POLS 111 ch 17

Monetarists

, such as the late Nobel Prize winning economist Milton Friedman, believe that government (e.g., the Federal Reserve in the United States or, in the case of the European Union, the European Central Bank) should confine its activity to managing the growth in the supply of money and credit so that it closely tracks the growth in productivity in the economy as a whole - stimulate private investment, which in turn will allow slow but steady economic growth without inflation. Balanced federal budgets are essential in the monetarist position because, in their view, unbalanced budgets make it difficult for central banks to control the money supply properly - most associated with conservatives and Republicans - closely associated with "efficient market" economists who believe that, if left alone, markets tend toward efficiency and the rational allocation of resources, reducing the need for regulation by government - dominated their discipline for several decades now and have massively influenced public policies on regulation, including the financial and energy industries

American safety net

- Federalism is one reason safety net programs were introduced here later than other rich democracies. - racial divisions - political culture - power of business - weak labor unions

Affordable Care Act (ACA)

- March 23, 2010, President Barack Obama sign - aimed to extend health insurance coverage to a substantial share of the more than 40 million Americans that were uninsured prior, improve the quality of health insurance coverage, and bring down the overall cost of health care. They also aimed to do this without dramatically changing the American health care system. - continued a system in which health care is provided by private practitioners, insurance is primarily provided by private companies, Medicare, and Medicaid, and those without employer or government health insurance purchase coverage on their own. - ACA has also served as core point of opposition for conservatives. The Republican-controlled chambers of Congress have voted more than 60 times to repeal the ACA in entirety but never succeeded at turning those votes into law - 80 percent of Democrats have a favorable view of the ACA but only about 15 percent of Republicans feels similarly

Budgetary Discipline

- Since the end of World War II, the budgets of rich democracies have tilted into deficit most of the time, with spending outpacing revenues by a few percentage points. - government borrows money from people (here and abroad) and from foreign governments by selling U.S. government bonds and Treasury notes. - Budget deficits grew dramatically in 2009 and 2010 in the United States and in Europe when, because of the recession (a period of two or more quarters of declining GDP), stimulus spending increased and tax revenues plummeted - federal government encourages business activity in America's inner cities by using enterprise zone tax incentives and supports the defense industry by directly purchasing weapons systems and subsidizing research.

goals of economic policy

1) maintaining economic growth 2) controlling inflation 3) maintaining a healthy balance of trade 4) budgetary discipline 5) avoiding negative externalities 6) ensuring economic vibrancy

federal revenues

- national government depends primarily on income taxes (both personal and corporate) and payroll taxes to fund its activities. The states get most of their revenues from sales taxes, although many also have income taxes. Local governments depend most heavily on property taxes. - other federal taxes, such as Social Security and Medicare taxes and excise taxes on alcohol and cigarettes, are regressive —that is, they take a higher proportion of income in taxes from those lower on the income scale.

why does the fed gov do so much?

- policies impact food supply, energy, health care, transportation, education, public safety, environmental quality, and economy - constitution empowers gov to do many things (EX: regulate interstate commerce, coin money, establish post offices and post roads, create a system to protect intellectual property (patents), borrow money and collect taxes to meet its many responsibilities) - historically, is has been the American people who elect officials who instill policies and we ask gov to do more

federal budget

- prepared the by president and his or her staff (and the Office of Management and Budget, or the OMB) but then considered, amended (typically dramatically), and passed by Congress PROCESS: - Each spring, the president and staff (principally the Office of Management and Budget or OMB) prepare a broad budget outline that is sent to all federal departments and agencies, proposing total government spending, the revenues that will be available to fund this spending, and the spending limits that will apply to each department and agency - After receiving the budget request from the president, both the House and the Senate go through a process of developing their own versions of a budget with technical advice from the Congressional Budget Office (Congress's counterpart to the OMB). Like the president, Congress strives to pass a budget resolution that specifies broad budget boundaries for the year. - final process—budget reconciliation—allows the House and Senate to pass a law that brings already-passed funding levels into closer alignment with the annual budget.

