measuring the economy; how fiscal and monetary policy are used to affect the economy

2.  Public goods:Public goods: [contrast w/exclusionary[contrast w/exclusionary
private goods]private goods]
› Things more difficult for privateThings more difficult for private
sector to supplysector to supply
› Externalities [consequences]Externalities [consequences]
 Positive – everybody benefitsPositive – everybody benefits
 Intended [good roads = lowerIntended [good roads = lower
costs]costs]
 Unintended [space program leadsUnintended [space program leads
to tech advances in many areas]to tech advances in many areas]
 Negative – unintended harmNegative – unintended harm
 Gov’t tries to limit theseGov’t tries to limit these
 E.g. pollution lawsE.g. pollution laws

3.  Keeping businessKeeping business
competitivecompetitive
› MonopoliesMonopolies [vertical v.[vertical v.
horizontal integration]horizontal integration]
› Anti-trust legislationAnti-trust legislation
 Sherman andSherman and
Clayton ActsClayton Acts
› Corporate mergersCorporate mergers
› Work and productWork and product
safetysafety
› Consumer protectionConsumer protection
laws [FTC]laws [FTC]
› Truth in advertisingTruth in advertising

4.  Is it healthy? Sluggish? Sick?Is it healthy? Sluggish? Sick?
 How can you know?How can you know?
 What can be done?What can be done?
 Let’s use a metaphor…Let’s use a metaphor…
 When was the last timeWhen was the last time youyou
were sick?were sick?
 How did you know?How did you know?
 What did you do?What did you do?
 What were the results?What were the results?

5.  What’s the docWhat’s the doc
looking for?looking for?
 Symptoms…Symptoms…
 Name some….Name some….
› FeverFever
› Feeling weakFeeling weak
› AchyAchy
› Runny noseRunny nose
› HurlingHurling
 In order to…In order to…
 DiagnoseDiagnose
 Then prescribeThen prescribe
 What are economicWhat are economic
symptoms called?symptoms called?
 Economic indicators:Economic indicators:
 Name some….Name some….
› GDP [up? Down?]GDP [up? Down?]
› The Dow, S&P 500,The Dow, S&P 500,
NASDAQ[stock market]NASDAQ[stock market]
› CPI – % inflationCPI – % inflation
› Unemployment #sUnemployment #s
› Durable good ordersDurable good orders
› Income levelsIncome levels
› Housing sales/startsHousing sales/starts
› Corporate earningsCorporate earnings

6.  Analysis and forecastAnalysis and forecast
 What indicators go withWhat indicators go with
what condition?what condition?
 President’s Council ofPresident’s Council of
Economic Advisors, andEconomic Advisors, and
othersothers
 Figuring out where weFiguring out where we
are – the GDPare – the GDP
 Looking ahead – otherLooking ahead – other
indicatorsindicators
 Can usually forecastCan usually forecast
from 3 to 6 months outfrom 3 to 6 months out
 Let’s practice!Let’s practice!
What indications point to aWhat indications point to a
period of prosperity/peak?period of prosperity/peak?
What indications pointWhat indications point
to a period ofto a period of
recession?recession?
FYI: Recovery =FYI: Recovery = growth, expansiongrowth, expansion
Recession =Recession = shrinking, contractionshrinking, contraction

7. Government assistanceGovernment assistance
 Determining the povertyDetermining the poverty
lineline
 Programs to assist those inPrograms to assist those in
poverty [poverty [entitlementsentitlements]]
› Food stampsFood stamps
› WIC [Women, Infants,WIC [Women, Infants,
Children]Children]
› TANF [TemporaryTANF [Temporary
Assistance for NeedyAssistance for Needy
Families]Families]
› WorkfareWorkfare
› EITC [Earned Income TaxEITC [Earned Income Tax
Credit]Credit]
› Progressive income taxProgressive income tax

8.  Fiscal policyFiscal policy
 Congress and PresidentCongress and President
› RevenueRevenue
 Taxes cuts vs. tax hikesTaxes cuts vs. tax hikes
› Spending – federalSpending – federal
budgetbudget
› stabilizersstabilizers
 Ideology and politicsIdeology and politics
 Monetary policyMonetary policy
 The Federal ReserveThe Federal Reserve
› Controlling theControlling the
money supplymoney supply
› The Fed has 3 mainThe Fed has 3 main
tools for affectingtools for affecting
how much $ is inhow much $ is in
circulationcirculation