Download Chapter 18: Economic Policy

Chapter 18:
Economic Policy
Economic Policy includes
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Promoting the economy
The Federal Reserve
Federal Budget: spending and taxes
Regulating business and its products
Protecting society and the environment
How do you measure your own
financial stability?
How do you know if you’re doing ok?
What factors do you have to balance with
work?
How do we do the same thing on a national
and international arena?
Economic stability =
Employment: high
 Incomes: rising
 Prices: slight inflation
 Growth: business is good
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PIG-E
What is government balancing
economy with?
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Quality of life:
 For
workers
 For consumers
 For business owners
 For investors
 For society as a whole
Environment
 Health
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Economy Terms
Economic stability: PIG-E
 Inflation: A rise in the general price levels
 Recession: Short term decline
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 Unemployment
 Growth
is up
is down
Investments lag
 Production is cut back
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Depression: Long term decline
How did we get into this Great
Recession?
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Mortgage loans
Packaging and selling
of loans
International investors
bought and wanted
more
Mortgage crisis
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More loans
LOOSER standards
Defaults
Housing prices
dropped
How did we get into this “Great
Recession”? Part II
Ripple effects: construction, incomes,
investments
 Credit default swaps or Derivatives:
Insurance on investments (the loan pkgs)
and then the opposite: bets that they will
fail
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“Global Pool of Money Got Too Hungry”
http://www.npr.org/templates/story/story.php
?storyId=90327686
What can the government do?
Bailouts
 Stimulus: tax cuts, spending
 Regulations
 Federal reserve actions
 Promote new business
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1. Bailouts: help companies
stay in business
Bought Fannie Mae and Freddie Mac
 Put together a deal to keep AIG afloat
 Massive loans to banks: to keep them
from failing AND to promote lending again
 GM: Gov’t bought shares
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2: Stimulus
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Tax cuts
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Kennedy in 1964, Reagan in 1981 and G.W. Bush in 2001 and 2003
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and 2008!
And 2009!
Maintained 2010
What are potential downsides to lowering taxes?
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Spending:
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Keynesian Economic Theory
FDR’s New Deal: Works Programs
Stimulus packages: 2008 and 2009: create jobs, help states
2011?
Where does the $$ come from?
Taxes
 Borrowing
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3. Regulations
Economic Regulation: business practices
 SEC
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Social Regulation: effects of business
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Consumer protection: FDIC
 Health and safety
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OSHA: Occupational Safety and Health
Administration
Environmental protection
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EPA: Environmental Protection Agency
New Deal Regulations
Wagner Act: legalized unions
 Fair Labor Standards Act: Minimum Wage
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 44
hour week
 25 cents/hour
Social Security
 FDIC, SEC
 New Deal legacy: Gov’t involvement in
managing the economy is expected
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Figure 18.2- Minimum Wage Growth
4. The Federal Reserve
“The Fed”
 Created
 Board
in 1913
of
Governors
 Chair of the
board: Ben
Bernanke
The Fed’s tools
 Interest rates: Change to speed up or slow
economy
 The rate that banks borrow from the Fed,
which affects lending rates
 2008 rate cuts: BIG and frequent
 Still low: near 0%
Reserve Requirements
 Open Market Operations
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The Budget Deficit and the
Debt
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Federal budget deficit
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The amount by which federal spending
exceeds income. $ out is more than $ in.
Budget surplus: 1998
Budget deficit by 2003
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Tax cuts, war expenses, stagnating economy
 2008 and since: more deficit from stimulus
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National Debt: Deficits + interest
Is debt good or bad?
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Necessary
 for
economic recovery?
 in times of crisis?
 For good?
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Limits:
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future options?
 economic stagnation?
 Power given to foreign investors?
How much is the national debt?
$14 trillion
To whom do we owe the money?
 Mostly: the Fed and foreign investors
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Congress and the Budgetary
Process
 President
prepares
Sends to Congress in January or February
of each year.
 Congress decides on spending
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Table 18.1- Federal Budget Process
The Effects of Globalization on the
economy
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Positives:
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Increased competition benefits consumers
Expands the market for American products
Criticisms: “Fair Trade” not “Free Trade”
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Job losses
 Small businesses hurt
 Environment
 Workers rights
more
http://www.npr.org/templates/story/story.php?sto
ryId=99927343 (National Debt for Beginners
from NPR: Planet Money. Looks like good links
to other NPR economy stories too at the
bottom.)
 On the federal gov’t buying Fannie and Freddie
http://www.npr.org/templates/story/story.php?storyI
d=94377295
http://www.npr.org/templates/story/story.php?storyI
d=94366330&ps=rs
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