Presentation on theme: "CHAPTER 17 Economic Policymaking Government in America: People, Politics, and Policy Updated with 15 th Edition Edwards/Wattenberg/Lineberry."— Presentation transcript:
CHAPTER 17 Economic Policymaking Government in America: People, Politics, and Policy Updated with 15 th Edition Edwards/Wattenberg/Lineberry
Government, Politics, and the Economy Introduction Capitalism: An economic system in which individuals and corporations, not the government, own the principal means of productions and seek profits Profits determine production and prices Mixed Economy: An economic system in which the government is deeply involved in economic decisions through its role as regulator, consumer, subsidizer, taxer, employer and borrower Multinational Corporations: Businesses with vast holdings in many countries – Microsoft, Disney, Coca-Cola. Products flow between regions and jobs go to where they can be done cheaply
Voters, Politicians and the Economy Economic conditions are the best single predictor of how voters perceive the president is doing his job (pocketbook voting) Economy in 2008 was a major factor in Obama taking office (“It’s the Economy, Stupid”) Democrats stress keeping unemployment low (who are their constituents?) Republicans worry about inflation (who are their constituents?)
Unemployment Unemployment Rate: measured by the Bureau of Labor Statistics (BLS) defined as the proportion of the labor force actively seeking work, but unable to find jobs. Bad economy = social problems (higher suicide and homicide rates, drug and alcohol related deaths, depression, etc.) Unemployment impacts minorities 2-3 times more than whites, young more than middle aged BLS now also releases an UNDERemployment rate
Inflation Inflation: the rise in prices for consumer goods Consumer Price Index: the key measure of inflation. Goal is to reflect changes over time in the amount consumers need to spend to maintain a certain standard of living. How is CPI measured? Three major time periods of inflation: 1973 and 1974 – OPEC cut oil supplies because of US support of Israel during war with Egypt and Syria 1979 - Iranian revolution – oil supply cut from Middle East 1991 – Iraq invaded Kuwait, people worried that oil supplies would be affected People on fixed incomes are hit particularly hard by inflation
Government, Politics, and the Economy What do you think this graph would look like if it were extended out to today?
Government, Politics, and the Economy What has happened to the cost of consumer goods recently? Do you notice any changes?
Instruments for Controlling the Economy - The government has great impact on the economy but it is limited by a commitment to the free enterprise system Historically – 1929 Stock Market Crash – Hoover, Laissez faire policies New Deal – federal policies aimed at putting the US economy back on track Government has been very active in steering the economy since the Great Depression and the New Deal US Government has 2 tools to help guide the economy Monetary policy Fiscal policy
Policies for Controlling the Economy Monetary Policy and “the Fed” The head of the Federal Reserve Board is Janet Yellen. She has more power over the US economy than even the president Monetary Policy: the manipulation of the supply of money and credit in private hands; controlled by “the Fed” Monetarism – economic theory that holds that the supply of money is the key to the country’s economic health Too much cash and credit produces inflation, too little and we see credit tighten and unemployment rise The money supply affects the interest rates we pay for houses, cars, businesses, etc.
The Federal Reserve System Main policymaker is the Board of Governors of the Federal Reserve System–the “Fed” Created in 1913 to regulate lending practices of banks and thus the money supply They are beyond the control of the President and the Congress Seven member board appointed by the President, for 14 year terms. From the board members, a chairman is chosen. Current chairperson of the Fed is Janet Yellen.
Policies for Controlling the Economy Monetary Policy and “the Fed” (continued) The Fed’s instruments to influence the supply of money in circulation: Sets the discount rate (rate at which banks borrow money from the Fed) Sets reserve requirements (how much money banks have to have on reserve at all times) Buys and sells government bonds Through the use of these actions, the Fed can affect the economy.