1. Chapter 18 Economic Policy
US Government AP

2. The Economy
Hard to predict how policy will impact the economy over the long term
Natural business cycle

3. The Business Cycle
Over time a business gains and loses
This is normal

4. The Impact of Government
Policy goal is to keep the line as straight as possible, with steady growth
Becomes a valence issue

5. The Debt To eliminate it: Raise taxes or Reduce spending
Or a combination of both
Enter valance—Dem’s vs Rep’s

6. 1990’s We had a budget surplus Had to compromise (did both)
Dems -start new programs
Rep’s -give a tax cut

7. The players in Fiscal Policy
OMB
CBO
Congress
President
Cabinet Departments
Agencies (GAO)
Interest groups

8. Other Players-Monetary Policy
The Federal Reserve Board
Sets interest rates
Is independent
Congress
Approves taxes
Approves the budget (CBO)
Foreign policy laws (NAFTA)

9. Triple play……. OMB Director Chair of the Council of Economic Advisors
Treasury Secretary
These 3 offices are the closest advisors to the President on the economy

10. Economy and Elections
“Pocket Book” issues during an election help/hurt incumbents (2008)
Unemployment
Inflation
Older voters/Fixed income

11. Econ and Elections II IMPOSSIBLE TO DO
Makes politicians tempted to look at short term policy
Try to improve it at election time
IMPOSSIBLE TO DO
D= ↓ unemployment R= ↓ inflation

12. The “Perfect” Policy mission: impossible Have nice Govt. programs
Have less debt (Lower spending)
Keep taxes low
mission: impossible

14. 5 Economic theories Monetarism Keynesianism Planning
Supply Side tax cuts
Reaganomics

15. 5 theories
Each President chooses advisors who have his point of view on policies

16. Monetary policy Govt. focus on the supply of money
Control the supply by:
Deposit requirements (reserve req.)
Interest rates (prime)

17. Fiscal Policy
Government spending policy
The budget
The tax rate

18. The Budget October 1 to September 30 Executive branch and Congress
President/OMB put it out
Congress (H/S) go over it—put ceilings in place
Changes are usually small

19. Entitlements Most of the Budget is money that must be spent (66%)
Social Security
Medicare
Bond payments

20. (Growing at $1.3 million a minute today)
The Budget-The End
Is out of control
Deficit spending allows the budget to be whatever it “needs” to be
Current deficit: $15 trillion
(Growing at $1.3 million a minute today)
(your share?-$50,000)

21. The “Perfect” Policy mission: impossible Have nice Govt. programs
Have less debt (Lower spending)
Keep taxes low
mission: impossible

22. 3 Things that Matter in Economic Policy
a. The economic health of the nation (real vs. perceived) (interest group)
(Consumer confidence)
b. The types of govt. spending (client, interest group)
c. Taxes- rates and distribution of benefits (majoritarian or client)