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

2. 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)

3. 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

4. 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

5. 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

6. 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

7. Comparative Economic and Political Systems

8. 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

9. 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

10. 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

11. 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

12. 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)