The document discusses different economic policies and theories throughout history, including laissez-faire capitalism prior to the Great Depression, John Maynard Keynes' interventionist views, Reaganomics, and modern fiscal and monetary policy approaches. It provides an overview of the key economic challenges faced during the Great Depression and recession periods, and the different solutions proposed and enacted by governments.

1. Economic Policy

2. Laissez-Faire
• Prevailing
a+tude
prior
to
the
Great
Depression
• Absence
of
government
control
-­‐
economy
must
be
le<
alone
to
flourish
• Market-­‐based
compe@@on
will
deliver
good
for
the
greatest
amount
of
people

3. Great Depression
• In 1929, the stock market crashed and
ushered in the Great Depression
• The worst and longest economic collapse
in the history of the industrialized world
• By 1933, more than 15
million Americans - ¼
of the nation’s
workforce - were
unemployed

4. John Maynard Keynes
• A British economist who
argued that gov't spending
had to increase
• More money in people's
pockets would increase
aggregate demand (total
amount of spending in an
economy)
• As people spent more, more goods and
services would be produced, creating new jobs

5. Interventionism
• A
policy
that
encourages
the
government
to
take
an
ac@ve
role
in
guiding
and
managing
the
economy
• The
New
Deal
is
a
classic
example
–government
began
to
regulate
private
businesses,
provide
Social
Security,
and
spend
money
to
create
jobs

6. Reaganomics
• Reagan
claimed
that
economic
stability
can
be
assured
not
by
increasing
demand,
but
by
increasing
aggregate
supply
(total
amount
of
goods
and
services
available
in
an
economy)
• More
produc@on
means
more
jobs,
which
happens
when
government
stays
out
of
business’s
way
(fewer
taxes/regula@ons)
• Massive
tax
cuts
of
the
1980s,
especially
for
the
wealthy,
are
known
as
“trickle-­‐down
economics”

7. The Kansas Experiment
Kansas
put
“trickle-­‐down”
into
effect
in
2012.
How
did
it
work
out?

8. Economic Stability
• Economic
Stability:
a
situa@on
in
which
there
is
economic
growth,
rising
na@onal
income,
high
employment,
and
steadiness
in
the
general
level
of
prices
• Economic
Instability:
– Infla@on:
a
rise
in
the
general
price
levels
of
an
economy
OR
– Recession:
a
short-­‐term
decline
in
the
economy
that
occurs
as
investment
sags,
produc@on
falls
off
and
unemployment
increases

9. Monetary Policy
• Used
by
Federal
Reserve
Board
(“Fed”)
-­‐
central
bank
of
the
U.S.
• Monetary
Policy
involves
changes
in:
– interest
rates
(amount
paid
to
borrow
money)
– and
money
supply
(the
amount
of
dollars
circula@ng
in
the
economy)
– In
general:
• Lowering
interest
rates
and
increasing
the
money
supply
will
increase
aggregate
demand
(to
expand
economy)
• Raising
interest
rates
and
decreasing
the
money
supply
will
decrease
aggregate
demand
(to
contract
economy)

10. Fiscal Policy
• Used
by
Congress
and
the
President
• Fiscal
policy
involves
changes
in
taxing
and
spending
• In
general:
– Lowering
taxes
and
increasing
government
spending
should
increase
aggregate
demand
(to
expand
economy)
– Raising
taxes
and
decreasing
government
spending
should
decrease
aggregate
demand
(to
contract
economy)

11. American Recovery and
Reinvestment Act of 2009
Immediately
a<er
taking
office,
because
of
the
Great
Recession,
President
Obama
pushed
through
Congress
a
s@mulus
package
–
$831
billion
of
direct
spending
on
infrastructure,
educa@on,
health,
energy,
federal
tax
incen@ves
and
expansion
of
unemployment
benefits
to
get
people
spending
again.
How
well
did
it
work?

12. Federal Budget - Revenues
• Federal
government:
– individual
income
taxes
and
Social
Security
taxes
make
up
over
80%
of
revenue
– corporate
income
taxes
– capital
gains
taxes
–
on
investments
– tariffs
–
on
imports
• State
and
Local
Governments:
– raise
about
85%
of
their
funds
from
sales
taxes,
property
taxes
and
individual
income
taxes

13. Taxes
• Propor@onal
Tax
(Flat
Tax):
– Takes
same
percentage
of
income
or
wealth
from
all
taxpayers
(EX)
everyone
pays
12%)
• Progressive
Tax:
– Those
with
higher
incomes
or
those
who
are
wealthier
pay
a
higher
propor@on
of
their
income
in
taxes
(EX)
middle
class
pays
20%
and
wealthy
pay
30%)
• Regressive
Tax:
– Poor
people
pay
a
higher
propor@on
of
their
income
in
taxes
than
those
with
higher
incomes
or
those
who
are
wealthier
(EX)
sales
tax)

14. Federal Budget -
Expenditures
• Mandatory
spending:
– Certain
programs
that
must
be
funded
by
law
(Congress
has
no
choice
unless
they
change
the
law)
– Most
of
it
involves
en@tlement
programs
(Social
Security,
Medicare/Medicaid)
and
interest
on
the
na@onal
debt
• Discre@onary
spending:
– Programs
Congress
can
choose
to
fund
every
year
– Majority
of
this
goes
to
Defense

16. Consequences
• Because
more
spending
and
tax
cuts
are
needed
during
a
recession,
the
government
engages
in
deficit
spending
–
spending
more
than
it
takes
in.
• Deficit
spending
forces
government
to
borrow,
which
leads
to
debt
-­‐
the
U.S.
owing
money.
Currently,
the
combined
public
debt
of
the
U.S.
is
nearly
$20
trillion.
EX)
Reaganomics
did
grow
the
economy,
but
his
tax
cuts
and
huge
military
spending
produced
largest
budget
deficits
ever.
The
na@onal
debt
tripled
during
the
1980s.