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America’s Democratic Republic Chapter 15: Budget and Economic Policies

Copyright © 2011 Pearson Education, Inc. Publishing as Longman In This Chapter How government economic policies affect the lives and well-being of Americans The federal budget, the deficit, and the national debt What tools government uses to manage the economy Dealing with the financial collapse and the economic recession Why government subsidizes some business activities and regulates others

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The Policy Process Public Policies: government creates laws, programs and regulations that apply to all people in a particular jurisdiction Distributive Redistributive regulatory

Copyright © 2011 Pearson Education, Inc. Publishing as Longman The Policy Process Stages of the Policymaking Process Agenda setting Decision making Implementation Evaluation and feedback

Copyright © 2011 Pearson Education, Inc. Publishing as Longman The Policy Process Theories regarding policy development Marxist Elite Bureaucratic Pluralists

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Overview of Economic Policies Free enterprise left to itself has periodic problems Inflation Depression Recession

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Overview of Economic Policies Goals of Economic Policy Ensure economic growth Control inflation Avoid balance of payment problems Maintain budgetary discipline Avoid negative externalities Provide a firm economic foundation

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Main Players and Influences on Public Policy Structural Factors Fundamental values and beliefs that have political consequences Political Linkage Factors People, influence and processes that transmit the people’s wants and needs

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Main Players and Influences on Public Policy Government Factors The individuals and groups with formal responsibility for making policy President Congress Federal Reserve Board (commonly called the Fed)

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The Government’s Macroeconomic Tools Macroeconomic Policy: policy that affects the performance of the economy as a whole Fiscal policy Taxing and spending Monetary policy Aggregate demand Controlling the supply of money and credit

Copyright © 2011 Pearson Education, Inc. Publishing as Longman The Government’s Macroeconomic Tools Policy Debates Keynesians Monetarists Supply-siders New growth theorists

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Taxing, Spending and the Federal Budget Federal Budget Executive budget Prepared by president and staff Office of Management and Budget (OMB) Considered, amended and passed by Congress Executed by President and executive branch

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Taxing, Spending and the Federal Budget Federal Spending Mandatory spending Changes can only occur if Congress and president agree to change program legislation or budget authorization bills Automatic About 50 percent of budget Costs are rapidly increasing

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Taxing, Spending and the Federal Budget Federal Spending Discretionary spending Everything else 57 percent of this goes to national defense Supplemental spending Special one-time expenditures to cover emergencies “off the books”—mischaracterizes the deficit

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Taxing, Spending and the Federal Budget Taxes Consistently hated by Americans but taxes less than those of other rich democracies Rate paid from income has stayed relatively flat for about 30 years National government Individual income taxes Payroll taxes Progressive v. regressive

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Taxing, Spending and the Federal Budget Annual Budget Deficits and the National Debt Deficit: the amount the government spends over and above what it takes in Debt: total amount government owes The government both owns and owes the debt

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Regulation Why? Negative externalities that cannot be solved by individuals or corporations, e.g., pollution Economic theory of regulation Regulation is caused by political efforts of businesses to have government protect them from competitors

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Regulation History Interaction of democratic and nondemocratic factors 1900-WW I: regulation of powerful new corporations 1930s–1960s: New Deal 1960s–1970s: Protection against environmental and health hazards Provide equal opportunity Allow public access to regulatory rule making

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Regulation History 1980s–2000: deregulation to advance economic efficiencies Regulation sapped Productivity Economic growth Disagreements about Uniform national standards Strict deadlines for compliance Detailed instructions

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Regulation Future of Regulation Changes due to economic activity and technological advancement bring new problems Environmental concerns Regulations issued by the European Union

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Economic Policies in the Democratic Republic Government does respond to public opinion to a certain degree Special interests retard democracy Spending Taxation Regulatory process

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Summary American economic policies affect such areas as employment, taxation, and international relationships, among others Policy makers use the powers of taxation, interest rates, stimulus, creation of currency, and creation of national debt to directly affect monetary policies Politicians and theorists are split on the level of government involvement necessary to solve economic problems Economic performance has many times determined which party is in control of political offices after an election

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Question 1 The nation’s larges financial institutions were aided during the George W. Bush administration by __________ legislation. TEEP TRAN TAXE TARP

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Answer The nation’s larges financial institutions were aided during the George W. Bush administration by __________ legislation. TEEP TRAN TAXE TARP

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Question 2 When a nation exports more than it imports, it is called a positive __________. Deficit Balance of payments Budget Creative account

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Answer When a nation exports more than it imports, it is called a positive __________. Deficit Balance of payments Budget Creative account

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Question 3 Which season of the year is the presidential budget sent out through the OMB? Spring Summer Fall Winter

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Answer Which season of the year is the presidential budget sent out through the OMB? Spring Summer Fall Winter

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Question 4 _________ are used by the government to resolve negative externalities in the economy. Taxes Liberties Tributes Regulations

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Answer _________ are used by the government to resolve negative externalities in the economy. Taxes Liberties Tributes Regulations

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Question 5 What are the possible long-term effects of governmental stimulus programs?