1. Aim: ECONOMIC POLICY POLITICS OF ECONOMIC PROSPERITY Economy and elections “pocketbook issue” “It’s the economy stupid” Unemployment inflation

2. Aim: ECONOMIC POLICY POLITICS OF TAXING AND SPENDING Fiscal policy = taxation (revenues) and spending (expenditures) What Americans want is inconsistent? What Congress/President give – tends to “feed” public inconsistency. Produces budget deficits

3. Aim: ECONOMIC THEORIES – to promote national economic goals BUT FIRST, WHAT ARE THE BIG THREE ECONOMIC GOALS? economic growth full employment price stability

4. Aim: ECONOMIC THEORIES – to promote national economic goals: MONETARY THEORY (MONETARISM) “too much money chasing too few goods” Stable – growth in money supply = to growth of economy’s productivity Curb inflation Federal Reserve Tools – reserve requirements, OMOs, discount rates

5. Aim: ECONOMIC THEORIES KEYNESIAN ECONOMICS John Maynard Keynes Demand-side economics Deficit-spend during recession to stimulate the economy Increase government spending (Public works) Leads to increase demand Increase productivity Increase employment When recession is over, balance the budget

6. Aim: ECONOMIC THEORIES PLANNING Price and wage controls During inflationary times Industrial policy (gov’t direct industry – development/investment)

7. Aim: ECONOMIC THEORIES SUPPLY-SIDE TAX CUTS Don’t need more planning but less government involvement Government involvement = government interference with market mechanisms Instead CUT TAXES Leads to more money to SAVE, SPEND, AND INVEST “Trickledown” “Reaganomics” Cut taxes, domestic spending Increase military spending

8. Aim: ECONOMIC THEORY IDEOLOGY AND THEORY Democrats (Liberals) - Keynesian, Planning Republicans (Conservatives) -supply-side, monetarists

9. Aim: ECONOMIC POLICY REVIEW BUDGETARY PROCESS President OMB Congress Key Committees CBO Reporting out of each house POLITICS OF THE PROCESS!!!

10. TAXES: GRESSIVITY “Gressivity” – tax rate relative to income Progressive – tax rate increases as income increases Proportionate – tax rate is the same at every income level Regressive – tax rate increases as income decreases EXAMPLES OF EACH??