Identifythree key

Chapter 4

Economic Policies

By. Anthony Jones

An economic policy is a course of action that is intended to influence or control the behavior of the economy. Economic policies are typically implemented and administered by the government. Examples of economic policies include decisions made about government spending and taxation, about the redistribution of income from rich to poor, and about the supply of money.

Economic Policy

The United States is a Democracy

Microeconomics

Macroeconomics

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Through our governance process citizens decide what they want, including functional roles and economic policies. In the last chapter, we looked at the evolution of this process through an examination of government roles. In this chapter, we take a different vantage point by looking at current government policies through the lens of microeconomic and macroeconomic theories.

The main difference between microeconomics and macroeconomics is scale. Microeconomics studies the behavior of individual households and firms in making decisions on the allocation of limited resources. Another way to phrase this is to say that microeconomics is the study of markets.

In contrast macroeconomics involves the sum total of economic activity, dealing with the issues such as growth, inflation, and unemployment. Macroeconomics is the study of economies on the national, regional or global scale.

1. Government Influence by Regulation

Government Regulation

Governments, through their elected representatives, get to tell people what to do.

Governments are charged with regulating all sectors (including the government sector itself)

Government Influence by Financial Methods

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Eminent Doman

A common tool used by governments to the power of the government to take private property and convert it into public use.

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Eminent domain refers to the power of the government to take private property and convert it into public use. The Fifth Amendment provides that the government may only exercise this power if they provide just compensation to the property owners.

Tax policy includes decisions about the types of taxes collected, tax exemptions, tax progressivity, tax enforcement, and overall rates of public taxes.

Fiscal Policy

Taxes can be either broad based or specific.

Regressive taxes charge everyone the same amount for a product or service, but a larger percentage are those with lower incomes. Taxes on food are a prime example of a regressive tax.

A progressive tax makes those with more disposable income pay a greater portion of it in taxes.

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Broad-based taxes are assessed on everyone (e.g., income tax or sales tax), while other taxes focus on specific things (investing, buying certain products, owning certain things).

Monetary Policy: Money Supply and Interest Rates

Monetary policy concerns control of the money supply or how much money is in circulation.

In the United States, monetary policy is controlled by the Federal Reserve System.

Two main areas where the Fed influences the money supply are in setting interest rates and regulating bank activity.

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The Federal Reserve System is the central bank of the United States.

The FRS provides the country with a safe, flexible, and stable monetary and financial system.

Known simply as the Fed, it is composed of 12 regional Federal Reserve Banks that are each responsible for a specific geographic area of the U.S.

The Fed's main duties include conducting national monetary policy, supervising and regulating banks, maintaining financial stability, and providing banking services.

Economic Policies at Different Levels of Government

The federal government has the largest tax and spending impact.

The federal government has sole control of interactions with other countries and with interstate commerce.

The Supremacy Clause written in the constitution states that federal policy takes precedence over state and local policies

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Most of the issues that have been addressed in this chapter have related to the federal government. The federal government has the largest tax and spending impact. The federal government has the constitutional role of printing money and controlling its supply. The federal government has sole control of interactions with other countries and with interstate commerce. In addition, the Constitution, with its “Supremacy Clause,” states that federal policy takes precedence over state and local policies.

Thank You!!

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