AP Gov Chapter 16

monetary policy

- govt affects the amount of money in circulation to keep the economy going well and avoiding inflation and recession how much money is there available for people to borrow. The Fed (federal reserve bank) have control over monetary policy.

regulation, consumer

- the constitution allows Congress to regulate foreign and interstate commerce -originally the govt regulated very little, now it regulates almost all aspects of the economy ___-any method the govt uses to alter the natural workings of the open market to achieve some desired goal -the market does have imperfections e.g. there was no cost to companies when they polluted the environment, but there was to people -when companies are regulated, they pass the costs of that regulation on to the ___ -when they have to pay higher minimum wage, prices will generally go up

congressional budget office

-Congress now has its own ___ which prepares budget data and analyzes budgetary issues; they may disagree with the president

interest, 16 trillion, democrats, conservatives, investments

-as the debt increases, the govt must spend more money on ___ on the debt -by 2012, the federal debt had ballooned to ____ because of the sagging economy ___ wanted more govt spending to stimulate the economy while the Republicans wanted tax cuts to stimulate the economy ___ always like tax cuts-people will spend more and invest in the economy -2012 survey showed 60% of Americans think the wealthy do not pay their fair share of taxes, but also said the poor were in trouble because of their own failures We tax very little on _____ to encourage people to invest.

less, keynesian, deficit spending

-conservatives tend to favor laissez-faire economics which calls for __ govt spending, lower taxes, and less govt regulation of business -liberals tend to favor ___ economics which favors govt spending to help out the economy during hard times e.g. Obama stimulus bill of 2009 The Republicans claimed that the stimulus was not very effective -___ has become a habit with our govt for years

obama's stimulus

-during a recession, the government may want to lower taxes so that people will have more money to spend and invest in new businesses ___

consumer price index, 3%,

-inflation is measured by the ____(CPI) which shows how much more or less consumers are paying for a 'basket of goods" __is considered a good inflation rate-what you're paying a dollar for at the beginning of the year, you're paying 1.03 by the end of the year. In the early 70s, we had inflation rates that were really high- -unemployment rate is the % of able bodied workers looking for work and can't find it -see unemployment rates over time on p. 509

commerce, legislative and executive brances, capitalism

-the Founding Fathers wanted a govt strong enough to promote free trade, protect patents and copyrights, and enforce contracts Government has gotten much more extensive now -they also wanted the govt to promote ___ through building roads, railroads, canals -economic policy making control was divided between the ___ branches -the framers wanted to protect ___ by creating a govt with limited powers -but now the govt does get involved through the tools called fiscal and monetary policy

world trade organization, general agreement on tariffs and trade, labor unions

-the ___ and THE ___ have negotiated trade agreements that encourage free trade -many American ___ don't like free trade because they say it hurts American jobs and encourages low wage jobs around the world -America has objected to the Chinese for restricting free trade; the WTO can rule on these objections

north american free trade agreement (nafta), protectionism

-the ___ has eliminated tariffs between the US, Canada and Mexico and encouraged trade; it is the largest free trade zone in America -Canada is our #1 trade partner and Mexico is our #3 trade partner -most economists oppose ___ (tariffs and quotas) because it prevents efficient use of resources and causes higher prices, but some unions still favor it somewhat

2009 and 2010, debt, economy

-the federal govt borrows from those people and banks who buy Treasury notes and US govt bonds grandparents sometime give bonds and save it for college. Banks lend money to the government by buying Treasury notes. -the economic strength and resources of our country are more significant than the size of the debt, but we don't want to owe TOO MUCH money especially to foreign investors you have to compare the debt and the interest on the debt to the GDP. ___were the worst years of the recession-people aren't paying taxes, getting unemployment benefits When the ___ keeps growing and the ___shrinks is when it becomes a problem. We had a surplus in the year 2000

expansion, recession, social and foreign

-the goal of good economic policy is to make sure the peaks of _____ are not too high and the troughs of ____ are not too low -the federal govt exercises less control over the economy than it does over ___ policy; we will sometimes have inflation (rising prices of goods and services) or high unemployment (% of people looking for work) regardless of what the government does

expansion, contraction, recession, recovery

-the normal business cycle includes 1)___ 2) ___ (going down) 3 )___ 4) ___ we are in a recovery right now-people are concerned we aren't recovering fast enough. Unemployment rate during depression is 25%. Our unemployment rate right now is 6.6%. Generally 4% is considered a good unemployment rate-there are always going to be some people out of work. As an employer, you don't want an unemployment rate of 2%, there are not enough people to choose from and you have to pay people more. We live in a free economy-capitalism there are things the government can do to help but can't change it completely.

