Government & Economics Government & Economics Review your monetary policy notes!! Draw and label this Business Cycle in your note book!! (Expansion, Contraction, Peak, Trought, Trendline)

Monetary Policy  The FED’s use of interest rates to EXPAND or CONTRACT the money supply, influencing the economy  Place a A on the Business Cycle where the FEDS would raise interest rates to help a economy that is heating up.  Place a B on the Business Cycle where the FED would lower Reserve Requirement to jump start the economy.  Place a C where you think we are now.

Fiscal Policy  FISCAL POLICY: the Federal GOVERNMENT TAXING & SPENDING program annually as part of the budget (tools: taxes & spending programs)

GDP = C + I + G When consumers & businesses are not spending GDP will suffer Government must step up and spend money to encourage “C & I” to do the same.

FED and Federal Government can work together to help economy:  INJECTIONS  Put money into circulation in times of recession Federal Government: (1)Lower Taxes (2)Increase Gov’t spending programs (to help people – Bail Outs, subsidies, more social welfare)  LEAKAGES  Get money out of circulation in times of inflation Federal Government (1)Raise Taxes (2)Decrease Gov’t spending programs

Warm Up: GDP = C + I + G When assisting the economy, should the government help the consumers or the producers? Explain.

Fiscal Policies & Politics 1)Demand-Side Economics (a.k.a. Keynesian Economics) *Named after early 20 th century economics John Maynard Keynes (an FDR advisor) *Government actions to help economy by lowering unemployment and stimulating demand PEOPLE ↑$↑ BUSINESS

Fiscal Policies & Politics Government does this through: Transfer Payments: a payment govt gives to citizens for which it receives nothing in return (transfer money) Ex) Social Security, Welfare, Medicaid, FoodStamps/WIC President FDR used this theory with his New Deal’s PRIMING THE PUMP!!

Warm Up: Why do legislators support demand- side economic policies?

2) Supply-Side Economics *Policies designed to stimulate output and lower unemployment by increasing production rather than demand BUSINESS ↓$↓ PEOPLE

Government can do this through: Privatization: the providing of public goods is turned over to private, profit- making firms Ex) BFI Garbage rather than Town Highway Dept. President Hoover’s TRICKLE-DOWN and Reaganomics followed this theory.

Which Side to Help? The Circular Flow of Economic Activity BUY G&S BUY LLC Supply-Side: give money to businesses (Republican) Demand-Side: give money to consumers (Democratic) $ $$ $