Copyright © 2011 Pearson Education, Inc. Publishing as Longman

Chapter 17: Economic Policymaking Government, Politics, and the Economy Policies for Controlling the Economy Politics, Policy, and the International Economy Arenas of Economic Policymaking Understanding Economic Policymaking Summary

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Chapter Outline and Learning Objectives Government, Politics, and the Economy LO 17.1: Assess the role that government plays in our mixed economy. Policies for Controlling the Economy LO 17.2: Identify the two main policy tools that American government can employ to address economic problems.

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Chapter Outline and Learning Objectives Politics, Policy, and the International Economy Politics, Policy, and the International Economy LO 17.3: Analyze the impact of the global economy on American economic policymaking. Arenas of Economic Policymaking LO 17.4: Describe the economic policy interests of business, labor unions, and consumers.

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Chapter Outline and Learning Objectives Understanding Economic Policymaking LO 17.5: Assess the impact of economic policies on the scope of government and democracy in America.

Government, Politics, and the Economy LO 17.1: Assess the role that government plays in our mixed economy. Capitalism Individuals and corporations own the principal means of production and seek profits. Mixed Economy Government is deeply involved in economic decisions as regulator, consumer, subsidizer, taxer, employer, and borrower. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman

Government, Politics, and the Economy Multinational Corporations Businesses with vast holdings in many countries. Products flow between regions and jobs move to regions where they can be performed more cheaply. LO 17.1 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Economic Policy at Work: Wal-Mart “It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy Two Major Worries: Unemployment and Inflation To Learning Objectives LO 17.1

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Economic Policy at Work: Wal-Mart World’s 3 rd largest company with $406 billion in revenue in It has low prices – Negotiates with suppliers and has low wages. In U.S., it helps keep inflation rate low and had 12% of all productivity growth in 1990s. To Learning Objectives LO 17.1

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Economic Policy at Work: Wal-Mart (cont.) Securities and Exchange Commission (SEC) – Federal agency regulates stock market. Buyers of Wal-Mart stock are entitled to accurate knowledge from the company, and Wal-Mart is required to hire an auditor and publish an annual review. To Learning Objectives LO 17.1

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Economic Policy at Work: Wal-Mart (cont.) Minimum wage – The legal minimum hourly wage to which most workers are entitled. Wal-Mart’s employees are entitled to a minimum wage of $7.25 per hour. To Learning Objectives LO 17.1

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Economic Policy at Work: Wal-Mart (cont.) Labor union – An organization of workers intended to engage in collective bargaining. Collective bargaining – How labor union representatives and management negotiate pay and acceptable working conditions. To Learning Objectives LO 17.1

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Economic Policy at Work: Wal-Mart (cont.) Wal-Mart workers are protected by regulations governing worker safety and hiring and other employment policies. Wal-Mart cannot discriminate on the basis sex, race, or age in hiring, firing, and promotions. To Learning Objectives LO 17.1

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Economic Policy at Work: Wal-Mart (cont.) Most of the merchandise in Wal-Mart comes from other countries. In 2002, Wal-Mart is estimated to have imported $12 billion in goods from China, one-tenth of China’s total 2002 U.S. exports. Wal-Mart’s low costs have forced many factories to move overseas. To Learning Objectives LO 17.1

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy “It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy Economic conditions are the best single predictors of voters’ evaluation of the president. Democrats stress the importance of employment, and Republicans stress importance of inflation. To Learning Objectives LO 17.1

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Unemployment and Inflation Unemployment rate – Proportion of the labor force seeking work but unable to find jobs. 125,000 new monthly needed just to keep up with new entrants into the labor force. 10% unemployment rate in late 2009 with economic recession. To Learning Objectives LO 17.1

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Unemployment and Inflation (cont.) Underemployment rate – Statistic that includes the unemployed, discouraged workers, and people who are working part- time that cannot find full-time work. In July 2010, the national unemployment rate was 9.5% and underemployment rate was 16.5%. To Learning Objectives LO 17.1

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Government, Politics, and the Economy Unemployment and Inflation (cont.) Inflation – A rise in price of goods and services. Consumer price index – Change in the cost of buying a fixed basket of goods and services. The annual inflation rate in the United States has consistently been below 4%. To Learning Objectives LO 17.1

Policies for Controlling the Economy LO 17.2: Identify the two main policy tools that American government can employ to address economic problems. Laissez-Faire Principle that government should not meddle in the economy. The 1929 stock market crash sent unemployment soaring, but Hoover clung to laissez-faire. Roosevelt’s New Deal involved the government in the economy during the Great Depression. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Policies for Controlling the Economy Monetary Policy and the “Fed” Fiscal Policy: Keynesian Versus Supply-Side Economics Why It Is Hard to Control the Economy LO 17.2 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Policies for Controlling the Economy Monetary Policy and the “Fed” Monetary policy – Affects supply of money in private hands. Monetarism – Too much cash and credit in circulation producing inflation. Federal Reserve System – Makes monetary policy and regulates the lending practices of banks. To Learning Objectives LO 17.2

