1. What is poverty? Does anyone know how it is calculated Not very clear, the government looks at how much everyone makes, and based on the number of “dependents” you have determines the poverty level.

2. Persons in family/householdPoverty guideline For families/households with more than 8 persons, add $4,160 for each additional person. 1$11,770 215,930 320,090 424,250 528,410 632,570 736,730 840,890

3. New Housing Starts A measure of how many people are purchasing homes for the first time.

4. Business Cycle

5. Classical Economic Theory Little to no government interference in the economy Let the market correct itself (laissez-faire) Ups and downs are a normal, healthy part of the cycle even if some people are hurt by it.

6. Example: Classical Economics Year 1: Some farmers choose to grow corn. Corn is in high demand, prices rise, they make profits. Year 2: Many farmers switch to corn. Demand didn’t change, but high supply lowers prices. Some farmers lose money, can’t pay mortgages. Year 3: Drought hits. Poorest farmers lose their farms. Unemployed homeless farmers move to cities. Farmers with some savings survive. Farmers with more money can buy foreclosed farms and expand.

7. Keynesian Economic Theory Government should try to smooth out the ups and downs of the economy. During bad times (contraction), government increases spending to create more demand During good times (expansion), government lowers spending to lower demand

8. Example: Keynesian Economics Year 1: Some farmers choose to grow corn. Corn is in high demand, prices rise, they make profits. Year 2: Many farmers switch to corn. Prices drop. Government starts buying corn, ships it overseas as food aid for poor countries. Extra demand (from gov’t) stabilizes the price. Farmers make profits. Year 3: Drought hits. More farmers have savings and survive. Lower supply of corn, prices go up. Gov’t buys less corn to stabilize price. Year 4: Bumper crop! High supply, low prices. What does gov’t do?

9. Keynesian v. Classical

10. How else can the government get involved? The Federal Reserve Bank for banks

11. The Federal Reserve They can control two things The “discount rate” or interest rates for banks The money supply Buying/Selling Bonds Required Reserve Ratio

12. Discount rate If the “Fed” increases the discount rate what will happen If the Fed decreases the discount rate.

13. Money supply Increase in the money supply? Decrease in the money supply?

14. Expansionary Decrease the discount rate: Buy bonds Decrease required reserves

15. Contractionary Increase the discount rate: Sell bonds: Increase required reserves

16. Monetary policy ExpansionaryContractionary Discount rate:Decrease=more borrowing Increase=less borrowing Buy/Sell bondsBuy=more money in circulation Sell=less money in circulation Required ReservesDecrease=more money to loan Increase=less money to loan

17. Fiscal Policy President and Congress Fiscal Policy = Taxes/Government Spending

18. Expansionary Policies Decrease Taxes Increase Government Spending Why?

19. Fiscal Policy ExpansionaryContractionary Taxes:Decrease=people have more money to spend Increase=people have less money to spend Government Spending: Increase=the government is buying more Decrease=the government is buying less

20. Government Spending

21. Where does our government get money?

22. Taxes Different types Flat-All the same Progressive-The more you make the more you’re taxed Regressive-The less you make the more you’re taxed

23. Where does our government get money? Different taxes we pay

24. Types of Spending Mandatory v. Discretionary

26. Pork

27. Entitlements

28. Debt v. Deficit Can you run a deficit without being in debt?