The president of Country A announces plans to increase factory production by 7% and raise wages for all workers by 12%. Additionally, only families of military personnel will be able to purchase new automobiles for the next year.
Using Video Tools to Develop Student's Writing SkillsAndrew McCarthy
This was one of my presentations given at the recent Teach IT conference in Singapore. November 2011. For more resources see here - http://teachit2011.uwcsea.wikispaces.net/Workshop_03
Using Video Tools to Develop Student's Writing SkillsAndrew McCarthy
This was one of my presentations given at the recent Teach IT conference in Singapore. November 2011. For more resources see here - http://teachit2011.uwcsea.wikispaces.net/Workshop_03
DB2
7 Economic Policy Challenging Incrementalism
Incremental and Nonincremental Policymaking
Traditionally, fiscal and monetary policies were made incrementally; that is, decision makers concentrated their attention on modest changes—increases or decreases—in existing taxing, spending, and deficit levels, as well as the money supply and interest rates. Incrementalism was especially pervasive in annual federal budget making. The president and Congress did not reconsider the value of all existing programs each year, or pay much attention to previously established expenditure levels. Rather last year’s expenditures were considered as a base of spending for each program, attractive consideration of the budget proposals focused on new items or increases over last year’s base.
But crises often force policymakers to abandon incrementalism and reach out in non-incremental directions. In economic policy, the president and Congress and the Fed are pressured to “do something” in the face of a perceived economic crisis, even if there is little consensus on what should be done, or even whether there is anything the federal government can do to resolve the crisis. As we shall see later in this chapter, the recession that began in 2008 caused policymakers to search for new policies and make dramatic changes in spending and deficit levels and to undertake unprecedented measures to prevent the collapse of financial markets and avoid a deep recession.
Fiscal and Monetary Policy
Economic policy is exercised primarily through the federal government’s fiscal policies—decisions about taxing, spending, and deficit levels—and its monetary policies—decisions about the money supply and interest rates.
Fiscal policy is made in the annual preparation of the federal budget by the president and the Office of Management and Budget, and subsequently considered by Congress in its annual appropriations bills and revisions of the tax laws. These decisions determine overall federal spending levels, as well as spending priorities among federal programs. Together with tax policy decisions (see Chapter 8), these spending decisions determine the size of the federal government’s annual deficits or surpluses.
Monetary policy is the principal responsibility of the powerful and independent Federal Reserve Board—“the Fed”—which can expand or contract the money supply through its oversight of the nation’s banking system (see “The Fed at Work” later in this chapter). Congress established the Federal Reserve System and its governing Board in 1913 and Congress could, if it wished, reduce its power or even abolish the Fed altogether. But no serious effort has ever been undertaken to do so.
Economic Theories As Policy Guides
The goals of economic policy are widely shared: growth in economic output and standards of living, full and productive employment of the nation’s work force, and stable prices with low inflation. But a variety of economic theories compete for preeminence as ways of achiev.
Government Spending content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Intro to Government Spending
Determinants of Government Spending
As with most things in economics, taxation is a mixed blessing. It.docxfredharris32
As with most things in economics, taxation is a mixed blessing. It is a blessing for those who receive dollars from taxpayers, which is about 40% of the population; and it is a nuisance for those who have to pay the taxes. The objective of this unit is to help you understand taxes and understand how they affect your life and the economy.
The income tax system began in earnest in 1913 with the Sixteenth Amendment to the Constitution that gave Congress legal authority to tax income. A rudimentary income tax system was tried during the Civil War but was eventually declared unconstitutional. There was no income tax during the high watermark of America's industrial capitalism, beginning in about 1870 and continuing to 1910. If you made money in that era, you kept it. Many of the most famous capitalist names emerge from this era: Rockefeller, Carnegie, McCormick, Swift, and Vanderbilt.
Two major disasters in our economic history, the Great Depression and World War II, changed the role of taxation and government forever. Beginning in the mid-1930s, following the ideas of John Maynard Keynes, the U.S. government began to spend money much more aggressively. In the past, government believed mostly in a balanced budget, but that changed when the Great Depression lingered for an entire decade.
Later, to finance a two-front, world war, taxes were raised to about 90%. Thus began the era of big taxes to pay for big government. Taxes, of course, have fallen from that lofty peak to a more modest 35% marginal tax rate at present, but the number of taxes has increased exponentially. All but six states have an income tax; likewise, many counties and cities have an income tax.
Though there are many ways to slice the tax onion, perhaps the best is the following:
Progressive taxes: This is a tax system in which tax rates increase as income increases. In other words, the more money you make, the more taxes you pay. This system places a greater burden on those best able to pay and almost no burden on the poor. For example, according to Internal Revenue Service (IRS) statistics, the top 50% of earners pay 97% of the taxes. The top 1% of earners pays 30% of all income taxes. On the other hand, over fifty million people, or one-third of the adult population in the United States, pay no taxes whatsoever.
Regressive taxes: In theory, these are the opposite of progressive taxes; these tax strategies fall more heavily on the poor. Common sense would suggest that these would be rarely used in a well-organized economy, but in fact, they are among the most commonly used because of their relative invisibility. Sometimes called the nickel and dime tax, regressive taxes tend to be small for each individual event; therefore, they are not widely noted. A good example of a regressive tax is the sales tax. It takes a much larger percentage of a poor person’s income than the income of someone of wealth. The reason there is no protest is that it takes such a small amount of money on ...
6. Examples In a State of the Nation Address, the president of Country A announces new directions for Country A. He states that beginning in one month, he will instruct all of the nation’s factories to increase production levels by 7%. He will raise the base wage for all workers by 12%. Finally, he states that only families of military personnel will be able to buy new automobiles for 1 year Command
7. Examples In a State of the Nation Address, the King of country B makes some statements about the economy in B. First, he says that he has put together a new council to keep an eye on large corporations who might take advantage of consumers. The Council will have the power to prosecute offenders. Secondly, he asks farmers to increase their production of corn if their resources allow it. Thirdly, he encourages consumers to spend their money for the good of the country Mixed
8. United States Government’s Role in Economy What is Trade? Buying, selling, and exchanging of goods between and within countries Exports, Imports, Trade imbalance Which imbalance hurts economy more? More imports than exports.
9. United States Government’s Role in Economy What is a tariff? How can tariffs protect economy? Quota vs. Blockade/Embargo Protectionism – using tariffs, quotas, blockades to protect domestic markets Free Trade – remove all obstacles to trading. Each nation will learn to specialize in what it’s good at
10. What Happens to…… Sales of Toyota (Japan) cars in U.S. when a tariff is placed on foreign cars imported to U.S. Sales of Ford (Michigan) cars when the same tariff is placed. Cuban Cigar industry in Cuba when the U.S. lifts its embargo on all good from Cuba (free trade) Domestic Cigar industry in U.S. when the embargo is lifted (free trade)
11. United States Government’s Role in Economy Ultimate Goal – provide economic growth and Stability Maximum employment, maximum production Limit Inflation – Rising Prices Ways to Do This Provide Goods to Public – Military Defense Redistribute Income – Income tax is graduated, wealthier pay taxes and higher rates, which funds programs for less fortunate.
12. U.S. Fiscal Policy Federal government can influence the economy by its spending, taxes, and borrowing They want to stabilize the economy, bring it up when its down, and bring it down when its up (inflation). Times are good: worry about inflation Reduced Demand will do what to prices? Government will Consumers will have Less money and Tax more Spend less lower Spend less Avoids Inflation
13. U.S. Fiscal Policy In a Recession…. Obama Increasing Spending Times are bad: worry about depression Increased Demand will do what? Government will Consumers will have More money and Spend more Tax less Create Jobs Spend more Or Lose jobs
14. U.S. Monetary Policy Federal government can influence the economy by controlling the money supply Federal Reserve System Regulates through Interest Rates and Bank Reserve Requirements They want to stabilize the economy, bring it up when its down, and bring it down when its up (inflation). Times are good: worry about inflation – REDUCE MONEY SUPPLY Consumers are able to: The Fed will Businesses will Raise Rates Raise Requirements Borrow More Or Buy More or Buy Less Borrow Less
15. U.S. Monetary Policy In a depression or recession Times are tough: worry about growing economy – INCREASE MONEY SUPPLY Consumers are able to: The Fed will Businesses will Lower Rates Lower Requirements Borrow More Buy More Or Borrow Less Or Buy Less
16. What would the Government Do? THE ECONOMY INFLATION INFLATION C A RECESSION RECESSION B DEPRESSION Monetary Policy Who Controls Monetary Policy? What would they do at Point C? Point A?
17. What would the Government Do? THE ECONOMY INFLATION INFLATION C A RECESSION RECESSION B DEPRESSION Fiscal Policy What actions would we be talking about controlling? What would they do at Point A? Point C?