers to a protest held in Seattle that included at least forty
thousand people. The protest was against the World Trade Organization’s Ministerial Conference
of 1999, a meeting to discuss economic globalization. The protest received massive media
coverage and overshadowed the meetings. The protestors included many different groups who
were against globalization for a wide range of reasons.
2. Budget Deficit-A budget deficit occurs when over a period of time more money is spent than is
taken in creating a net loss for that period.
3. Budget Resolution -A budget resolution sets up the way in which the budget will be handled. This
includes sorting out how much money will be given to different departments or dedicated to
different purposes.
4. Budget Surplus - A budget surplus is the opposite of a budget deficit. It occurs when the money
coming in over a certain time period is higher than the money that is spent.
5. Congressional Budget Act - The Congressional Budget Act was created in 1974. The act creates
a system in which Congress, with no Presidential involvement, creates the budget resolution.
6. Congressional Budget Office - The Congressional Budget Office was created by the
Congressional Budget Act of 1974. The office’s main job is to estimate the economic and
budgetary effect that proposed legislation would have.
7. Council of Economic Advisers – group of economists who advise the President. It is a part of the
Executive Office of the President of the United States, and provides much of the economic policy
of the White House. The council prepares the annual Economic Report of the President.
8. Demand-side economics – Keynesian Economics. An economic theory stating that active
government intervention in the marketplace and monetary policy is the best method of ensuring
economic growth and stability.
9. Earmark - funds provided by the Congress for projects or programs where the congressional
direction (in bill or report language) circumvents Executive Branch merit-based or competitive
allocation processes, or specifies the location or recipient, or otherwise curtails the ability of the
Executive Branch to manage critical aspects of the funds allocation process.
10. Entitlements – A claim for government funds that cannot be abridged without violating the rights
of the claimant; for example, Social Security benefits or payments on a contract
11. Eurodollars – U.S.-dollar denominated deposits at foreign banks or foreign branches of American
banks. By locating outside of the United States, eurodollars escape regulation by the Federal
Reserve Board.
12. free rider problem- citizens rarely have much incentive to join an interest group because the
policy that such a group supports will benefit everybody, whether or not they are members of the
group
13. Federal Reserve System- an independent agency with seven members appointed by the president
and approved by the Senate for 14 years to regulate the supply of money and the price of money
14. Fiscal conservative- exemplified by Reaganomics, combination of monetarism, supply-side tax
cuts, and domestic budget cutting
15. Fiscal policy- an attempt to use taxes and expenditures to affect the economy
16. Fiscal year- October 1 to September 30, the period of time for which federal government
appropriations are made and federal books are kept
17. Globalization – The process of increasing integration between countries, leading to the emergence
of a global marketplace or a single world market.
18. industrial policy – Any government regulation or law that encourages the ongoing operation of, or
investment in, a particular industry.
19. Keynesianism – An economic philosophy that assumes that the market will not automatically
operate at a full employment, low-inflation level and suggests that the government should
intervene to create the right level of demand.
20. Laffer Curve – A graph showing that lower taxes will supposedly stimulate higher tax revenues.
21. monetarism – A school of thought stressing the importance of stable monetary growth to control
inflation and stimulate long-term economic growth.
22. Monetary policy – actions by the Federal Reserve System to expand or contract the money supply
in order to affect the cost and availability of credit
23. Petrodollar – amount of dollar earned by a country by selling oil to the United States
24. Price and wage control – the government sets guidelines to limit fluctuations in wages and prices.
25. Reaganomics – economic policy to reduce government spending and regulation while aiming to
reduce taxes and control the money supply to stop inflation.
26. Supply-side economics – economic policies designed to increase aggregate supply.
27. Tax-and-spend liberal- a term used to describe liberal fiscal policy. Fiscal policy among liberals is
higher taxes, mostly for the wealthy, as well as increased spending on social programs.
28. Tax Reform Act of 1969- The act was put in place to establish the minimum tax for corporations.
However, it also lowered the maximum rate on income from 70% to 50%.
29. Treasury Department- It implements the economic and fiscal policies of the U.S. President. The
treasury department also designs and prints all money, as well collects all U.S. revenue.
30. US Trade Representative- This agency is responsible for regulating on international commerce
and trade. The group helps to agree upon international treaties for trade and helps create global
trading policy.
31. WTO- The World Trade Organization describes itself as an international forum used to negotiate
treaties among nations. However, it also strives to eliminate disease and protect the global
consumer.