Unit 4: Economic Policy

Reserve requirement

how much cash commercial banks keep in vau.ts

Fiscal policy-

how much gov taxes and spends (congress controls)

4 taxes:

indivdiual income taxes, payroll taxes (employer pays these for social security, medicare, etc.), corporate tax, excise taxes (on gas, alcohol)

Discount rate set by _____-

interest rate that gov loans money to banks FED

Monetary-

interest rates money supply, keep econ strong, avoid inflation and deflation (controlle by fed reserve)

which econ theory: market doesnt operate at full capacity when left alone

kenysan

Liberals:

larger gov, higher taxes, more spending and programs, safety net, protect people from being taken advatage of, more regulation

social sec acronym: OASDI

Old age survivors and disability insurance

budget approval process

On or before 1st monday in feb, prez sumbits detailed budget request to congress House and senate BUDGET commitees propose budget resolutions Sent to floor for vote, differences resolved in conference House and senate appropriations committees divide discretionary spending by 12 committees Subcommittees do markups, hearings, etc, then send bill to floor, bill gets passed, conference irons out hosue and senate differences, is revoted on Continuing resolutions used to prevent shutdown Reconcilliation occurs if needs to legilsate policy changes in mandatory spening and tax laws

discretionary and mandatory trendzz

Mandatory (entitlements like medicare) grew Discretionary- argued in house (ex. Military expenditure) decreased

OMB

(office management and budget)- looks at needs of exec offices and consideres presidents opinions

fed reserve jobs

-regulate $ supply - control inflation/deflation -adjust reserve requirements -influence $ cost

how does gov get Revenue:

1. income taxes (progressive tax), 2. social insurance and retirement receipts

Congressional budget and impoundment act of 1974

Advises Congress on the probable consequences of its decisions, forecasts revenues, and is a counterweight to the president's Office of Management and Budget.

The Federal Reserve

Also called "The Fed." An independent federal agency that determines US monetary policy with the goal of stabilizing the banking system and promoting economic growth.

Keynesian economics

An economic philosophy that encourages government spending (through the creation of jobs or the distribution of unemployment benefits) in order to promote economic growth.

Supply-side economics

An economic philosophy that encourages tax cuts and deregulation in order to promote economic growth.

Economic Policy

Based on the principles of capitalism and laissez-faire In practice: a mixed economy Influences: - Keynesian economics - Supply-side economics Government plays a regulatory role (example: Securities and Exchange Commission) Belief that a free market should be allowed whenever possible

Supply-side econ

Businesses more money, hire more people, help people

what is check on OBM

CBO

Who creates the federal budget?

Constitution: Article 1, Section 9, Clause 7 President submits a budget proposal in Jan./Feb. Congress creates and approves a budget by September 30 (or passes a continuing resolution)

Fiscal v Monetary Policy

Fiscal policy: taxing and/or spending; issues with the federal budget Monetary policy: government's control of the money supply

Deficit v Debt

Deficit: Economic condition that occurs when expenditures exceed revenues Debt: Sum of annual budget deficits

budget process befre prez proposal

Departmnts determine how uch $ they need, send it to departnetne secrataries → OBM

Regressive tax

DescriptionA regressive tax is a tax imposed in such a manner that the average tax rate decreases as the amount subject to taxation increases.

ADD HERE How do you balance the budget?

Effectiveness of current budget cuts Can it be done?

what tax pays for it

FICA

How does fiscal policy differ from monetary policy?

Fiscal policy comes from Congress and the federal government. When legislation passes to cut or raise taxes and increase or decrease the budget, this is fiscal policy. Monetary policy deals only with the amount of money in the system, not with how this money is put to use or spent.

Keynsean econ

Gov use fiscal policy to stimuate econ Recession (taxes low, gov spending high) Obama, FDR Liberals and conserves practice some form (liberals stress higher gov spending) Converves favor lower taxes Both would stimulate defecit to fix econ

trends in taxes

Individual income and paryoll increased, corporate and excise decreased

Multiplier effect (

K)- increase in spending leads to econ growth greater than amount of spending

how do they differ (liberal, conserve, libertarian)

Liberal ideologies favor more gov. regulation of the marketplace, conservative ideologies favor fewer regulations, libertarian ideologies favor little or no regulation of the marketplace beyond the protection of property rights and voluntary trade.

What is monetary policy?