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Policies for Controlling the Economy Monetary Policy and the “Fed” (cont.) Federal funds rate – What banks can charge each other for loans. Fed buys and sells government bonds to determine amount of money banks have to lend out. Borrowing is cheaper when banks have more money and expensive when they have less money. To Learning Objectives LO 17.2

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Policies for Controlling the Economy Fiscal Policy: Keynesian Versus Supply-Side Economics Fiscal policy – Use of federal budget to influence economy and is almost entirely determined by Congress and the president. Keynesian economic theory – That government spending and deficits can help the economy deal with its ups and downs. To Learning Objectives LO 17.2

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Policies for Controlling the Economy Fiscal Policy: Keynesian Versus Supply-Side Economics Supply-side economics – Cutting tax rates will stimulate the supply of goods. Supply-siders – Lower tax rates stimulate supply of goods, as people are motivated to work longer, increase savings and investments, and produce more. To Learning Objectives LO 17.2

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Policies for Controlling the Economy Why It Is Hard to Control the Economy Most policies must be decided a year or more before their full impact will be felt on economy. Budgetary process is dominated by uncontrollable expenditures mandated by law, and many benefits automatically increase with the cost of living. To Learning Objectives LO 17.2

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Policies for Controlling the Economy Why It Is Hard to Control the Economy Capitalist system make it hard to control the economy because the private sector is much larger than the public sector. Federal government spends about 25% of GDP, but consumers and businesses make the majority of our economic decisions. To Learning Objectives LO 17.2

Politics, Policy, and the International Economy LO 17.3: Analyze the impact of the global economy on American economic policymaking. Foreign-Owned Assets At end of 2008, foreigners owned $23,357 billion in assets in U.S., and Americans owned $19,888 billion in assets in other countries. Protectionism Shielding economy from imports. Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Politics, Policy, and the International Economy World Trade Organization International organization that promotes free trade. International trade creates long term gain and short term pain. Markets gained for American businesses in developing countries may cost jobs at home. LO 17.3 To Learning Objectives

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Arenas of Economic Policymaking LO 17.4: Describe the economic policy interests of business, labor unions, and consumers. Business and Public Policy Consumer Policy: The Rise of the Consumer Lobby Labor and Government Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Business and Public Policy Antitrust policy – Designed to ensure competition and prevent monopoly. Antitrust legislation permits the Justice Department to sue in federal court to break up companies that control too much of the market. LO 17.4 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Business and Public Policy (cont.) In 2008, the government purchased troubled mortgage assets from banks to help them loan money to businesses and consumers to prevent a depression. In 2010, Goldman Sachs was fined $550 million for not disclosing mortgage investments it sold as the housing market took a dive. To Learning Objectives LO 17.4

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Consumer Policy: The Rise of the Consumer Lobby Food and Drug Act of 1906 prohibited the interstate transportation of dangerous or impure foods and drugs. Food and Drug Administration can regulate contents, marketing, manufacturing, and labeling of foods and drugs sold. To Learning Objectives LO 17.4

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Consumer Policy: The Rise of the Consumer Lobby (cont.) Consumer Product Safety Commission can ban hazardous products from the market. Federal Trade Commission – Truth in advertising and regulations on product labeling, exaggerated product claims, and the use of celebrities in advertising. To Learning Objectives LO 17.4

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Consumer Policy: The Rise of the Consumer Lobby (cont.) Consumer Financial Protection Bureau works to ban deceptive practices, to ensure the safety and fairness of new consumer financial products that come on to the market, and to promote equal access to financial services for all consumers. To Learning Objectives LO 17.4

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Labor and Government Clayton Antitrust Act of 1914 exempted unions from antitrust laws. National Labor Relations Act of 1935 (Wagner Act) guarantees workers the right of collective bargaining, sets down rules to protect unions and organizers. To Learning Objectives LO 17.4

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Labor and Government (cont.) National Labor Relations Board, created by Wagner Act, regulates labor– management relations. The Taft-Hartley Act of 1947 prohibited unfair practices by unions, and gave the president power to halt major strikes by seeking a court injunction for an 80-day “cooling off” period. To Learning Objectives LO 17.4

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Labor and Government The Taft-Hartley Act of 1947 also permitted states to adopt right-to-work laws, which forbid labor contracts from requiring workers to join unions to hold their jobs. To Learning Objectives LO 17.4

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Arenas of Economic Policymaking Labor and Government (cont.) Labor Unions have had 2 notable successes: Government provides unemployment compensation to employees during lay-offs that is paid for by workers and employers. Government guarantees a minimum wage to be paid to employees. To Learning Objectives LO 17.4

Understanding Economic Policymaking LO 17.5: Assess the impact of economic policies on the scope of government and democracy in America. Democracy and Economic Policymaking Economic Policymaking and the Scope of Government Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Understanding Economic Policymaking Democracy and Economic Policymaking One consequence of democracy for economic policymaking is that it is difficult to make decisions that hurt particular groups or that involve accepting short term pain in return for long-term gain. LO 17.5 To Learning Objectives

