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Copyright © 2011 Pearson Education, Inc. Publishing as Longman STEPS IN POLICY MAKING • Agenda Building – policies are formulated to address problems/needs. Sources include interest groups, court cases, and government officials. • Policy Formulation – when enough people agree that action is required, plans are formulated with input from all interested and affected parties. Compromise is key!!! • Policy Adoption – the government takes action in the form of legislation, executive or bureaucratic order, or court order. Copyright © 2011 Pearson Education, Inc. Publishing as Longman STEPS IN POLICY MAKING • Policy Implementation - The government must now apply the policy to real-life situations. The public must be informed and a means of enforcement devised, including who enforces and the consequences for non-compliance. • Policy Evaluation – Judging the good or bad of policies takes time. Effects are evaluated and adjustments may be made. It is a cyclical process that can be affected by partisan politics. Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy LO 17.1: Assess the role that government plays in our mixed economy. • Capitalism • Individuals and corporations own the principal means of production and seek profits. • Mixed Economy • Government is deeply involved in economic decisions as regulator, consumer, subsidizer, taxer, employer, and borrower. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Government, Politics, and the Economy • Multinational Corporations • Businesses with vast holdings in many countries. • Products flow between regions and jobs move to regions where they can be performed more cheaply. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Government, Politics, and the Economy • Economic Policy at Work: Wal-Mart • “It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy • Two Major Worries: Unemployment and Inflation To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Government, Politics, and the Economy • Economic Policy at Work: Wal-Mart • World’s 3rd largest company with $406 billion in revenue in 2009. • It has low prices – Negotiates with suppliers and has low wages. • In U.S., it helps keep inflation rate low and had 12% of all productivity growth in 1990s. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Government, Politics, and the Economy • Economic Policy at Work: Wal-Mart (cont.) • Securities and Exchange Commission (SEC) – Federal agency regulates stock market. • Buyers of Wal-Mart stock are entitled to accurate knowledge from the company, and Wal-Mart is required to hire an auditor and publish an annual review. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Government, Politics, and the Economy • Economic Policy at Work: Wal-Mart (cont.) • Minimum wage – The legal minimum hourly wage to which most workers are entitled. • Wal-Mart’s employees are entitled to a minimum wage of $7.25 per hour. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Government, Politics, and the Economy • Economic Policy at Work: Wal-Mart (cont.) • Labor union – An organization of workers intended to engage in collective bargaining. • Collective bargaining – How labor union representatives and management negotiate pay and acceptable working conditions. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Government, Politics, and the Economy • Economic Policy at Work: Wal-Mart (cont.) • Wal-Mart workers are protected by regulations governing worker safety and hiring and other employment policies. • Wal-Mart cannot discriminate on the basis sex, race, or age in hiring, firing, and promotions. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.1 Government, Politics, and the Economy • Economic Policy at Work: Wal-Mart (cont.) • Most of the merchandise in Wal-Mart comes from other countries. • In 2002, Wal-Mart is estimated to have imported $12 billion in goods from China, one-tenth of China’s total 2002 U.S. exports. • Wal-Mart’s low costs have forced many factories to move overseas. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.1 Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.1 Government, Politics, and the Economy • “It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy • Economic conditions are the best single predictors of voters’ evaluation of the president. • Democrats stress the importance of employment, and Republicans stress importance of inflation. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.1 Government, Politics, and the Economy • Unemployment and Inflation • Unemployment rate – Proportion of the labor force seeking work but unable to find jobs. • 125,000 new monthly needed just to keep up with new entrants into the labor force. • 10% unemployment rate in late 2009 with economic recession. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.1 Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.1 Government, Politics, and the Economy • Unemployment and Inflation (cont.) • Underemployment rate – Statistic that includes the unemployed, discouraged workers, and people who are working parttime that cannot find full-time work. • In July 2010, the national unemployment rate was 9.5% and underemployment rate was 16.5%. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.1 Government, Politics, and the Economy • Unemployment and Inflation (cont.) • Inflation – A rise in price of goods and services. • Consumer price index – Change in the cost of buying a fixed basket of goods and services. • The annual inflation rate in the United States has consistently been below 4%. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives Policies for Controlling the Economy LO 17.2: Identify the two main policy tools that American government can employ to address economic problems. • Laissez-Faire • Principle that government should not meddle in the economy. • The 1929 stock market crash sent unemployment soaring, but Hoover clung to laissez-faire. • Roosevelt’s New Deal involved the government in the economy during the Great Depression. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Policies for Controlling the Economy • Monetary Policy and the “Fed” • Fiscal Policy: Keynesian Versus Supply-Side Economics • Why It Is Hard to Control the Economy Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Policies for Controlling the Economy • Monetary Policy and the “Fed” • Monetary policy – Affects supply of money in private hands. • Monetarism – Too much cash and credit in circulation producing inflation. • Federal Reserve System – Makes monetary policy and regulates the lending practices of banks. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Policies for Controlling the Economy • Monetary Policy and the “Fed” (cont.) • Federal funds rate – What banks can charge each other for loans. • Fed buys and sells government bonds to determine amount of money banks have to lend out. • Borrowing is cheaper when banks have more money and expensive when they have less money. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Policies for Controlling the Economy • Fiscal Policy: Keynesian Versus Supply-Side Economics • Fiscal policy – Use of federal budget to influence economy and is almost entirely determined by Congress and the president. • Keynesian economic theory – That government spending and deficits can help the economy deal with its ups and downs. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Policies for Controlling the Economy • Fiscal Policy: Keynesian Versus Supply-Side Economics • Supply-side economics – Cutting tax rates will stimulate the supply of goods. • Supply-siders – Lower tax rates stimulate supply of goods, as people are motivated to work longer, increase savings and investments, and produce more. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Policies for Controlling the Economy • Why It Is Hard to Control the Economy • Most policies must be decided a year or more before their full impact will be felt on economy. • Budgetary process is dominated by uncontrollable expenditures mandated by law, and many benefits automatically increase with the cost of living. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.2 Policies for Controlling the Economy • Why It Is Hard to Control the Economy • Capitalist system make it hard to control the economy because the private sector is much larger than the public sector. • Federal government spends about 25% of GDP, but consumers and businesses make the majority of our economic decisions. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.5 Understanding Economic Policymaking • Democracy and Economic Policymaking • One consequence of democracy for economic policymaking is that it is difficult to make decisions that hurt particular groups or that involve accepting short term pain in return for long-term gain. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.5 Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives LO 17.5 Understanding Economic Policymaking • Economic Policymaking and the Scope of Government • Government involvement in the economy – Liberals tend to want more and conservatives tend to want less. • Democrats are more concerned with curbing unemployment, and Republicans are more concerned with controlling inflation. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives