Economic History Analysis Presenatation

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• Real Gross Domestic Product insinuates as the value of the products and services delivered by countries wealth less the goods and services spent in production, adjusted for changes in price (Higgs, 2011).
• This presentation indicates historical overview and examination of U.S. Economy between years 1960-1969.
• It further outlines the Great Society Initiative and Tax Policies reviews as major chronicled occasions that had a noteworthy impact on the country's wealth amid this period.
• It breaks down the unemployment and inflation information amid the 1960s and how the named historical occasion impacted them.
• Lastly, the presentation pays a specific spotlight on the interest rate changes and their effect on different aspects of the wealth.

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• These decade began with a recession from 1960-1961, with growth rate of 0.86% in 1960 (U.S Department of Commerce, 2014) .
• the average growth rate for the whole decade was approximated to be 4.40%.
• the most robust, manageable periods of development rates occurred during this time.
• The recovery from recess was as a result of economic stimulus such as tax reduction.
• during the decade the highest growth rate was experienced in 1965 but from this year going forward, the industries could not increase production as fast as demand was growing at the existing price levels (U.S Department of Commerce, 2014).
• According to capitalist economists, demand is minimized to supply through increase in prices.
• at the end of the decade the economic growth rate was 2.07%.

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• The disincentive impacts of high taxes for investment in plant and equipment was consistent in the 1960s central government. The Federal government supported an investment tax credit to motivate capital formation (Furchtgott, 2013)
• In 1963, the Federal Government recommended cutting individual salaries from a scope of 20% to 91% of the range of 14% to 65%. Further, the corporate tax rate was brought down from 52% to 47%.
• Tax reduction implied higher family revenues and higher business incomes as well as the balanced federal spending plan. People and corporate will have more cash left over after taxes for expenditure and investment (Furchtgott, 2013)
• The tax reduction came about due to increasing the rate of inflation and decrease in the rate of unemployment.
• In 1964, the Federal Government Great Society Initiative was executed.
• The program aimed at the elimination of destitution and racial treacheries. It leads to an institution of few laws to support the Great Society programs. The initiative programs were legitimate ways for the correction of envisioned business market disappointments (Madura, 2014).

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• Towards the beginning period, U.S. was in recess. In this way, increased rates of unemployment were around 6% and 7% in 1960 and 1961 respectively.
• The Philip curve very much discusses the connection between the rate of inflation as well as the rate of unemployment. As indicated by Philips these two rates have a backward relationship (United State Department of Labor, 2014)
• From the information shown in the above table, when unemployment is high, wages increases gradually. Then again, when unemployment is low wages increases quickly.
• The contention behind Philips thought is that lower unemployment rates, the human resource market are tighter, hence, the faster the employers ought to raise salaries to draw rare labor.
• The connection between unemployment and general price inflation is also inversely related. The prices charged by an organization are firmly associated with the pay rates and wages they pay.
• The 1960s experience proposed that unequivocally the sort of trade off the Phillips curve suggested did, in fact, existed in the United States.
• From the data above, if the yearly rates of inflation (calculated using the certain price deflator) are plotted against annual rates of unemployment from 1961 to 1969. The points would seem to take away entirely like a Phillips curve relationship.
• The regular citizen unemployment rate tumbled from 6.7% in 1961 to 3.5% in 1969 (United State Department of Labor, 2014).
• The inflation rate ascended from 1.71% in 1961 to 4.40% in 1969.

While inflation dunked marginally in 1963, it gave the idea that, for the decade overall, a decrease in unemployment had been “exchange” for an increment in inflation.

• In the mid-1960s, the economy moved into an inflationary gap as unemployment fell underneath its average level.
• The economy had as for now attained its full employment level of yield when the 1964 tax reduction was implemented.

The Federal Government attempted a more expansionary financial strategy in the meantime (McEachern, 2014).

• The consolidated impact of the two strategies increased total demand and pushed the economy past full employment as well as into an inflationary gap.