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Copyright © 2011 Pearson Education, Inc. Publishing as Longman Understanding Economic Policymaking Economic Policymaking and the Scope of Government Government involvement in the economy – Liberals tend to want more and conservatives tend to want less. Democrats are more concerned with curbing unemployment, and Republicans are more concerned with controlling inflation. To Learning Objectives LO 17.5

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Summary Government, Politics, and the Economy The federal government regulates stock transactions, corporate accounting practices, labor practices, workers’ collective bargaining rights, and set the minimum wage. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Summary Government, Politics, and the Economy (cont.) Voters expect politicians to keep the economy humming along, and will often vote them out of office if they fail to do. Two particular concerns of voters and politicians alike are unemployment and inflation. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.1 Summary Government, Politics, and the Economy (cont.) Democrats tend to focus more on keeping unemployment low. Republicans tend to place more emphasis on keeping inflation in check. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman In their economic policies, Democrats have tended to focus on _______ whereas Republicans have tended to focus on _______. A.inflation; employment B.employment; inflation C.trade; business practices D.business practices; trade LO 17.1 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman In their economic policies, Democrats have tended to focus on _______ whereas Republicans have tended to focus on _______. A.inflation; employment B.employment; inflation C.trade; business practices D.business practices; trade LO 17.1 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.2 Summary Policies for Controlling the Economy Two major instruments are available to government for managing the economy: monetary policy and fiscal policy. Republicans are the party of supply side economics, believing that tax cuts will lead to economic growth and jobs. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.2 Summary Policies for Controlling the Economy (cont.) Democrats stick with Keynesian economic theory, which recommends government spending in order to stimulate demand for goods during economic downturns. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman The most important tool the government has for directing the economy is A.its control over trade policy. B.its control over government subsidies. C.its control over labor laws. D.its control over the money supply. LO 17.2 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman A.its control over trade policy. B.its control over government subsidies. C.its control over labor laws. D.its control over the money supply. LO 17.2 The most important tool the government has for directing the economy is To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.3 Summary Politics, Policy, and the International Economy The American economy has become quite dependent on trade with other countries. Both imports and exports now constitute over 10 percent of the nation’s gross domestic product (GDP), with imports regularly exceeding exports. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.3 Summary Politics, Policy, and the International Economy (cont.) American jobs are often lost when we import goods that are made more cheaply in countries with low labor costs. Sending U.S. dollars overseas opens foreign markets for U.S. companies to sell their products to, thereby creating new jobs. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman In recent years the gap between U.S. imports and exports has generally A.widened. B.closed. C.tighten. D.decreased. LO 17.3 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman In recent years the gap between U.S. imports and exports has generally A.widened. B.closed. C.tighten. D.decreased. To Learning Objectives LO 17.3

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.4 Summary Arenas of Economic Policymaking Businesses generally want lower taxes and less regulation by the government. Yet, they sometimes profit from government antitrust actions, which ensure that individual companies do not control too much of the market. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.4 Summary Arenas of Economic Policymaking (cont.) In 2008, the government stepped in to prevent many firms in the financial services industry from going bankrupt. Labor unions want government support to organize workers, get a high minimum wage, and to get unemployment insurance benefits. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.4 Summary Arenas of Economic Policymaking (cont.) Consumer groups seek government protection from business practices that can harm the buying public, such as the defective products or deceptive lending practices. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Antitrust legislation is intended to restrict the A.influence of business lobbyists. B.unethical management practices of businesses. C.nationalization of businesses. D.establishment of monopolies by businesses. LO 17.4 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Antitrust legislation is intended to restrict the A.influence of business lobbyists. B.unethical management practices of businesses. C.nationalization of businesses. D.establishment of monopolies by businesses. To Learning Objectives LO 17.4

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.5 Summary Understanding Economic Policymaking Liberal focus on free enterprise problems and involve expanding the scope of government. Conservative focus on problems that can arise from excessive government intervention in the economy and involve reducing the scope of government. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman LO 17.5 Summary Understanding Economic Policymaking (cont.) Through the democratic process, Americans seek to enact regulations that will protect businesses, labor, and consumers alike without impinging upon fundamental economic freedoms. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Whereas _______ focus on the imperfections of the market and what government can do about them, _______ focus on the imperfections of government. A.conservatives; liberals B.liberals; conservatives C.conservatives; moderates D.moderates; liberals LO 17.5 To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Whereas _______ focus on the imperfections of the market and what government can do about them, _______ focus on the imperfections of government. A.conservatives; liberals B.liberals; conservatives C.conservatives; moderates D.moderates; liberals To Learning Objectives LO 17.5

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Text Credits Bureau of Labor Statistics. U.S. Census Bureau, Foreign Trade Division. To Learning Objectives

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Photo Credits 502: Chip Somodevilla/Getty Images 503T: Scott Olsen/Getty Images 503TC: Getty Images 503TB: AP Photos 503B: Lewis Hines/George Eastman House/Getty Images 505: Scott Olsen/Getty Images 510: Getty Images 511: Jonathan Ernst/Corbis 512: Paul Singer 516: Paul Sancya/AP Photos 519: Lewis Hines/George Eastman House/Getty Images To Learning Objectives