Monetary policy is a type of economic regulation. A central bank is in charge of increasing and decreasing the amount of money in the system (the money supply) in order to alter interest rates and respond to recessions and periods of inflation. In simpler terms, when money is pumped into or taken out of the national economy, we qualify this as monetary policy. Often, the central authority, known as the Federal Reserve, does this by buying or selling U.S. Treasury bonds.

Why do we need monetary policy?

Most economists agree that monetary policy is necessary for handling fluctuations in the economic business cycle.

Fiscal year runs from

Oct. 1 to Sept. 30 (current FY 2019)

Social Welfare Policy

Products of the 20th century - Most are considered "entitlement programs" Non-means tested - Social Security (1935) (largest entitlement program) and Medicare (1965) - FICA is a regressive tax - Veteran's disability benefits - Unemployment benefits Means-tested - Medicaid (1965) - Financed and administered by national and state governments - Federal funding to states is a block grant - Supplemental Security Income - Temporary Assistance for Needy Families (1996) - Supplemental Nutrition Assistance Program (food stamps) Public Education

what is it

Retirement benefits

conserve

Smaller gov, lower taxes and spending, less regulation→ businesses thrive, more competitive econ, pro buisness, will beenfit people

Spending: IN ORDER OF USE

Spending: 1. entitlement programs, 2. national defense, 3. interest on the national debt

how does supply side work?

Supply- side: people will have more $ to spend w/ free arket approach and wil spend it, spending increases purchass, jobs and manufacotring → gov makes more money with taxes

vWhat role does the chairman play?

The Chairman of the Federal Reserve Board of Governors heads the central banking system. He/she is the public face of the Board and may serve unlimited terms within their 14-years as a member. A chairman is appointed every four years, with Governors serving a maximum of one 14-year term. These terms are staggered so that every two years a new member joins the Board.

Who is the Federal Reserve Board?

The Federal Reserve Board of Governors is a group of seven officials nominated by the President and confirmed by the Senate. They represent various bank districts and are responsible for creating monetary policy. Their expertise in policy-making promotes efficiency.

What is the Federal Reserve?

The Federal Reserve, also known as "The Fed," serves as the central authority, or the central bank, of the United States. They ensure the safety and smooth regulation of the nation's banking system. The Federal Reserve Board enacts all monetary policy to influence credit and money supply in an effort to achieve full employment and a stable price level.

social security

Threats to its future: Outputs exceed inputs Primary source of revenue: payroll taxes (example of a regressive tax) "Baby boom" generation reaching retirement Greater life expectancy Declining birth rates

Mandatory v. Discretionary Spending

U GOTTA ASK THISSSS

Are they independent?

Yes. The Board is independent of the federal government in that they cannot be removed for disagreeing with elected officials' policy views. This keeps the Federal Reserve Board separated from the political pressure spawning from elections or a threat of replacement. Their long, staggered terms and appointments from various Presidents keep the Board diverse and separated from partisan matters. In addition, the Board is not funded through the congressional budget. They run based off the revenues from government bonds, interest on foreign investments, and other independent efforts.

what is going on w/ it

begn shrinking 2023, run out from 2030-40

reconcilliation occurs if

congress needs to make policy changes in mandatory spending or tax laws

what are these diff belifs based on

different theoretical support, including Keynesian and supply-side positions on monetary and fiscal policies promoted by the president, Congress, and the Federal Reserve.

what must congress do

generate a budget yearly -addresses discretionary & mandatory spending, -- as entitlement costs grow, discretionary spending opportunities will decrease unless tax revenues increase or budget deficit increases. (When this process fails, you get a government shutdown)

Monetary Policy

government's control of the money supply Federal Reserve Board - 7-member board of governors - Serve by appointment of prez & confirmation by - Senate - Staggered 14 year terms - Chairman serves 4 year renewable term Open market operations, reserve requirements, discount rate **given independence in establishing policy because: - Separates politics from monetary policy decisionmaking - FRB has expertise/can make economic policies efficiently

means tested vs non means tested

means- some eligible vs all

Political ideologies differ in their beliefs

of how gov should regulate markets

house and senate budget committees:

propose budget resolutions set spending and tex revenue targets id policies that need to move through reconciliation

NOT

retirement savings account, is an insurance,

Liberetarian-

smallest possible gov, gov only be there for protperty, basic public sfety, fed reserve is bad idea

what do we have now

surplus

if retirees die

survivors get it (their family)?

who pays

workers

impact?

→ FICA up, benefits down, or gov pays more for it