Federal Safety Net Programs

- protect Americans from ruinous losses of income stemming from unemployment, poverty, physical and mental illness, disability, family disintegration, and old age by assuring them of a minimum standard of living. - 2017, total federal expenditures on safety net programs were about $2.5 trillion, a little less than two-thirds of total federal outlays TYPES: 1. social insurance - typified by Social Security and Medicare, in which Americans contribute some of their own money to an insurance trust fund by way of payroll taxes on earnings. They then receive benefits based on their lifetime contributions when they reach a certain age or become disabled 2. means-tested - benefits are distributed on the basis of need to those who can prove that their income is low enough to qualify and those who receive benefits do not pay anything for them. The food stamp program is an example, as is the Temporary Assistance to Needy Families (TANF) - Social Security is an example of a social insurance program run by the federal government - Medicaid - means-tested program, is jointly funded and administered by the states and the federal government, as is the unemployment compensation system. Each state, consequently, has its own Medicaid and its own unemployment compensation systems, with wide variation in benefit levels from state to state. Some safety nets are designated as entitlement programs; that is, payments are made automatically to people who meet certain eligibility requirements once the relevant criteria are met.

federal spending

- spent almost $3.98 trillion in 2017, just over 20 percent of GDP -

The Affordable Care Act was signed into law in what year?

2010

Under the ACA, children can remain on their parents' health insurance plans until what age?

26

Economic policy is consistently driven by __________ key concerns.

6

Religious organizations sued the federal government over which of the following ACA requirements?

All health insurance plans must cover certain types of contraception.

Which is true regarding public opinion and business leaders' beliefs about regulation?

American people believe the government should be imposing at least as many regulations as it currently does; business leaders often advocate for government regulation as well.

Why has there been a significant decline in poverty among the elderly?

American safety net programs are targeted mostly at the elderly.

Which is a reason that the American safety net is not more expansive than it is?

Americans tend to be skeptical of government, which has led to a resistance to too much government involvement in people's lives.

From the perspective of budgeting, which best describes the essential difference between entitlement programs and other programs such as public housing, military construction, or space exploration?

Entitlement programs are mandatory and are difficult to cut even when they exceed a given budget.

Which of the following is a reason that it has been so difficult for Congress and the president to solve America's long-term debt problem?

Extreme partisanship has reduced the ability of members of Congress to reach compromise solutions that involve a combination of spending cuts and tax increases.

__________ is the use of the federal budget—taxing, spending, and borrowing—to influence the economy.

Fiscal policy

Which of the following is an example of a federal regulatory agency?

Food and Drug Administration

entitlement

Government benefits that are distributed automatically to citizens who qualify on the basis of a set of guidelines set by law; for example, Americans over the age of 65 are entitled to Medicare coverage.

Which of the following best characterizes the difference between the budgeting process and the appropriations process?

In the budgeting process, the president and Congress develop a plan for the subsequent year's spending; in the appropriations process, the government determines actual spending levels.

What was the end effect of the ACA?

It continued the system of health care being provided by private practitioners and insurance generally provided by private companies.

Which of the following best characterizes the debate between Keynesians and monetarists?

Keynesians prefer to stimulate a weak economy with increased spending; monetarists prefer to stimulate a weak economy by adjusting the rates at which banks borrow money from the Fed.

Under the ACA, states were given the option to increase access to __________.

Medicaid

Which is an example of a social insurance program?

Medicare

What is "monetary policy"?

Monetary policy refers to all government actions having to do with the management of the money supply.

Countries where lots of workers are organized into labor unions tend to be different from countries where few workers are organized into labor unions in which way?

More-unionized countries tend to have more expansive safety nets.

Why is regulation here to stay and likely to increase?

New technologies and a changing economy will generate new regulatory demands.

Why has it been fairly easy for the Trump administration to roll back President Obama's environmental regulations?

Obama's environmental regulations were enacted through the rule-making process, which makes them easier to undo than regulations enacted though the law-making process.

Office of Management and Budget, or the OMB

Part of the Executive Office of the President charged with helping the president prepare the annual budget request to Congress; also performs oversight of rule making by executive branch agencies.

The American government is less __________ than most other Western democracies.

redistributive

What role does government regulation serve?

Regulation prevents the negative practices and outcomes that can occur when the market is left entirely to its own devices.

Which is true regarding the federal budget?

Safety net programs account for the largest annual share of the federal budget.

What is the largest entitlement program in the federal budget?

