JANUARY 9, 2014

Economic Policy

Fiscal Policy

Spending and taxing decisions made by the government

The annual federal budget is the basis of fiscal policy

If the U.S. budget was $1.00 how many cents would come from individual income taxes, federal borrowing, corporate income taxes, excise taxes, social security and Medicare taxes, and other sources?

How many cents would be spent out of the dollar on health care, social security, national defense, interest, other social aid and other?

Where does money come from ?

Out of a dollar this is where money comes from Individual income tax =$0.39 Social Security / Medicare taxes =$0.32 Federal borrowing =$0.13 Corporate Income taxes = $0.10 Excise taxes =$0.03 Other =$0.03

Where does federal tax money go?

Fiscal Policy

ProblemsLow productivity and

high unemployment

Excess production

and high inflation

Fiscal Policy Actions Demand Side:

increase spending Supply Side: Cut

business taxes

Decrease spending Increase taxes

Fiscal Terms

John M. Keynes- wrote The General Theory of Employment, Interest and Money (1936)

Believed in deficit spending – government should spend more than it gets from taxes which is can be accomplished through the borrowing and printing of money

Economic depression (severe economic downturn) requires more government programs to hasten spending than economic recession.

Other terms

Budget deficit – federal government had spent more than it received in taxes and other revenues (1970s and 1980s)

National debt –total cumulative amount the U.S. owes creditors ($4 trillion in 1990 and today over $15 trillion) http://www.usdebtclock.org/

Balanced budget – revenues are equal to government expenditures (1998)

Budget surplus – federal government received more in tax and other revenue than it spent

Types of Taxes

Graduated (progressive) tax – tax rate rises as income rises (Ex: Income tax)

Regressive tax – tax rate decreases as the income increases, or tax rate increases as the income decreases (Ex: Sales Tax and Social Security Tax)

Monetary Policy

Government manipulation of money in circulation can impact the economy

Controlled by the FED or Federal Reserve System (created in 1913) –made up of seven members who serve for 14 years (except the chair and vice chair who serve for 4 years). These members are appointed by the President.

Monetary Policy

Problem Low productivity and

high unemployment

Excess productivity and high inflation

Monetary Policy Actions by FED

Decrease interest rates on loan to member banks

Decrease cash reserve that member banks must deposit to the Federal Reserve System

Increase interest rate on loans to member banks

Increase cash reserve that member banks must deposit

Board of Governors for the FED

http://www.federalreserve.gov/aboutthefed/default.htm

Changing of Guards in the Federal Reserve Bank

Social Policy Poverty in the U.S.2007 poverty line was a family of four living

on less than $20,000 per year.1 in 8 Americans live below the poverty line

(35 million people)Concentration of the impoverished are:

a. Children 1 in 5 below poverty (10 million)

b. Racial minorities (African-Americans and Hispanics 2x more than whites)

c. Rural areas 1 in 7 rural residences and Urban 1 in 9.

Is Poverty a choice or a circumstance?

ChoiceCharles Murray

suggested that some people prefer to live on welfare and do not encourage education in home. Repeating the cycle of poverty.

What do you think?

CircumstanceOther research

suggest that circumstances like job layoff or divorce can lead to poverty that is circumstanial

Additionally 10% of full time workers do not make enough to lift family above the poverty line. (Working poor)

Should there be a living wage?

Federal Social Welfare Programs

Social Insurance Social Security Unemployment

Insurance MedicarePublic supports Universal in nature

Public Assistance Supplemental Security

Income – for blind, disabled, and elderly poor

TANF Temporary Aid to Needy Families

Food StampsSubsidized HousingMedicaidLess public support, less

funding, and restricted to low-income people