1.   Success or failure usually rests with whom the public perceives is responsible for the condition of the economy  Whether it is true or not, the electorate usually holds the President responsible “It’s the economy, stupid.”

2.   An economic system in which individuals and corporations, not the government, own the principal means of production and seek profits Capitalism

3.   Capitalist free market systems with both government and private industry playing a role are called mixed economies  Such a system is characterized by both private and public ownership of the means of production and distribution of goods and services Mixed Economy

4.   Unemployment rate  Proportion of the labor force actively seeking work but unable to find jobs  U.S. 8.6% Currently Two Major Worries: Unemployment and Inflation

5.   Inflation  The rise in prices for consumer goods  Consumer Price Index (CPI) – measure of the rise in prices over time Two Major Worries: Unemployment and Inflation

6.   Because free market economic systems are plagued by periods of prosperity followed by periods of economic contraction, the basic question arises:  To what extent should the government intervene? Boom and bust

7.   Principle that government should not meddle in the economy  Conservatives favor laissez-faire Laissez-faire

8.   The manipulation of the supply of money in private hands by which the government can control the economy  Basically: Monitoring and controlling the amount of money in circulation  If there is too much cash or credit, inflation occurs Monetary Policy

9.   The main instrument for making monetary policy in the United States  Created by Congress in 1913 to regulate the lending practices of banks and thus money supply  The “Fed”  Seven member board appointed by the President and confirmed by the Senate Federal Reserve System

10.   It meets 8 times a year in Washington  After studying data, they set the “federal funds rate” or the interest rate banks can charge each other for overnight loans  They buy and sell government bonds from banks  Thus they determine how much money banks have to lend How the Federal Reserve works…

11.   Influencing the rate at which loans are given, which influences decisions about borrowing  Controlling the amount of money banks have available, and, in turn, the rate at which people can borrow money  Adding to the money supply by selling bonds The Fed regulates monetary policy by

12.   Ben Bernanke  14 th Fed Chairman  Economics Professor  Princeton University Current Chairman of the Fed

13.   The policy that describes the impact of the federal budget on the economy  Almost entirely determined by Congress and the President, who are the budget makers  Refers to the government action of  either lowering or raising taxes, which results in more or less consumer spending  Or of enacting government spending programs, such as building highways or hospitals Fiscal Policy

14.   John Maynard Keynes  Theory emphasizing that government spending and deficits can help the economy weather its normal ups and downs  Keynesian economists believe the government can smooth out business cycles by influencing the amount of income individuals and businesses can spend on goods and services Keynesian economic theory

15.   In the 1980s, the Reagan-Bush administration became the champion of the supply-side school of thought  According to this theory, inflation is caused by too many dollars chasing too few goods  If the supply of goods is raised, the cost of goods will decline  So the government should cut taxes and spending on domestic programs to stimulate greater production Supply-side economics

16.   Keynesian economic theory (liberal)  Encourages government’s active participation in the economy  Government spending stimulates the economy by creating demand  Supply-side economics (conservative)  By decreasing government involvement in the economy, people will be forced to work harder and save more  Cutting taxes increases the money supply Fiscal Policy

17.   It is difficult to predict the economy far enough in advance to make and implement policy  Events abroad can affect the economy  The economy is grounded in the private sector, which is harder to regulate Obstacles to Controlling the Economy

18.   A few transnational corporations control most of the country’s assets and play a large role in the world economy  Formed through mergers  Antitrust laws allow the Justice Department to bring suit against companies that have monopolized a certain product or service  Breaks up the company  Opens the market to competition  The government participates in the economy by assisting failing industries with subsidies and loans and by funding project research  Business lobbies are well established and influential Business Policy

19.   Businesses with vast holdings in many countries  Such as  Microsoft  Coca-cola  McDonald’s  Many of these have annual budgets exceeding that of many foreign governments Multinational Corporations

20.   A policy designed to ensure competition and prevent monopoly  Monopolies which are long lasting and wasteful can be broken up by the government under antitrust laws Antitrust policy

21.   Federal agency created during the New Deal that regulates stock fraud Securities and Exchange Commission (SEC)

22.   Consumer groups are fairly new  Have successfully lobbied for increased regulation over product safety and advertising  The Federal Trade Commission  Regulates and now enforces truth in advertising  The FDA  Monitors the health safety of food and approves new drugs for sale Consumer Policy

23.   1935 “Wagner Act”  Guarantees workers the right of collective bargaining  Negotiations between representatives of labor unions and management to determine pay and acceptable working conditions  Sets down rules to protect unions and organizers  Created the National Labor Relations Board to regulate labor-management relations National Labor Relations Act

24.   1947  Gives the President power to halt major strikes by seeking a court injunction and permitting states to forbid requirements in labor contracts that force workers to join a union Taft-Hartley Act