banking, housing market, deregulation

-the telephone industry was deregulated to increase competition between phone, cable and other communications companies -___was partially deregulated in the 1990's and people could get more services and loans, but banks merged and some became "too big to fail" -many banks packaged bad mortgages and the ____ collapsed causing the great collapse of 2008. Deregulation was partially blamed for this -the general idea behind ___is to allow more competition between business and therefore lower prices for consumers

raise, sell, raise

-to combat inflation, the Fed would want to slow down the economy. They would 1. __ the discount rate; this would raise interest rates and people would buy less 2. __ govt securities; people would buy these rather than invest in stocks 3. __ the reserve requirement; banks would now have less $ to lend out

lower, banks, lower

-to combat recession, the Fed wants to speed up the economy. They would 1. __ the discount rate See chart p. 517 2. buy govt securities from __; this would free up more money for banks to lend out 3. __ the reserve requirement; banks would have more $ to lend out

fiscal and monetary policy

____are designed to smooth the ups and downs of the business cycle

uncontrollable spending, entitlements

1. Social Security, Medicare, Medicaid, unemployment insurance, veteran's benefits and other ENTITLEMENTS; this is also called ___ or MANDATORY SPENDING you get these benefits because you are entitled to them-qualify for them because of what you have done. If you have paid social security benefits for a time you are entitled to social security benefits. Medicare helps old people get medical care, Medicaid helps poor people get medical care. We spend most of our money on ___ When government wants to cut spending, it's usually entitlements and this is not popular

individual income tax

1. __ - a progressive tax (rich pay higher % of their income) progressive tax-if you earn more you pay more money in tax. Everyone pays 6.2% of their income in social security tax. Most of people our age don't make enough to pay a lot of income tax-usually get tax returns.

social security and medicare

2. ___ taxes - Social Security is regressive tax (rich pay lower %) Medicare is proportional tax-1.45%only pay social security onto income up to $113,700, anything you make above that is not taxed. Earned income is wages.

discretionary spending

2. national defense - example of___ - Congress and the president can change spending rates each year there is a defense appropriations bill that must be passed every year that sets aside money for defense spending.

treasury notes, savings

6. borrowing-govt borrows $ by selling ___ and ___bonds anytime you buy a government savings bond, you are lending money to the government-banks buy a lot of these treasury notes. You are expected to get paid back money with interest. The House raised the debt limit again-the government agrees to paying their bills.

Debt, deficit, deficit

Current federal debt-over 17 trillion dollars. ___ is the total amount of money the government owes-___ is difference in how the government is spending versus to what they are taking in in taxes ____ is going down in the past 2 years because more employment and more taxes being paid.

annual revenues and expenditures, national debt

DEFICIT- difference between ____ in one year; govt spends more than it takes in since we are raising the debt ceiling, we are having big deficits. ___- the cumulative total of all deficits over the years 17 trillion dollars the total government needs to pay back-many Chinese are financing our debt

surplus, balanced, defense spending, tax revenue, Bush

In 2000 we had a ___ -in 1999, the federal budget was___ for the first time in over 20 years -it happened because____ was down after the cold war, 9/11 had not happened yet domestic spending was up but not dramatically, and the economy was growing and ___ increased -but the surplus was gone within three years because of the ___ tax cuts, increased spending on prescription drug plan and the wars in Afghanistan and Iraq along with a slumping economy Bush pushed Medicare Part D-drug coverage that was an expensive plan, and then the government slumped a bit.

occupational safety and health administration, taft-hartley act

Labor Regulations -govt contractors must pay their workers the "prevailing wage" -hourly workers must be paid overtime after 40 hours -child labor is prohibited -the ___sets rules for industrial safety -the ___ outlawed the closed shop but allows a union shop where you are required to join the union AFTER you are hired

inflation

Monetary Policy -the goal of monetary policy is to have a growing economy that avoids the problem of ___(rising prices)

department of commerce, department of agriculture

Promoting Economic Growth -the ___promotes American business and encourages innovation through the protection of intellectual property (patents and copyrights) -the __ gives price supports and subsidies to farmers

trade deficit, subsidize

Promoting International Trade -the US has a ___because our imports exceed our exports -we favor free trade, but some say that American goods are not allowed to be sold in other countries, so we don't have fair trade -some other govts __ their goods for export e.g. steel

federal trade commission

Regulating Business -this started in the late 1800's with anti-trust legislation meant to stop monopolies -the ___ now prevents unfair competitive practices such as price fixing

securities and exchange commission

Regulating Markets -the ____ requires stock brokers to treat all investors fairly -they cannot use insider information to benefit themselves (insider trading) -the SEC came under fire for failing to prevent the 2008 financial collapse

clean air act

Regulating the Environment -projects involving federal funds must make an environmental impact statement which says how the project will affect the environment -the ___tightened emissions standards on cars -global warming is a controversial topic

office of management and budget, congress, paul ryan

The Budget Process The budget is the biggest bill that is passed every year 1. each dept and agency makes its budget for the next year 2. ____ examines those budgets and reconciles them with the president's spending plan; that often means cuts are made 3. OMB helps the President make a Budget Message 4. president submits the budget to __ 5. Congress must study the budget, can make changes, then passes the budget there is a special committee called the Budget committee- __ is Republican head of budget committee.

