Economic Policy An Overview of Chapter 23

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Comparing Terms Macroeconomics Deals with broad & general aspects of an economy, as the relationship between income & investments of a country as a whole. Measures the national economy: GDP, inflation, unemployment, etc. Microeconomics Deals with specific aspects of one part of an economy, like households, businesses, individuals, etc. Measures the income, profits, and well-being of a particular group.

Monopolies What is a monopoly? Why are monopolies “bad” for consumers? –Artificially high prices –No substitutes for good or service –No incentive to stop poor service or quality Adam Smith believed one of the few roles of government in an economy was to keep competition fair.

Government Intervention Sherman Anti-trust Act made monopolies that intentionally hurt competition illegal. Clayton Anti-trust Act gave the federal government the power to break up illegal monopolies. The Federal Trade Commission has the authority to fine, regulate, and even break up businesses that act like monopolies. They must approve mergers of businesses. So do monopolies still exist? YES!

Natural Monopolies Exist because seller has a unique product or idea. Examples?

Government Monopoly Run by or exist by the permission of the federal government. Examples?

Geographical Monopolies Exist due to the fact that no other competition is in area. Examples?

Technological Monopolies Exists due to patents and copyrights or because competition cannot replicate idea.

The Business Cycle

Economic Indicators GDP is the total dollar value of all FINAL GOODS produced in a country in a year. Not affected by inflation (Real GDP) Inflation can affect GDP (ex. Gas prices) CPI (consumer price index)

Economic Indicators Unemployment is the total # out of work actively seeking a job –Full employment is around 4% –Highest unemployment was 33% during the Great Depression Unemployment is gauged by the number of people applying for benefits. Unemployment has an impact on many other economic indicators.

Controlling the Economy Fiscal Policy Controlling taxing and spending by the government to influence the economy. Affects incomes, services, benefits & spending. Fiscal policy is controlled by the President and Congress.

Affecting the Economy How does a rise in taxes effect the economy? Explain. How does an increase in government spending (such as on programs like building bridges, schools, or roads) effect the economy? Explain. Using the above examples, how does the government use fiscal policy to affect the economy?

Types of Taxes 49% 33% 9%

The Current National Debt Who is ultimately responsible for our National Debt? Presidents make the budget. Congress approves the budget. People demand services, low taxes.

How the Debt Increases

Public Assistance Public Education TANF WIC SSI Social Security Food Stamps/EBT