What is poverty? Does anyone know how it is calculated Not very clear, the government looks at how much everyone makes, and based on the number of “dependents”

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Presentation transcript:

What is poverty? Does anyone know how it is calculated Not very clear, the government looks at how much everyone makes, and based on the number of “dependents” you have determines the poverty level.

Persons in family/householdPoverty guideline For families/households with more than 8 persons, add $4,160 for each additional person. 1$11, , , , , , , ,890

New Housing Starts A measure of how many people are purchasing homes for the first time.

Business Cycle

Classical Economic Theory Little to no government interference in the economy Let the market correct itself (laissez-faire) Ups and downs are a normal, healthy part of the cycle even if some people are hurt by it.

Example: Classical Economics Year 1: Some farmers choose to grow corn. Corn is in high demand, prices rise, they make profits. Year 2: Many farmers switch to corn. Demand didn’t change, but high supply lowers prices. Some farmers lose money, can’t pay mortgages. Year 3: Drought hits. Poorest farmers lose their farms. Unemployed homeless farmers move to cities. Farmers with some savings survive. Farmers with more money can buy foreclosed farms and expand.

Keynesian Economic Theory Government should try to smooth out the ups and downs of the economy. During bad times (contraction), government increases spending to create more demand During good times (expansion), government lowers spending to lower demand

Example: Keynesian Economics Year 1: Some farmers choose to grow corn. Corn is in high demand, prices rise, they make profits. Year 2: Many farmers switch to corn. Prices drop. Government starts buying corn, ships it overseas as food aid for poor countries. Extra demand (from gov’t) stabilizes the price. Farmers make profits. Year 3: Drought hits. More farmers have savings and survive. Lower supply of corn, prices go up. Gov’t buys less corn to stabilize price. Year 4: Bumper crop! High supply, low prices. What does gov’t do?

Keynesian v. Classical

How else can the government get involved? The Federal Reserve Bank for banks

The Federal Reserve They can control two things The “discount rate” or interest rates for banks The money supply Buying/Selling Bonds Required Reserve Ratio

Discount rate If the “Fed” increases the discount rate what will happen If the Fed decreases the discount rate.

Money supply Increase in the money supply? Decrease in the money supply?

Expansionary Decrease the discount rate: Buy bonds Decrease required reserves

Contractionary Increase the discount rate: Sell bonds: Increase required reserves

Monetary policy ExpansionaryContractionary Discount rate:Decrease=more borrowing Increase=less borrowing Buy/Sell bondsBuy=more money in circulation Sell=less money in circulation Required ReservesDecrease=more money to loan Increase=less money to loan

Fiscal Policy President and Congress Fiscal Policy = Taxes/Government Spending

Expansionary Policies Decrease Taxes Increase Government Spending Why?

Fiscal Policy ExpansionaryContractionary Taxes:Decrease=people have more money to spend Increase=people have less money to spend Government Spending: Increase=the government is buying more Decrease=the government is buying less

Government Spending

Where does our government get money?

Taxes Different types Flat-All the same Progressive-The more you make the more you’re taxed Regressive-The less you make the more you’re taxed

Where does our government get money? Different taxes we pay

Types of Spending Mandatory v. Discretionary

Pork

Entitlements

Debt v. Deficit Can you run a deficit without being in debt?