reduce, trucking and airline,

The Deregulation Movement -this means to __the number of regulations on the economy -regulations are criticized because they impose heavy paperwork requirements and it costs a lot of money to comply with these regulations -the govt deregulated the___industries so that they could charge their own prices; this was meant to increase competition within the industries and it did initially; lately we have seen many airlines go bankrupt and there are more mergers

federal funds rate, government securities, reserve requirement

The Fed's Basic Tools 1. change the discount rate or___ (the interest rates that banks pay to the Fed when they borrow money); this will affect interest rates that you pay 2. sell ___; when they sell govt bonds, this will slow down the economy because people are less likely to invest in the stock market 3. change the ___ (the amount of $ banks must keep and not lend out)

25%

The Federal Budget -annual spending by the national govt accounts for about __ of our GROSS DOMESTIC PRODUCT (the value of all goods and services sold in the US in one year)

federal reserve , ben bernarke

The Federal Reserve System -monetary policy is made by the Board of Governors of the ___ (Fed) -they make decisions on the interest rates that you pay when you buy a house or car -the Chairman of the Fed is VERY powerful, serves a four term and may be reappointed -See picture p. 517 Fed Chairman ___

liberals, flat tax, regressive tax

The Politics of Taxing and Spending -___ tend to favor the progressive income tax while conservatives may favor a___ where everyone pays the same % of their income in tax -some conservatives also favor getting rid of the income tax completely and having a national sales tax -liberals say this is a ___ and would hit the poor the hardest and is therefore unfair The OMB helps the president get the scholarship together and then Congress has to pass that budget.

gross domestic product

___- the value of all goods and services produced in a country in one year GDP is a good measure of how the economy is doing. Foreign companies that provide jobs in America count too-Honda in Indianapolis

corporate income taxes, tax deduction, taxable income

__ - tax on corporation's profits- a progressive tax not all corporations pay income taxes if they didn't make any profits. Very few corporations actually pay income taxes-they have a whole lot of deductions and must hire accountants to do taxes for them. a. ___-whatever money they have donated they can deduct from their taxable income b. ___=total income-(exemptions +deductions) exemptions-based on number of people. Deductions-certain things your government allows you to exempt on your taxable income. Government wants to encourage people to give to charity. Mortgage interest-government wants buy people to own homes-we let them deduct the interest on their mortgage. You used to be able to deduct your credit card interest-but can't do that anymore. Corporations have lots of tax deductions-especially the big profitable industries.

excise tax

__- tax on certain goods: gas, telephone, cigarettes, alcohol, air travel -sometimes known as a sin tax many times people don't know it's a tax because it's included in the price of the good. 40-50 cents on every gallon of gasoline is tax-used to keep up the roads. Cigarattes/alcohol-sin tax. Telephone bill also has an excise tax.

tariffs

___ - tax on imports; less important now with more free trade we used to have many tariffs. NAFTA-when we trade with Canada and Mexico, no tariffs whatsoever

fiscal policy

___- our government's policy of taxing, spending and borrowing when we spend more than we take in we have to borrow money

income inequality, 1%, unionized, marginal tax

____is measure of how the economy distributes wealth to different groups in the economy -the top __ of families gained 300% in income from 1979-2007 while the middle 60% of families' income went up by only 40% Why? Some say it's the loss of manufacturing jobs in the US and the Bush tax cuts lowered taxes for the wealthy some say the gap between the rich and middle class people is bigger and bigger. Manufacturing jobs are___-therefore are paid as well. Back in the 50s are top ___ rate was 90%--if you made something above a particular level the government took 90% of it. When Kennedy was president they cut taxes.

irs

if you sell something that you're getting thousands and thousands of dollars from, you can be audited by the __ and might make you pay the tax, interest on it, and you could be possibly prosecuted from it.

interest, nondefense discretionary spending

other federal expenditures 3. __on the debt when the government gives us money, we have to give this back in interest. Interest on the debt is only 5.9-6% of government spending. 4. ___ (all other govt programs)

fiscal policy

uses federal spending and taxation to stimulate or slow down the economy government's policy on taxing and spending. The past years, we've had the worst recession since the Depression, and then we've also had inflation where the economy is moving too fast. Inflation affects everyone, recession does not necessarily. Hyperinflation happened in Germany after WWI. Government does not always need stimulating. Congress and the president have control over fiscal policy