Economic PolicyEconomic PolicyFiscal policyFiscal policy - Taxing, spending, and - Taxing, spending, and borrowing policies of the federal government.borrowing policies of the federal government.

Monetary policyMonetary policy – directed by The Federal – directed by The Federal Reserve (The Fed); control the supply of Reserve (The Fed); control the supply of money; set interest rates.money; set interest rates.Monetarism Monetarism - the supply of money is the key to the - the supply of money is the key to the nation's health, and having too much cash and credit nation's health, and having too much cash and credit in circulation stimulates inflation. in circulation stimulates inflation.

The Federal ReserveThe Federal Reserve

ChairmanChairman – – Janet YellenJanet Yellen (4 Year Terms) – (4 Year Terms) – 14 Governors (14 Year Terms) appointed by 14 Governors (14 Year Terms) appointed by the President; confirmed by the Senate.the President; confirmed by the Senate.

Independent Executive AgencyIndependent Executive Agency with the with the power to:power to:

Set discount rates for the money that banks can Set discount rates for the money that banks can borrow from the Federal Reserve. borrow from the Federal Reserve.

Set reserve requirements that determine the Set reserve requirements that determine the amount of money that banks must keep in reserve amount of money that banks must keep in reserve at all times. at all times.

Buy and sell government securities in the market, Buy and sell government securities in the market, thereby either expanding or contracting the money thereby either expanding or contracting the money supply. supply.

Ben Bernanke's Greatest Challenge - 60 Minutes - CBS NewsBen Bernanke's Greatest Challenge - 60 Minutes - CBS News

Economic Review TermsEconomic Review Terms budget deficit budget deficit A situation in which the A situation in which the

government spends more than it takes in, thus government spends more than it takes in, thus pumping more money into the economy.pumping more money into the economy.

budget surplusbudget surplus A situation in which the A situation in which the government takes in more money than it government takes in more money than it spends, thus draining money out of the spends, thus draining money out of the economy.economy.

budget resolution budget resolution A total budget ceiling and A total budget ceiling and a ceiling for each of several spending areas a ceiling for each of several spending areas submitted by the Budget Committees in the submitted by the Budget Committees in the House and Senate to their respective House and Senate to their respective chambers. These resolutions serve as targets chambers. These resolutions serve as targets to guide the work of each legislative committee to guide the work of each legislative committee as it decides what should be spent in its area.as it decides what should be spent in its area.

Economic TheoryEconomic Theory

KeynesianismKeynesianism A liberal economic theory A liberal economic theory developed by English economist John Maynard developed by English economist John Maynard Keynes, who believed that economic health Keynes, who believed that economic health depends on the proportions of income which are depends on the proportions of income which are saved and spent. The government's task is to saved and spent. The government's task is to create the right level of demand. When demand create the right level of demand. When demand is too low, the government should pump money is too low, the government should pump money into the economy through spending on its into the economy through spending on its programs. When demand is too great, the programs. When demand is too great, the government should take money out of the government should take money out of the economy by increasing taxes or cutting economy by increasing taxes or cutting spending.spending.

Economic TheoryEconomic Theory

supply-side theory supply-side theory A conservative economic theory that A conservative economic theory that maintains that sharp tax cuts increase the incentive for maintains that sharp tax cuts increase the incentive for people to work, save, and invest. The greater people to work, save, and invest. The greater productivity of the economy stimulated by these productivity of the economy stimulated by these increased investments would produce more revenue for increased investments would produce more revenue for the government despite the tax cut.the government despite the tax cut.ReaganomicsReaganomics The economic program advocated by The economic program advocated by economist Arthur Laffer and instituted by President economist Arthur Laffer and instituted by President Ronald Reagan in 1981 which combined the theories of Ronald Reagan in 1981 which combined the theories of monetarism, supply-side tax cuts, and domestic budget monetarism, supply-side tax cuts, and domestic budget cutting. The goal was to reduce the size of the federal cutting. The goal was to reduce the size of the federal government, to stimulate economic growth, and to government, to stimulate economic growth, and to increase American military strength.increase American military strength.

Economic TheoryEconomic Theory

MonetarismMonetarism. . Monetarists such as Milton Monetarists such as Milton Friedman hold that inflation is the result of too Friedman hold that inflation is the result of too much money chasing too few goods. This occurs much money chasing too few goods. This occurs when government prints too much money. When when government prints too much money. When government tries to stop inflation by decreasing government tries to stop inflation by decreasing the money supply, unemployment increases. the money supply, unemployment increases. Rather than adopting these start-and-stop Rather than adopting these start-and-stop policies, it would be better if government allowed policies, it would be better if government allowed the money supply to increase steadily and the money supply to increase steadily and consistently at a rate about equal to the growth consistently at a rate about equal to the growth in the productivity of the economy.in the productivity of the economy.

Iron TrianglesIron Triangles“Revolving Door”“Revolving Door”

What Drives Record Spending on Defense? : NPRWhat Drives Record Spending on Defense? : NPR

Factors that Drive Federal Factors that Drive Federal SpendingSpending

Discretionary Spending Discretionary Spending – Defense, – Defense, Education, Homeland Security, Agriculture, Education, Homeland Security, Agriculture, etc; interest groups keep this spending from etc; interest groups keep this spending from getting cut.getting cut.

Mandatory Spending Mandatory Spending – Interest on the – Interest on the debt, Pensions, Social Security, Medicare; debt, Pensions, Social Security, Medicare; entitlements and other promises; also hard entitlements and other promises; also hard to cut. to cut.

. . . To be continued. . . . To be continued.