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ECONOMIC POLICY

ECONOMIC POLICY. ( Or… “ How Many Harvard Economists Does It Take to Craft an Economy Policy? ”. FISCAL VS. MONETARY POLICY. FISCAL POLICY Tax and spend to affect economy Deficit vs. Surplus. MONETARY POLICY Use interest rates to control economy

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ECONOMIC POLICY

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  1. ECONOMIC POLICY (Or… “How Many Harvard Economists Does It Take to Craft an Economy Policy?”

  2. FISCAL VS. MONETARY POLICY FISCAL POLICY • Tax and spend to affect economy • Deficit vs. Surplus MONETARY POLICY • Use interest rates to control economy • Lower rates encourage borrowing and spending

  3. KEYNESIANISM(CANE-ZEE-AN-ISM)John Maynard Keynes1883-1946

  4. The market will not automatically operate at • full-employment, low inflation • Emphasis on savings vs. spendings • The key is to create the right demand • If demand is too low, government should pump • $ into economy (public works, etc) • If demand is too great, government should • taken $ out of circulation by raising taxes and/ • or spending less. • Government activism • Liberal • FISCAL POLICY

  5. MONETARISM Milton Friedman (1912-2006)

  6. Inflation occurs when there is too much • money, and too few goods • Value of dollar decreases • Gov’t should have a steady, predictable • increase in the money supply equal to growth • Generally, gov’t should leave matters alone • (Free Market) • Conservative • MONETARY POLICY

  7. Price & Wage Controls John Kenneth Galbraith (1908-2006)

  8. Government should regulate the max prices • charged and wages paid in larger industries to • control inflation • Socialism

  9. INDUSTRIAL POLICY Robert Reich (1946- )

  10. Government should invest to keep key • industries healthy or plan for replacements • Socialism

  11. SUPPLY-SIDE THEORY Arthur Laffer (1940- ) Paul Craig Roberts (1939- )

  12. Less government interference • Cut taxes a lot to encourage people to work, • save, and invest • Increased investment will lead to more jobs • Conservative • FISCAL POLICY

  13. REAGANOMICS

  14. Reduced government spending on social • programs • Increased military spending • Sharp income tax cuts • Increased social security taxes • Result: HUGE budget deficit that lowered • unemployment and helped the rich

  15. WHO HELPS CRAFT ECONOMIC POLICY? • CEA (Council of Economic Advisors) • OMB (Office of Management and Budget) • Secretary of Treasury • The Federal Reserve Board (the Fed) • -7 members appointed by Pres, confirmed • by Senate for 14 year terms • -Regulates the supply and price (interest • rates) of money • -Congress must approve all expenditures • -Can control Fed by threatening to reduce its power • BUDGET • -Pres submits to Congress in Feb • -Analyzed by the CBO (Congressional Budget office) • -Budget Resolutions come out of committee

  16. THE BUDGET • President submits budget to Congress in February • Budget is analyzed by the CBO (Congressional Budget Office) • Budget resolutions come out of committees

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