1. Government Economic Policy Keynesian, supply side, mixed, laissez- faire

2. The United States is a pluralist democracy Decentralized power centers Multiple access points Policy fragmentation Slow and cumbersome How our government reacts to economic ups and downs Economy is the number 1 issue in our upcoming presidential campaign

3. Elements of the economy Inflation/deflation Interest rates Supply of money in circulation Profitability of corporations Foreign competition International trade agreements Consumer confidence Employment

4. United States economic system Mixed economy-government and private industry plays a role Free Market/Laissez-faire-Government has little or no influence over the economy. Plagued by large swings between prosperity and contractions

5. To Tax or Spend, that is the question. Keynesian-Government should intervene in the economy to smooth out lows. Uses fiscal policy and monetary policy Supply Side economics-large tax cuts would result in increased consumer spending which would offset losses of federal revenue because business would expand thus creating more jobs. Federal spending on domestic issues would also be reduced.

6. Fiscal Policy Government action lowering or raising taxes and increasing/decreasing federal spending Keynesians-government should spend more during downturns, surplus taxes should be saved to pay for future spending-Keynes Supply siders-inflation caused by too many dollars chasing too few goods. Increased goods to cut inflation. Cut taxes and spending-Reaganomics/voodoo economics-

7. Monetary Policy-Government control of the Money Supply Federal Reserve-National banking system-stretching our money supply- HA HA, get it? 1.Increases Money supply by lowering interest rates 2.expands the economy resulting in higher wages and prices

8. Monetary policy continued Federal Reserve continued 1.Raising interest rates created deflation 2.Lower prices and wages slows economic growth

9. Federal Reserve economic manipulation Reserve requirement-raises or lowers the amount of money banks must keep on hand 1.Shrinks the amount of money available to borrow which will raise interest rates 2.Lowering reserve will make more money available by lowering interest rates

10. Fed Manipulation Continued Manipulating the Discount rate 1.Lowering the discount rate will lower interest rates for consumer loans 2.Raising the discount rate will raise the interest rates 3.The Higher the rate the less consumers purchase

11. Fed Manipulation Once Again!!!! Manipulation of open market operations when the Fed buys and sells U.S. government bonds 1.When Fed sells bonds people withdraw money from banks to buy bonds causing consumer interest rates to go up because banks have which slows economic growth and spending 2.When the Fed buys bonds more money is available for loans, interest rates go down and consumer spending goes up as does economic growth.

12. Monetarists Government should intervene only to manipulate the money supply Money supply should increase at a constant rate in order to accommodate economic growth Interest rates and tax changes don’t impact economy Milton Friedman 1990s expansion without tax cuts

13. Tools of economic policy-advisors to the president The Council of Economic Advisors National Economic Council The Office of Management and Budget The Secretary of Treasury

14. Fiscal Policy Making OMB-creates budget-incrementalism 1.Created by Budget Reform Act 1974 House Ways and Means-taxing Appropriations committees-spending Congressional Budget Office-Budget Reform Act 1974 1990 Budget Enforcement Act 1.Mandatory (S.S., MC)or discretionary (defense, ed, gov. ops)

15. Trade Policy-Richest nation in world California in top 10 biggest trade nations Balance of trade-deficit means money is going out from country Current U.S. deficit $206 billion US signs GATT-General Agreement on Tariffs and Trade morphed into WTO- lower tariffs and reduce unfair trade NAFTA-some + some -

16. Party fears Democratic Party works to limit unemployment-Wants the government to be an active participant in the economy-Spending Keynesian, favors an increase in minimum wage Republican Party-wants to control inflation (like rising wages)which cause an increase in the cost of production and decreases profit, opposes an increase in the minimum wage