Economic Systems and U.S. Economic Policy Chapters 17-20

U.S. Economic Policy Free enterprise - economic system where private businesses compete for profit with little government regulation Deficit - condition where government spending exceeds government revenues (usually in the billions of dollars) National debt - the sum of the money borrowed by the federal government, as well as accrued interest, that still has to be repaid (currently in the trillions)

Monetary policy - refers to the government’s control of the money supply through the Federal Reserve System Federal Reserve System - “the Fed” controls the amount of money put into the economy as well as the setting of interest rates Made up of 12 regional banks which head various districts Fiscal policy - refers to the government's taxation and spending policies Keynesian economics - John Maynard Keynes tough economic times, government should expand its spending times of inflation, government should raise taxes to reduce the amount of money in circulation Supply-side economics Concentrates on large tax cuts to give people more of their own money which will stimulate economic growth

Government Revenues Federal Income Taxes Other Tax Revenues Makes up 39% of the total revenues the government receives Progressive Tax - those who make more money pay higher tax rates Corporations pay income taxes as well (about 10% of the total revenue) Other Tax Revenues Social Insurance Taxes - make up about 32% of total tax revenue and consist of taxes on Social Security, Medicare, and unemployment Regressive Tax - taxes that are more burdensome for low-income people Excise taxes - goods and services Estate taxes - property of the deceased Gift taxes - gifts or property over $10,000 Customs, duties, and tariffs - taxes on imports

Government Expenditures Entitlements - payments given to certain people who meet specified requirements Social Security Medicare Unemployment Welfare Around 50% of total federal spending National Defense - money used for military functions, entities, and operations as well as to fund other government agencies that support national security endeavors (this amount varies from year to year depending on whether at war or peace) National Debt - less than a fourth of the total government spending goes to pay the interest owed on the national debt Remaining money goes to fund government programs, national infrastructure, grants, education, and foreign aid

The Federal Budget Agencies and departments make requests and estimate needs Office of Management and Budget reviews the requests, revise the budget and submits it to the White House OMB submits a revised budget to Congress and Congress reviews it Congressional committees work out appropriation bills (spending bills), finalize the budget and send it to the President

Comparative Economic and Political Systems

Capitalism Economic system that consists of open competition in a free market driven by private ownership Private Ownership - business and industry is owned and operated by private individuals and investors rather than by the government Production - businesses need land, human resources, capital, and management to operate business efficiently Free Competition - businesses compete with one another to offer the best products and the lowest prices in the most pleasing manner (this dictates profit and the overall success of the business) Supply and Demand - these two laws dictate prices in a free market system (supply up, prices down - demand up, prices up, demand down, prices down) Choice - all parties involved in the economy decide for themselves when and in what manner they get involved (entrepreneurs and consumers) - opportunity cost is the cost of the alternative to personal expenditures Laissez-faire - economic theory promoted by Adam Smith that government should not interfere with business unless absolutely necessary Market economy - economy is controlled by private individuals with limited government involvement

Communism Economic and political system that consists of government control of economic activity and the means of production Theory of Karl Marx Original communal societies Class struggle Labor theory of value Economic control of society and government Revolution of the proletariat Dictatorship of the proletariat Marxism focuses on and stresses class struggle and the clash between classes Communist evolution Russia in 1917 China in 1949 Vietnam in the 1950s, 1960s, and 1970s Cuba in the 1950s Soviet Union eventually fell in 1991 Command economy - the government controls the economy

Socialism Economic system that consists of government ownership of the means of production Elements of Socialism Nationalization - government takeover of key private businesses/industries either with or without compensation Public Assistance - government provided care to eliminate extreme poverty (ex., housing, health care, direct relief) Taxation - to pay for the government programs, taxes tend to be higher than in capitalist states, usually around 40-60% of a person’s income Command Economy - the government controls the economy

Democratic Political Systems Political participation by citizens Interest groups Citizens involvement Freedom of communication and speech Fox News v. CNN v. MSNBC Media needs to be objective and present all views Recruitment of political leaders Different backgrounds Different regions Effect of citizen participation Political efficacy High voter turnout Rule of law Presidential impeachment U.S. v. Nixon Competitive popular elections Primaries and caucuses Election field is wide open

Authoritarian Political Systems Citizens as subjects Citizens must obey the government Citizens have little to no input Restrictions of communications and speech Media tells the people what the government wants people to hear Soviet Union, China, Iran Narrow recruitment of political leaders Selected from one political party Inherit rule from parent Rule of individuals, not the law Rulers rule without limit Iran, Venezuela, China, North Korea No competitive elections Elections may not even exist Elections are usually for show only (Saddam Hussein winning 97% of Iraqi vote)