US Economic Policy
Until the 20th century the country abided by the laissez-faire policy, which required a free market with little intervention from government. With the Great Depression came Keynesian economics, or the opposite belief that the government should manage the economy. Today, United States economic policy lies somewhere in between — government should regulate and sometimes manage, but should allow a free market whenever possible. Political and business leaders disagree on how much control is enough.
Monetary policy is the government's control of the money supply. The government can control how much or how little money is in circulation by the amount that they print and coin. If too much money is out there, it tends to cause inflation, or the devaluation of the dollar. Too little money causes deflation, which can lead to a recession. The powerful arm of government that controls the money supply is the Federal Reserve System, which is headed by the Federal Reserve Board. The most important way that the "Fed" controls the money supply is by adjusting interest rates — high rates discourage borrowing money, which causes less inflation. The "Fed" can also lower interest rates to stimulate borrowing, which encourages consumer spending. The Federal Reserve Board's seven members are appointed by the President and are approved by the Senate for 14-year, nonrenewable terms. The President may not remove them from office, so they function quite independently from any controls from the executive branch. The chair is elected by the Board for four years, and may be reelected. The Board heads the Federal Reserve System, which was created by Congress in 1913 to regulate the lending practices of banks. It consists of 12 regional banks, which in turn supervise a total of about 5,000 banks across the United States.
Fiscal policy affects the economy by making changes in government's methods of raising money and spending it.
Congressional Budget office
Since 1975, the Congressional Budget Office has produced independent analyses of budgetary and economic issues to support the Congressional budget process. Each year, the agency’s economists and budget analysts produce dozens of reports and hundreds of cost estimates for proposed legislation. CBO is strictly nonpartisan; conducts objective, impartial analysis; and hires its employees solely on the basis of professional competence without regard to political affiliation. CBO does not make policy recommendations, and each report and cost estimate summarizes the methodology underlying the analysis. Many of CBO’s products are available to the Congress and the public on the agency’s website, www.cbo.gov. CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.
- Baseline Budget and Economic Projections
- Long-Term Budget Projections
- Cost Estimates
- Analytic Reports
- Analysis of the President’s Budget
- Budget Options
- Analysis of Federal Mandates
- Monthly Budget Review
- Scorekeeping for Legislation
- Compilations of Unauthorized Appropriations and Expiring Authorizations
- Sequestration Reports
- Working Papers
- Data and Technical Information
Fiscal Policy and Stimulus (Crash Course)
Controls economic fluctuations
Resecisionary gap= no work / factory are empty
Inflationary gap= low unemployment / busy factories.
Since the 1920's the economy has been fluctuating
1980's saw the great moderation (not much fluctuation )
2008 saw the Great recession
Rescession can cause many societal problems
Fiscal policy is where the government can step in and either place a contractionary or expansionary economy
Done by the President and Congress.
2008 resulted in the American Recovery and Reinvestment Act to stimulate the economy
Does it help? Not so sure.
Classical theory-economy will fix itself
John Maynard Keynes- government can help the economy along by spending in a deficit
May result in government debt and depends on whethere the workforce is working below or above capacity.
Austerity- raises taxes and reduces government spending (Europe) Multiplier effect in US 1%.
Janet Yellen, Chair of the Board of Governors (Crash Course)
The central bank of the US.
Roles: regulate and overseee nation's commercial banks and conduct monetary policy.
During depression banks failed due to lack of liquid assets.
Fractional reserve bank (the amount that the banks have to hold and not lend out usually 10%)
Discount rate (Interest rate)
Open market operations (Bonds are placed for sale)
Economic POLICY resources
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