For use with Keeping the Republic. Copyright © 2006 by CQ Press. Economic Policy Chapter 18

For use with Keeping the Republic. Copyright © 2006 by CQ Press. In this chapter we will learn about Basic economic principles Monetary policy and fiscal policy Economic regulatory policy, with a focus on antitrusts, unions, and trade The relationship of economic policy to the citizens

For use with Keeping the Republic. Copyright © 2006 by CQ Press. A beginner’s guide to understanding the economy The laws of supply and demand –As demand increases, prices increase. –As demand decreases, prices decrease. Gross domestic product Business cycles –Economic booms –Economic busts

For use with Keeping the Republic. Copyright © 2006 by CQ Press. A beginner’s guide to understanding the economy, cont’d. Recession Depression Self-regulating markets

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Fiscal vs. monetary policy Fiscal policy Government regulates the economy through its powers to tax and spend Politicians play a major role Monetary policy Government regulates the economy by manipulating interest rates to control the money supply The Fed, not politicians, determine monetary policy

For use with Keeping the Republic. Copyright © 2006 by CQ Press. The politics of monetary policy Determined by the Federal Reserve system Tight vs. loose monetary policy

For use with Keeping the Republic. Copyright © 2006 by CQ Press. The politics of fiscal policy Made by Congress and the president through the budget process Unbalanced budgets, increased deficits, and a rising national debt

For use with Keeping the Republic. Copyright © 2006 by CQ Press. History of the budget process The Budget and Accounting Act of 1921 The Congressional Budget and Impoundment Act of 1974 The Gramm-Rudman Act of 1985

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Tax policy Ronald Reagan and supply-side economics Progressive (e.g., income tax) vs. regressive (e.g., sales tax)

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Reforming the tax code A complex tax code A tax code with a little something for everyone (e.g., homeowners, charities, business owners, students)

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Reforming the tax code, cont’d. Proposed reforms to the tax code –Flat tax –Consumption tax –Value-added tax (VAT)

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Economic regulatory policy Need for government protection Overregulation and deregulation

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Regulating business Controlling monopolies Antitrust policies –Interstate Commerce Act –Sherman Antitrust Act –Clayton Act The states battle Microsoft

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Regulating labor Protecting labor –Fair Labor Standards Act (minimum wage, limited work week, overtime pay) –Norris-La Guardia Act (elimination of yellow dog contracts) –Wagner Act (establishment of collective bargaining)

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Regulating labor, cont’d. Repealing labor protection –Taft-Hartley Act –Republican takeover of Congress in 1994

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Regulating trade Protectionism Imposing trade barriers to make trading conditions favorable to domestic partners Primary U.S. trade policy until the 1930s Supported by labor and many environmental groups Free trade Encouraging the open borders between trading partners by eliminating protectionist policies Primary U.S trade policy today Supported by the WTO, many businesses, and many economists

For use with Keeping the Republic. Copyright © 2006 by CQ Press. Regulating trade, cont’d. An increasing trade deficit The battle over NAFTA

For use with Keeping the Republic. Copyright © 2006 by CQ Press. The citizens and economic policy Citizens play little role Economic policy is mostly elite driven Because so much self-interest is at stake, not a bad thing that it is elite driven