Thoughts and Organizations Economic Policymaking

Government Intervention The time for the gov’t to blame private business is over Laissez-Faire: “Hands off policy” What would a laissez-faire policy looks like? No regulations or govt intervention

Federal Policy Monetary policy: The government manipulation of supply of money in private hands Monetarism: Belief that money is the key to a nations economic health Too much money and credit = high inflation. If there is too much Credit tightens Employment Falls Growth slows

The Federal Reserve System Created in 1913 to regulate the lending practices of banks 7 member board Presidentially appointed 14 year terms Non-partisan Relatively responsive to the President’s goals Work in secret No one is sure of what they will do till its done Chairman of the reserve has more power over the Economy than the President.

Federal Open Market Committees Sets a target for the “federal funds rate” Interest rates that banks charge each other for overnight loans Sell bonds to determine how much money a bank can lend The more a bank has, the cheaper loans are, and vice versa.

Fiscal Policy The use of the federal budget to influence the Economy Keynesian Economics: The Govt should spend to help the economy weather bad times Part of the normal up and down cycle The Goal: Get consumers employed and have money Can spend money and stimulate economy The New Deal!

Supply-Side Economics Stimulate the supply of goods, not demand Producer’s, not consumer’s interests Spending too freely, taxing too much, or too much reg. Stop economy growth High taxes: Make workers able to work less Spend less money Less taxable money

Why Is It Hard to Control the Economy Politicians manipulate for reelection President’s do two things Tax Cuts Transfer payments (Social Security) Economic policies take long to enact Govt spends only ¼ of GDP Businesses and Consumers spend the rest

Politics and International ¼ of Economy depends on international trade Protectionism: Developing countries using policies to protect their new economies Tariffs World Trade Organization (WTO) Promotes free trade Punishing protectionist practices Causes fear that countries will look for the cheapest labor US reliant on foreign trade to reduce debt.