Principles of democracy and the Constitution, all the way to civil liberties and equal protection
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PowerpointChapter17_BudgetandEconomicPolicy.pptxThe Budget and Economic Polices
Chapter Seventeen
Chapter Eighteen (in older editions)
Basic Terms
GDP: Gross domestic product=the monetary value of all goods and services produced in a nation each year. GDP Explained
There are three different ways that economists and statisticians can calculate a country’s GDP and they should all, theoretically, produce the same number:
Expenditures. This is the value of everything that is purchased within the country plus that country’s net exports to other countries.
Income. This is the income of all the individuals and businesses within the country. Also called domestic income.
Production. This is the market value of everything that is produced within the country.
World’s Top Ten Largest Economies
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California Is 6th Largest Economy
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Terms p.2
Inflation: When prices rise, the value of money declines, and people can buy less with what they have. What is Inflation?
Recession: At least two quarters (6 months) where the GDP declines.
Depression: Severe and persistent drop in economic activity
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Goals of Economic Policy
Economic growth: Annual increase in the GDP=more jobs, more goods and services produced, higher incomes, more profits for companies
Control inflation: where your purchasing power declines and the holdings of banks decrease.
Trying to slow inflation by increase interest rates may slow growth at the same time.
Goals p.2
Maintain positive balance of payments: the annual difference between payments and receipt between us and our trading partners or exporting more than we import
Goals p.3
Maintain budget discipline: small deficits are okay but large ones can hurt our ability to borrow and continue investing
Goals p.4
Avoid negative externalities or the bad effects of economic growth
pollution
workplace injuries
health hazards
Unsafe products (such as tainted food, toys with lead, etc.)
Ex. Toyota
Tools of Macroeconomic Policy cont…
Macroeconomic policy looks at the performance of the economy as a whole or broad areas of the economy, such as employment.
Fiscal policy
Congress and the president try to alter government finances by raising or lowering government spending, raising or lowering taxes, and raising or lowering government borrowing
Difficult to use ex: the bailout, ARRA
Tools of Macroeconomic Policy
Government policy to influence interest rates and control the supply of money in circulation
Federal Reserve Board
Actions by the Fed affect how much money is available to businesses and individuals in banks, savings and loans, and credit unions.
It influences interest rates and the money supply.
Open market operations
Discount rate
Reserve requirements
Proper Role of Government in the Economy
Keynesians: If the economy is not being used to full capacity, it is the govt’s role to stimulate growth through increasing government spending, tax cuts, etc.
Monetarists: the gov. role should be limited to managing the money supply and credit
Proper Role of Government in the Economy p.2
Supply-side economic policy: The government should loosen the reins on the free market, cutting taxes, reducing regulations on businesses.
New Growth Theory: using government money to stimulate research, innovation, education, labs, science, etc.
Not always clear cut between Reps. and Dems
The Deficit and the National Debt
The budget deficit is the annual shortfall between what the government spends and what it takes in.
The national debt refers to the total of what the government owes.
Benefits and dangers of national debt
Rise of national debt typically associated with war
The Deficit and the National Debt p.2
The budget deficit is the annual shortfall between what the government spends and what it takes in.
The national debt refers to the total of what the government owes.
Benefits and dangers of national debt
Rise of national debt typically associated with war
Trump and the national deficit/debt
Taxation
Federal government
depends mostly on income taxes, which are only mildly progressive
other federal taxes, such as Social Security, are regressive
recent tax cuts for the rich will make the distribution of wealth more unequal
State governments depend mostly on sales taxes
Local governments depend mostly on property taxes
Safety Nets: Key Ideas
Some safety net programs are administered directly from the federal government (ex. Social Security) and others are jointly administered from state and federal programs (ex. Medicaid and unemployment)
Entitlements: payments are made to people who meet certain eligibility requirements
Government Insurance: Medicare, Medicaid, and CHIP:
Three health insurance programs — Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) — together accounted for 22 percent of the budget in 2013, or $772 billion.
Cash Programs
Earned Income Tax Credit
Child Tax Credit
2) Cash payments SSI: Supplemental Security Income for the elderly or disabled poor and unemployment insurance
Safety net programs p.3
3) For low-income families and individuals, including
SNAP (food stamps)
School meals
low-income housing assistance
child care assistance
assistance in meeting home energy bills;
4) various other programs such as those that aid abused and neglected children.
Safety net programs p.4
Such programs keep millions of people out of poverty each year.
A CBPP analysis shows that government safety net programs kept some 41 million people out of poverty in 2012.
Without any government income assistance, either from safety net programs or other income supports like Social Security, the poverty rate would have been 29.1 percent in 2012, nearly double the actual 16 percent
Social Security
Social insurance
benefits based on contributions
Social Security
Funded by payroll tax
Due to an aging population, Social Security will run a deficit unless reforms are made.
Social Security p. 2
Democrats favor small reforms.
Republicans favor a major overhaul, specifically privatizing individual retirement funds.
Medicare
Entitlement program for retirees and the disabled
Prescription drug benefit began in 2006
One of the most costly federal programs
Payments are a recurring problem
