Economic Policy November 29, 2010. Long Term Growth and the Business Cycle in the United States.

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Presentation transcript:

Economic Policy November 29, 2010

Long Term Growth and the Business Cycle in the United States

The Recession of 2001 Expansion RecessionRecovery General Upward Trend

Monetary Policy Fiscal Policy

The Structure of the Federal Reserve System President Senate Federal Reserve Board of Governors 7 Governors 14-year terms Chair serves 4-year term Federal Open Market Committee 7 Governors 6 Voting bank presidents 7 Nonvoting bank presidents Federal Reserve Banks 12 Districts 12 Bank presidents Member banks nominates confirms

Ben Bernanke Chairman of the Federal Reserve

Reasons Chair of Federal Reserve is Powerful 1.Close Communication with President. 2.Well-informed by talented professional staff. 3.Approves the appointment of 12 presidents of Federal Reserve Banks. 4.Inherits a Job held by Distinguished, Prestigious Leaders—until Greenspan?

Who Controls the Fed? Three Theories: 0. Not Congress 1.Bankers 2.Independent 3.President A.Manipulates for Partisan advantage. B.Manipulates to get re-elected.

Recessions

Presidential Elections and Economic Growth Columns show the average percentage growth in GNP for each category for the years 1960 to 2001.

The Federal Deficit or Surplus,

U.S. Federal Debt, though growing rapidly, is Smaller Than the Debt of Other Countries

Fiscal Policy controversial --Did Stimulus Work? Yes, Keynesian theory—Democrats No, monetarists--Republicans. Divided Government reduces the likelihood of spending-based stimulus

Public Opinion About Taxes

U.S. Tax Burden is Less Than That in Many Other Democracies

Key Features of Tax System 1.Breadth of Tax System: How Many Tax Preferences? A.Home Mortgage B.College Expenses C.Medical Insurance D.Charitable Contributions E. Retirement Savings

Key Features of the Tax System (continued) 2.Progressivity of Tax System A. Progressive Tax: Tax Rate on Rich is Higher (Income Tax) B. Regressive Tax: Tax Rate on Poor is Higher (Social Security Tax) C. Flat Tax: Rate is the Same for Everyone (Total Impact)

Percentage of Federal Income Tax Paid by Income Percentiles (2004) Top 1%-37% Top 5%-57% Top 10%-68% Top 25%-85% Top 50%-97%

Income Inequality Is Greater in the United States Than in Many Other Countries

Major Components of the Federal Budget 35% 22% 17% 15% 11%

Federal Revenues by Source

The End

How Americans Feel About the Economy Is a Good Predictor of What They Think About the President

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