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• Inflation alludes to the rate at which costs for products and services increases steadily. On the other hand, interest rates allude to the measure of interest paid by a borrower to a lender (McEachern, 2014).
• The 1960s proceeded with ascending in interest rates as it can be seen in the above presented data.
• Typically, as rates of interest are brought down, more individuals have the capacity to acquire more cash. The outcome is that consumers have more cash to spend, bringing the economy to develop and inflation to increment. The inverse remains constant for rising rates of interest. As interest rates are expanded, buyers tend to have less cash to spend. With less expenditure, the economy moderates and inflation declines.
• For instance, in 1968 and 1969 inflation rates were roughly 3.65% and 4.40% respectively. Amid this period, as demonstrated by the above data, the interest rates ranges from 6.5% in 1968 April to 8.5% in 1969 June (Interest Rates History, 2008)
• Interest rates, inflation as well as exchange rates are all profoundly connected.
• Fluctuating interest rates apply impact over both inflation and foreign exchange rates, and alternating interest rates affect inflation and cash values.
• Higher interest rates offer financial institutions in an economy a higher return. In this manner, higher interest rates draw in outside capital and results to rise in the rate of exchange.
• The effect of increased interest rates is relieved. In any case, if inflation in the nation is much higher than in others, or if extra elements serve to drive down the currency(Interest Rates History, 2008)
• The inverse relationship exists for diminishing interest rates, that is, reduced interest rates tend to decrease the rates of exchange.
• Low-interest rates would lead to the impact of expanded investment and expenditure. Vast sums will be utilized in real estates, financial markets, and business expansions.

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Speaker’s notes.

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• For decades, a few of the economists were convinced that Keynes’s theory best described fluctuations in economic pursuits.
• During 1960,s application of Keynes’s expansionary fiscal policies by the then U.S. Government has proved to be a success.
• Fiscal policies refer to the utilization of government spending and levies to control the level of economic activities. They assist in an endeavor to counter a recessionary as well as an inflationary gap (Bartlett, 2012).
• This presentation pays specific attention to the fiscal policies adopted by the U.S. government between the years 1960-1969.
• The fiscal policies presented include adjustments in business and personal incomes, Government spending and transfer payments as the major policies applied during this decade.

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• The 1962 Revenue Act saw the initial fiscal policy measure through a tax relief that provided liberalization of depreciation allowances on new plant and equipment as well as giving a 7% investment tax credit to businesses.
• An investment tax credit enables the companies to minimize their tax liability by a percentage of the investment it engages in during a particular period. With an investment tax credit of 10%, for instance, a company that invested $1 million during annually could minimize its tax liability for that fiscal year by $100,000.
• Investment tax credit stimulates additional private sector investments. Tax relief on a company’s profit has the chances to have the same impact.
• An increase in the investment tax will motivate investment, therefore, the aggregate demand curve shift to the right. Real GDP, as well as price levels, will rise and vice verse when there is an increase in business income tax rates.
• The 1964 Revenue Act lessened individual tax rates from 91% to 70% as well as companies tax rates from 52% to 48%. As stated by Keynesian economic, the aim of tax cut policies is to raise individuals income, increase consumption and grow capital investment. As a result unemployment decreases and tax revenue increases. Tax cut encourages individuals and corporate incentives to invest (Tax Legislation 1960-1969, 2014).
• On the other hand, Act on income and expenditure control generated a 10% tax surcharge on both individuals earnings as well as companies profits.
• Tax surcharge is usually effected to minimize the deficit. However, an economist like (Thorndike, 2005) argues that its too tiny to reduce the deficit considerably. It further depress the economic involvements, expanding unemployment as well as delay the economic recovery process.
• Tax surcharge raised taxes since production was increasing rapidly, and there were hopes it would remain surcharging.
• Tax reforms policies enacted in 1969, initiated lowest tax to avert the rich from legally keeping away from income taxes altogether (Bartlett, 2012).

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• The government spending involves a broad range of services offered by the government. The federal government expenditure is on such things such as national defense, programs like security and social care, discretionary spending among other expenses (Musgrave, 2004).
• Government spending impact almost all the sector in the economy.
• Whenever the government spending is high, there is more money supply in the economy. This means that more money gets into the hands of citizens who in turn spend it in consumptions. On the other hand, more money gets in the hands of private enterprises when it procure goods and services (Boccia, 2014).
• The government increases its spending to help boost the economy and increase employment rates.
• In 1960, the government strengthened its expenditure as a paramount fiscal tool to counter the high unemployment, recession and depression among other economic hardships.

