2. Hello! Sit in assigned groups; Take out notes
1. What is The Employment Act of 1946?

3. The Employment act of 1946
“The Congress hereby declares that it is the continuing policy of the Federal Government to use all practicable means…to promote maximum employment, production, and purchasing power.” 2. Summarize the significance of this act in 2 sentences.

4. Employment Act Landmark legislation
It put Congress on record as taking responsibility for providing maximum employment and stable prices
(Federal Reserve System)
It also established the CEA
CEA- 3 member panel of economists appointed by the president and confirmed by the Senate
3. What does the CEA do?
The advise the president on economic issues and legislation
They explain the president’s economic policies to Congress and the public

5. Leading up to fiscal policy
Unemployment rate dropped from peak in 1933 (25%) to 10%
It dropped when the US entered WWII
It remained at historically high levels until MASSIVE federal expenditures began in WWII

6. Fiscal policy
Changes in federal spending or tax levels that influence national levels of output, employment and prices.
Expansionary
Increase federal spending
Decrease taxes
Contractionary
Decrease federal spending
Increase federal taxes

7. FISCAL POLICY
Since the Great Depression and WWII, most economists have accepted the idea that changes in the federal budget (spending, taxes, or both) can have a significant effect on the national economy.
In periods of high unemployment and low inflation- such as Great Depression, although fortunately never again on that scale- expansionary fiscal policies designed to stimulate the overall level of spending and demand in the economy are appropriate
Have gov. spend more or lower taxes on consumer and businesses
ULTIMATELY stimulating the economy and lowering the unemployment rate

8. Letter from Maria Answer questions as a group on a piece of paper
Create a list of questions regarding fiscal policy and the letter (requests in letter pertaining to fiscal policy)
For example:
How can fiscal policy impact consumer buying power?
(from paragraph 2)

9. Contractionary policy
Used in situations where total spending in the economy is increasing so rapidly that it creates inflation (persistent rise in the general level of prices)
-How can the federal government reduce total spending??
Raise taxes or reduce government spending
What will that mean for consumers and businesses?
LESS money to spend, reducing the overall level of demand for goods and services, UPWARD pressure on price level for those products

10. Expansionary policy
Used in situations when the economy is significantly below full employment and there is no indication of sever inflationary problems
Why is it important to avoid expansionary policy when inflation is high??
Growth = increased demand = increased prices (inflation)

11. Current happenings
Using your resources at your table (whatever phones are there)
Look up an article regarding current fiscal policy
What is the article about?
What type of fiscal policy is being used?
Summarize!

12. Hello 5/8/13 Take out notes What was the New Deal?
Series of domestic economic programs enacted in US between 1933 and 1936
Roosevelt’s programs in response to the Great Depression
3 R’s: Relief for the unemployed/poor
Recovery of the economy to normal levels
Reform the financial system to prevent a repeat depression

13. John maynard keynes (1883-1946)
Government spending during WWII inspired what???
Fiscal policy!!
The impact of the spending on GDP and unemployment inspired Keynes’ ideas in his book, The General Theory of Employment Interest and Money
KEYNES- LEADING ECONOMIST

14. Expansionary or contractionary?
5. The economy is suffering from its worst slowdown in 30 years. Unemployment has reached 10%. EXPANSIONARY 6. The annual inflation rate is slowing and now stands at 2.5% NO CHANGE 7. We have some good news and some bad news: The unemployment rate has fallen to the lowest level in a decade, 2.3%. But inflation has risen to 8%. CONTRACTIONARY 8. The unemployment rate remains steady at 11%. 9. The annual inflation rate is 8.5% and rising.

15. Politics
10. Would using expansionary fiscal policy to fight high unemployment be politically popular? Generally yes, because consumers and businesses gain directly from tax cuts, and at least some of them also benefit from government spending programs

16. 11. Would using contractionary fiscal policies to fight high inflation be politically popular? No- raising taxes takes money away from consumers and businesses, and although some people support cutting government spending, often the people who will be hurt by cutting the spending programs are much more upset and likely to vote against candidates proposing such cuts than the “average” taxpayer whose taxes will be reduced by a relatively small amount

17. 12. Does the political response to actions taken by Congress and the President to raise or lower government spending or taxes mean that fiscal policy might be more effective in fighting unemployment than in fighting inflation? Yes

18. Issues with fiscal policy
Political problem- “do the right thing” might be unpopular with voters
Time lags
Have you waited in your car for the light to turn from red to green?
Does anyone move RIGHT when the light changes??
The 1st driver in line must:
See the light change
Wait for the first car to move before accelerating
Every car must wait for every preceding driver
Similar kinds of time lags affect fiscal policy

19. Timing problems
Recognition lag- the time it takes policymakers to recognize that unemployment or inflation have become a serious national problem.
Time between the start of a serious macro. Problem (inflation/recession) and recognition of the problem by decision-makers
DATA- often contradictory when a period of high unemployment or inflation is just beginning

20. Recession
6 consecutive months of falling national output and income (GDP)
Why do you think different economists and policymakers offer significantly different predictions about what is happening in the economy at any given time?

21. Time lags
Administrative lag- the time it takes to change government spending or taxes once the problem with unemployment or inflation is recognized.
Once policymakers have defined the problem, they still have to decide what action to take
A bill must be written and passed by Congress… time time time

22. Time lags
Operational lag- the time between adopting the change in government spending or taxes and when the policy begins to have an effect on the economy’s output, employment, or price levels.

23. Time lags
Due to these time issues and effects of other forces in the economy, many economists strongly question the practical or even theoretical effectiveness of fiscal policies that have to be passed and implemented in response to a macroeconomic problem
“idiot in the shower” analogy
So, can fiscal policy be used to “fine tune” the ups and downs of the national economy?

24. Automatic stabilizers
Fiscal policies that, without any new action by Congress or the President, decrease government expenditures or increase tax revenues during periods of rising inflation and falling unemployment, and increase expenditures or reduce tax revenues in times of rising unemployment and low or falling inflation

25. Automatic stabilizers
13. Federal taxes on corporate profits. Y 14. Unemployment compensation programs. 15. National defense spending on the military. X 16. Welfare programs for the poor. 17. Education programs for colleges and universities. 18. Social Security payments for retired workers. 19. The federal personal income tax.

26. Hello! Take out your notes… you will need them!
Draw a picture to represent fiscal policy.

27. Q 20& Project log #1
After answering questions 10 & 11-
22. What would you have recommended to the president if the problem had been rapid inflation during a period of low unemployment?
23. Would your recommendation change if the President was serving his or her second term, rather than a first term?
Answer on a half sheet; (at least a paragraph- justify your response)
How can fiscal policy be used to help workers like Joe Brezinski?
Don’t forget the stipulations set forth by the President- he does NOT want debt to be increased
If you feel that a policy that would increase debt is best, will you try to convince or persuade the president?

28. Fiscal policy comic Create 2 comics:
The first should explain expansionary fiscal policy (when/why it would be used)
The second explain contractionary fiscal policy (when/why it would be used)

29. Letter from Angela Soracco
Read silently
Questions on the back (into notes)

30. Tools of monetary policy
Discount rate- the interest rate charged by the central bank on loans to commercial banks
Reserve requirement- the minimum level of deposit reserves commercial banks must hold
Open market operations- the central bank buys and sells government bonds