1. Economic Policymaking Chapter 17

2. Government and the Economy Definitions: – Capitalism: An economic system in which individuals and corporations, not the government, own the principle means of productions and seek profits. – Mixed Economy: An economic system in which the government is deeply involved in economic decisions through it role as regulator, consumer, subsidizer, taxer, employer and borrower.

3. Government and the Economy Unemployment and Inflation – Unemployment rate: Measured by the BLS, it is the proportion of the labor force actively seeking work, but unable to find jobs. – Inflation: The rise in prices for consumer goods. – CPI: Consumer Price Index- The key measure of inflation that relates the rise in prices over time.

4. Figures 17.1 and 17.2 Government and the Economy

5. Elections and the Economy – Economic trends affect what the voters vote for Political Parties and the Economy – Republicans focus on inflation – Democrats focus on unemployment

6. Instruments for Controlling the Economy Monetary Policy and “the Fed” – The manipulation of the supply of money and credit in private hands- too much cash and credit produces inflation. – Money supply affects the rate of interest paid. – Main policymaker is the Board of Governors of the Federal Reserve System- the “Fed.”

7. The Fed – 7 board members appointed by Congress, confirmed by Senate Chair, Ben Bernanke 14 year staggered terms (chair – 4 year terms) – The Feds instruments influence the supply of money in circulation: Sets discount rates Sets reserve requirements Selling government bonds – Through the use of these actions, the Fed can affect the economy.

8. Fiscal policy: Keynesian Versus Supply-Side Economics – Fiscal Policy: The policy that describes the impact of the federal budget on the economy. – Keynesian Economic Theory: Government spending and deficits help the economy weather its normal ups and downs. – Government’s job to increase demand of goods – Policies called “Keynesian”

9. Fiscal policy: Keynesian Versus Supply-Side Economics, continued… – Supply-Side policy: The policy that says there is too much taxation and not enough money to purchase goods and services. – Reduce taxation and government regulation then people will work harder, and thus create a greater supply of goods.

10. Obstacles to Controlling the Economy Some think politicians manipulate the economy to win reelection. But there are problems with that… – But things like the budget are prepared in advance of when they go into effect. – Foreign problems can affect our economy. – Capitalism can also affect the economy. So it is difficult for politicians to control the economy.

11. Arenas of Economic Policymaking Business and Public Policy: Lots of mergers and acquisitions since 1980- some creating transnational corporations. Government finds ways to control the excess power in this new economy. – Regulating Business. Antitrust policy: policies designed to ensure competition and prevent monopolies. Antitrust cases are lengthy and expensive – Benefiting Business. Government may loan businesses money Government collects data that business use.

12. Arenas of Economic Policymaking Consumer Policy: Consumers historically had little government protection. – Food and Drug Administration (FDA): Created in 1913 and approves foods and drugs sold in the U.S. – Federal Trade Commission (FTC): Responsible for regulating false and misleading trade practices, which now includes consumer lending practices.

13. Arenas of Economic Policymaking Labor and Government – Government historically sided with business over labor unions. – National Labor Relations Act (Wagner Act) 1935: regulates labor-management relations Collective bargaining: union representatives and management determine pay & working conditions Government now provides unemployment compensation and a minimum wage. – Taft-Harley Act, 1947 Allows states to adopt right to work laws

14. Understanding Economic Policymaking Democracy and Economic Policymaking – As voting power increased, so did the demands for government action to restrict business. Economic Policymaking and the Scope of Government – Liberals and conservatives have different policy ideas. – One wants less government, the other wants more.