Social Security

payroll taxes

Tax levied on salaries and wages primarily for Social Security and Medicare.

The United States has a progressive income tax code. What does it mean to have a progressive income tax code?

Tax rates increase as taxable income amount increases.

income taxes

Taxes levied on the annual incomes of individuals and corporations. In the United States those who make more money pay a higher tax rate than those who make less money.

discretionary spending

That part of the federal budget that is not tied to a formula that automatically provides money to some program or purpose.

Which of the following is the primary way in which the American federal government manages inflation?

The Federal Reserve Bank adjusts interest rates.

What is the primary reason the Trump administration has been scaling back environmental regulations?

The Trump administration believes that environmental regulations are a barrier to economic growth.

Which provides the best explanation for the struggles experienced by President Obama in his 2012 reelection bid?

The economic recovery was slow and not realized by many citizens.

appropriations process

The process by which the government officially funds federal departments, agencies, and programs

budget surplus

When government spends less than it takes in during a given year

Which of the following is an example of how the American economy and American electoral politics are tied together?

When the economy is doing poorly, the party in power tends to have an uphill battle staying in office.

budget deficit

When the government spends more than it takes in during a given year

Why is it important for money to be good?

When times are good, the party or president in power is very likely to be reelected; when times are bad, those in power have an uphill battle to stay in office

A period of deep unemployment and declining economic output is known as __________.

a depression

What is a means-tested safety net program?

a program in which benefits are distributed on the basis of need to those whose incomes are low enough to qualify

Which of the following would be a negative externality of a growing manufacturing economy in Wisconsin?

air and water pollution

Mandatory spending

automatic and not impacted by the annual appropriations bills - Social Security retirement benefits, Medicare, and Medicaid are determined based on the formulas included in the laws that authorize the programs.

Why are government safety net programs important for an economy?

because even when the economy is functioning well, many people are still unable to make a decent living and/or provide for themselves

Keynesians

believe that in an economy where the tools of production (labor, equipment, factories, and the like) are not being used to full capacity, government must stimulate economic activity by increasing government spending or by cutting taxes (or both). - prefer to see increased spending rather than lower taxes, and they are associated with an activist conception of the role of government most favored by Democrats. - went out of fashion with the election of Ronald Reagan in 1980 and the ascendancy of the Chicago school of free-market economics associated with Milton Friedman

appropriations committees

committees in the House and Senate that set specific spending levels in the budget for federal programs and agencies.

The exchanges set up by the ACA are designed to help people __________.

compare health insurance plans so that they can identify the one that meets their budget and needs

inflation

condition of rising prices and reduced purchasing power.

national debt

cumulative total of what the government owes in the form of Treasury bonds, bills, and notes (which are sold to individuals and financial institutions at home and abroad, and to a number of governments and their sovereign wealth funds).

Great Recession

economic crisis that was triggered by the bursting of a housing bubble that led to a financial crisis and cuts in consumer and business spending.

The success of the Temporary Assistance for Needy Families program has been widely debated. All analysts agree that the total number of Americans receiving welfare benefits has fallen. Which would most strengthen the argument that the program is a success?

evidence that the people who had been receiving benefits no longer needed government benefits

balance of trade

exporting more goods and services than they import (a positive trade balance).

When the government directly intervenes in the economy by spending government funds, it is an example of __________.

fiscal policy

Fiscal policy

government actions having to do with spending and taxes - flexible tool for stimulating an underperforming economy and for slowing down an economy that is getting too hot—that is, growing so fast that it triggers inflation - not easy to use - Decisions about how much government should spend or what level and kinds of taxes ought to be levied are not made simply on the basis of their potential effects on economic stability and growth - Timing is also a problem - greatest challenge to a nimble fiscal policy is America's own ideological politics - Democrats tend to back a fiscal policy that favors increased spending and taxes while Republicans tend to favor one marked by reduced spending and taxes. - partisan divisions often stand in the way of fiscal reforms—even those reached by way of compromise.

negative externalities

harmful side effects that often accompany normal economic activity.

