Economic policy How does government influence the economy, which influences citizens’ well being?

Monetary policy: gov’t manipulation of the money supply Fiscal policy: use of taxes, spending and borrowing to influence the economy

Economic theories used by policymakers Monetarism – supply of money is key to nation’s economic health Keynesian theory – government spending and deficits can stimulate slow economy Supply side economics – fiscal policy should stimulate SUPPLY of goods, mainly through lowering taxes

Social welfare policies – how funded? TAXES – can be progressive, proportional or regressive TRANSFER PROGRAMS – benefits given directly to individuals by government (e.g. food stamps, Social Security)

SOCIAL PROGRAMS SOCIAL SECURITY ACT 1935 Creates Social Security and AFDC AFDC (Aid to families with dependent children) PRWORA 1996 (Personal responsibility and work opportunity reconciliation act) – “welfare reform”

Social policy in US versus other industrialized democracies Generosity Tax levels Why difference?