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Download Aim: ECONOMIC POLICY
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Aim: ECONOMIC POLICY POLITICS OF ECONOMIC PROSPERITY • Economy and elections • “pocketbook issue” • “It’s the economy stupid” • Unemployment • inflation Aim: ECONOMIC POLICY POLITICS OF TAXING AND SPENDING Fiscal policy = taxation (revenues) and spending (expenditures) • What Americans want is inconsistent? • What Congress/President give – tends to “feed” public inconsistency. • Produces budget deficits Aim: ECONOMIC THEORIES – to promote national economic goals BUT FIRST, WHAT ARE THE BIG THREE ECONOMIC GOALS? • economic growth • full employment • price stability Aim: ECONOMIC THEORIES – to promote national economic goals: MONETARY THEORY (MONETARISM) • “too much money chasing too few goods” • Stable – growth in money supply = to growth of economy’s productivity • Curb inflation • Federal Reserve • Tools – reserve requirements, OMOs, discount rates Aim: ECONOMIC THEORIES KEYNESIAN ECONOMICS • • • • • • • • John Maynard Keynes Demand-side economics Deficit-spend during recession to stimulate the economy Increase government spending (Public works) Leads to increase demand Increase productivity Increase employment When recession is over, balance the budget Aim: ECONOMIC THEORIES PLANNING • Price and wage controls • During inflationary times • Industrial policy (gov’t direct industry – development/investment) Aim: ECONOMIC THEORIES SUPPLY-SIDE TAX CUTS • • • • • Don’t need more planning but less government involvement Government involvement = government interference with market mechanisms Instead CUT TAXES Leads to more money to SAVE, SPEND, AND INVEST “Trickledown” • “Reaganomics” • • Cut taxes, domestic spending Increase military spending Aim: ECONOMIC THEORY IDEOLOGY AND THEORY • Democrats (Liberals) -Keynesian, Planning • Republicans (Conservatives) -supply-side, monetarists Aim: ECONOMIC POLICY REVIEW BUDGETARY PROCESS • President • OMB • Congress • Key Committees • CBO • Reporting out of each house • POLITICS OF THE PROCESS!!! TAXES: GRESSIVITY • “Gressivity” – tax rate relative to income • Progressive – tax rate increases as income increases • Proportionate – tax rate is the same at every income level • Regressive – tax rate increases as income decreases • EXAMPLES OF EACH??