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• Transfer payments refer to the provisions of help or money to persons who is not expected to provide anything in return for the payment (Boyes & Melvin, 2013).
• During the periods of 1960 the economy was under recess therefore transfer of payments rose.
• This was the decade in which the federal programs like Medicare as well as Medicaid were developed other programs expanded. There was the extension of the minimum wages to workers, the institution of unemployment compensation plans and Urgent relief for feed cereals farmers.
• In 1960, these spending amounted approximately 6% of the real GDP.
• The purpose of increasing transfer payment was because the economic activities were small, income among individuals and corporate was low and high rates of unemployment.
• During the recess of the 1960s, more people qualified for transfer payments. Thus, the Transfer payments were high.
• Transfer payments also involve payment of individuals for loss of employments.
• It was worth to note, that as economic growth rate increased in the late 1960s i.e. jobs, and revenues increased, few people qualify for transfer payments thus spending for such strategies tends to decline.

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• The procedure by which the financial authority of a nation controls the money supply, regularly focusing on inflation rate or interest rates to guarantee price stability and general confidence in the currency. Further, objectives of a monetary approach are normally to add to monetary development and security, to lower unemployment, and to keep up unsurprising trade rates with different currencies (Meulendyke, 1998).
• Monetary policies can either be expansionary or contractionary.
• Expansionary policies expands the aggregate circulation of money in the economy more quickly than regular.
• Contractionary policies increases the money in circulation more steadily than normal or even decrease it.
• With the aim of fighting un employment as well as recession, Expansionary policy is utilized. This is done by lowering interests rates.
• Contractionary policy is aimed to decrease inflation in order to counter the resulting distortions and down turn of asset values.
• Monetary policy uses the following major tactical techniques to maintain the economic stability:
• Open market operations
• The rates on reserves
• The discount rates

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• The Fed utilizes open market operations as its key tool to impact the supply of bank reserves.
• This technique consists of Federal Reserve procurement and sales of financial instruments, generally, securities issued by the U.S. Treasury, Federal agencies and government-sponsored enterprises (M.A.Akhtar, 1997).
• Open market operations are taken out by the Domestic Trading Desk of the Federal Reserve Bank of New York under instruction from the FOMC.
• When the Fed intends to expand reserves, it purchases securities and pays for them by making a deposit to the account maintained at the Fed by the primary dealer’s bank. When the Fed wants to reduce reserves, it sells securities and collects from those accounts. Most days, the Fed does not want to increase or decrease reserves permanently, so it usually engages in transactions reversed within several days. By trading securities, the Fed influences the amount of bank reserves, which affects the federal funds rate, or the overnight lending rate at which banks borrow reserves from each other.
• In the event of recession occurring in 1969, the FED increased its open market procurement exercise (Wessels, 2011).
• It was intended to stimulate the expenditure.
• Fed policy accommodated rejuvenated business expenditure, again through open market procurement.
• Stimulation and accommodation policy resulted to higher inflation.

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• The discount rate is the rate of interest charged to commercial banks as well as other depository organisations on credit they garner from regional Federal Reserve Banks lending facilities (The Discount Rate, 2014)
• Decreasing the discount rate is an expansionary measure since lower rates motivates expenditure as well as borrowing by consumers and enterprises. Vice verse results are experienced when the discount rates are increased.
• In 1960the discount rate was only reduced to 3% to encourage borrowing by businesses and consumers. It encouraged spending and investments.
• The discount rate was relatively changed infrequently in the 1960 to the mid 1965 period, rising to 3.5 % in the mid 1963 to 4% in the late 1964 (Wessels, 2011).
• The relative stability of the discount rates during this decade reflects the slow course of monetary policy and was taken by the market as, in part, indicative of the likelihood for interest rate stability.

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• Reserve ratio is the aggregate of funds that a depository organisation should hold in reserve averse to specified deposit liabilities.
• Depository organisations are required to hold reserves in the form of either vault cash or deposits with federal financial institutions.
• Expanding the reserve ratio decreases the amount of deposits that can be assisted by a given level of reserve. Therefore, reducing the money stock and increase the cost of loan.
• When reserves were paid no interest, financial institutions opted not to hold surplus reserves owing to the fact that in doing so they sacrifice the chance to hold other assets that paid interest.
• Since 1960s the total of surplus reserves held in the financing system was only a miniature fraction of aggregate reserves (Timberlake, 2013).
• When banks attempt to reduce surplus reserves, any alteration in either reserves or in the expected reserve ratio will change the totals of deposits people hold and thus the totals of money in circulation.
• Banks on their own can change neither.
• In spite of the fact that the public prompt changes in both, most changes in them were the outcome of the Federal Reserve System using three policy tools.

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