Safety Net

help to ensure minimum standards of living and protect against loss of income from economic instability, old age, illness, disability, and family disintegration - reason: DEMAND

What are the primary sources of revenue for the federal government?

income taxes and payroll taxes

America's political culture has an effect on government policies. Many Americans believe that individualism and personal responsibility are extremely important, making it more difficult to gain political support for __________.

increases in welfare support programs

Because non-income taxes tend to be regressive, the federal tax system __________.

is overall relatively flat

Compared to other industrialized democracies, the American system requires __________ of private employers.

less

Federal Reserve Board (The Fed)

manages inflation by adjusting certain interest rates that impact the supply of money in circulation.

The largest portion of the federal budget is consumed by __________ spending.

mandatory

gross domestic product (GDP)

measure of the total value of goods and services produced in a nation on an annual basis

Regulation

one of the most visible and important activities of the federal government HISTORY: - 1900 and World War I, laws were passed to regulate activities of powerful new corporations. progressive era reforms were pushed by labor unions, the Populists, and middle-class Americans who were anxious about the conditions reported by muckraking journalists. Landmark regulatory measures included the Federal Trade Commission Act, the Meat Inspection Act, the Pure Food and Drug Act, and the Federal Reserve Act. These measures dealt with problems such as monopolies, unstable financial institutions, and unsafe products and working conditions. - Franklin Roosevelt's New Deal in the 1930s focused on speculative and unsafe practices in the banking and securities industries that had contributed to the onset of the Great Depression. goal was to restore stability to financial markets and important industries - late 1960s to the late 1970s resulted in a substantial increase in the federal government's regulation of business. - end of the 1970s, the mood of opinion leaders had turned against regulation in the name of economic efficiency.

Monetary policy

policies carried out by the Federal Reserve Board (the "Fed") that affect how much money is available to businesses and individuals from banks and how much it costs to borrow that money - more money that is available and the lower the interest rates at which money can be borrowed, the higher overall consumer and business spending are likely to be. - Fed can also lower the discount rate, which reduces the interest banks pay to borrow money from the Fed. - reduces the interest rates at which these banks are willing to lend to consumers and firms. - Fed is managed by a board of governors that is nominated by the president and approved by the Senate. Jerome Powell, who previously served on the Federal Reserve Board of Governors and as an Under Secretary of Treasury, became Fed Chair in 2018 after being nominated by President Trump. Powell replaced Janet Yellen, President Obama's selection for the position in 2014 and the first women to have the role. - long been considered among the most powerful people in the world economy - Fed's influence on interest rates and the availability of credit is not unlimited. Interest rates are also affected by the value of the dollar and the willingness of foreign investors to put their money into American firms, properties, and government bonds. Furthermore, the Fed has limited impact on many factors that affect long-term economic performance, such as productivity growth and the price of commodities like oil.

The belief that the government should protect consumers from unsafe products by imposing regulations is most likely to be supported by __________.

progressives

Inflation

purchasing power of money - when inflation rises, people's wages, salaries, savings accounts, and retirement pensions diminish in value. COMBAT: 1) slow down the economy by having the Fed raise interest rates. WHY: Higher interest rates make it harder and more expensive for consumers to borrow for purchases and for businesses to fund expansion NOTE: Too much stimulus, however, can lead to much inflation as too many dollars chase too few goods and services.

depressions

severe and persistent drop in economic activity - EX: Great Depression (1930s)

recession

slowing of the economy defined by two quarters or more of declining gross domestic product.

Which of the following events had the most impact in bringing about government action on social welfare?

the Great Depression

regressive

tax system in which lower-income individuals are taxed at a higher rate than those who make more.

Fiscal policy relies on __________ to manage the economy.

taxation and spending

How is the "balance of trade" defined?

the annual difference between payments and receipts between a country and its trading partners

deregulation

the attempt to loosen the hand of government in a variety of economic sectors, including banking and finance, transportation, and telecommunications.

Who benefits the most from the American welfare state?

the non-poor and elderly

From the late 1970s to the recent financial crisis, America was in a period of frequent deregulation. What is deregulation?

the reduction of the role of government laws and bureaucracies in the functioning of economic sectors such as banking, transportation, and telecommunications

Who has the primary responsibility for administering Medicaid?

the various states

Medicaid is a program designed to provide health care for __________.

the very poor

Which is a factor in Europe's propensity toward welfare states with universal coverage?

their ethnic and racial homogeneity