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AP Government - Economy Policymaking

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Tony Hernandez

on 6 April 2011

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Transcript of AP Government - Economy Policymaking

Economic Policymaking By

Cindy Gu

Tony Hernandez

Kevin McGoff Government and the Economy Capitalism is the system in which individuals and corporations, not the government own the pricinpal means of production and seek profits. Arenas of Economic Policymaking Three major components of economic policymaking: business, consumers, and labor Business and Public Policy FORTUNE 500 Makes up the "monopoly capital", consists of the top 500 largest industrial corporations in the US. Many are also transnational corporations meaning they have vast business assets in multiple countries. Since 1980s mergers have become a major issue!
Companies struggle for control over assets and profits Americans are always wary of concentrated power Regulating Business During twentieth centuries, many monopolies began to form creating the era of trusts Sherman Act of 1890 was the first antitrust policy Antitrust policies allow the Justice Department to sue companies that are gaining too much control over one market Benefiting Business Governments help businesses during crucial times in form of
-subsidies
-tax breaks
-loan guarantees Department of Comerce: Storehouse of assistance for businesses by collecting data on products and markets, helping businesses export products, and protecting inventions through the Patent Office
Small Business Administration: Government's helper to small businesses
Funds for research Consumer Policy Food and Drug Act of 1906 prohibits interstate
transportation of dangerous or impure foods and drugs Food and Drug Administration: Powers over manufacturing, contents, marketing, and labeling of food and drugs
Consumer Product Safety Commission: Broad powers to ban hazardous products from the market created in 1972
Federal Trade Commission: responsible for regulating trade practices and defending consumer interests in truth in advertising Ralph Nader was a consumer activist who raised awareness for consumerism in 1960s Labor and Government Antitrust Act of 1914: Exempted unions from antitrust laws NEW DEAL National Labor Relations Act: Also known as Wagner Act and guaranteed unions the right of collective bargaining
Collective bargaining: Right to have representatives to negotiate with management in determining working conditions Taft-Hartley Act of 1947: Prohibited various unfair practices and gave president power to halt strikes. It permitted states to adopt right to work laws. New Economy Rise of technology, shift from industrial corporations to information economy Greater gaps occur in ethnic and racial groups
Information inequality POP QUESTION!
What is a transnational corporation? POP QUESTION!
Who was in charge of the monpoly of the oil refining and process business? POP QUESTION!
Who was the consumer activist that rose awareness on the safety issues of products? POP QUESTION!
What is another name for the Wagner Act? The US is actually a mixed economy meaning the government is deeply involved in economic decisions Economic problems cause social problems. Keeping track of unemployment is of high priority to politicians.
The Bureau of Labor Statistics measures the tate through a random survey of over 50,000 households. Despite the large sample size, the rate underestimates unemployment as it leaves out discouraged workers. Another key measure of the economy that politicians keep an eye on is inflation (the rise in prices for consumer goods).
It is measured through the Consumer Price Index. It measures the change in the cost of buying a fixed basket of goods and services.
The misery index combines unemployment and inflation totals. It is often used in elections against incumbents. Elections! Evidence points to the fact that economic trends affect how voters make up their minds on election day. Research also indicates voters who experience unemployment in their family are more likely to support Democratic candidates as are employed workers who feel joblessness is a serious problem. Political Parties and the economy! Knowing the sensitivity to economic conditions, parties tend to keep a close eye on these conditions when selecting their policies.
Republican administrations tend to risk higher unemployment and recession while Democrats tolerate high inflation. Instruments for Controlling the Economy Before the Great Depression, laissez faire economics was much more prevalent. The government allowed the markets to handle themselves.
As FDR showed, policymakers had to adjust and now actively seek to control the economy.
This can be done through monetary and fiscal policy. Monetary policy
... is the manipulation of the supply of money and credit in private hands.


Monetarism (theory) holds that the supply of money is key to a nation's economic health. Too much cash and credit in circulation causes inflation The Federal Reserve System is the main agency for making monetary policy. Its seven member Board of Governors is appointed by the president (14 year terms).

The Fed can set discount rates for the money that banks borrow from the Federal Reserve Banks. It also sets reserve requirements that determine the amount of money banks must hold. Lastly, the Fed can add money supply by selling bonds. Keynesian Economic Theory:

emphasizes that government spending and deficits can help the economy weather its normal ups and downs. Proponents of this theory advocate using the power of government to stimulate the economy when it is lagging.

This theory has come to dominate American economics since the Great Depression as the government seeks to increase demand when necessary. Fiscal Policy: Keynesian Versus Supply-Side Economics

Fiscal policy: Impact of Federal budget on economy

Almost entirely determined by Congress and the President, who are the budget makers. Supply-side economics:

advocates the stimulation of the supply of goods as opposed to demand. The solution in this approach is to cut taxes and return purchasing power to consumers.

The supporters of this theory believe big government has come to take up too much of the national gross domestic product and thus the scope of the government is always reduced. Policies usually take a long time to take effect.
This means they must be decided upon a year in advanced, making it difficult to determine which policies are needed.
An example is the president’s budget; it must be prepared many months in advanced for it to be enacted. Obstacles to Controlling the Economy • The capitalist system adds restraints on the gov. in controlling the economy.
• This is due to the private sector of America being much larger than public sector.
• Since two out of three dollars spent comes from the private sector, the private sector dominates the economy. Crisis especially abroad greatly affect the economy.
•This is due to U.S’s importing of half of its oil from other countries.
•Also America’s stock market is affected by Asia’s economy. The budgetary process adds troubles to fiscal policy; most if not all expenditures for the years are uncontrollable, it makes the economic policy decentralized, and law mandates so much spending that it is very hard to make cuts when needed. Pop Question!
How does the budget process produce troubles? Pop Question!
Why must economic policies be made in advance? Pop Question!
Why is the US so vulnerable to crisis? Pop Question!
How much bigger is the private sector than the public sector? •Karl Marx’s idea of communism to combat unfair treatment of employers to employees
oDid not provide necessary incentives for people to work productively
•In America, democratic system used along with expanding scope of government


Understanding Economic Policy Democracy and Economic Policymaking
•As voting power of ordinary people grew, political pressures also grew for action to restrict unfair business practices and to protect individual rights •One consequence of democracy for economic policymaking is decisions are difficult to make when they hurt particular groups or involve short-term pain for longer gain because it is so decentralized Conservatives want free market and are against government imperfection
Focus on imperfections of government Economic Policymaking and the Scope of Government
•Liberals and conservatives disagree most is scope of government involvement in the economy
oLiberals want an expanded role of government to stimulate the economy in times of recession
Focus on imperfections of the market Pop Questions!
Liberals seek ___________ in the economy. Pop Questions!
Why does communism not work in the real world? Pop Questions!
Why does democracy in policymaking make it harder to make decisions? Pop question!
The coalition behind the Republican Party is most likely to be concerned with what? Pop question!
According to monetarists, too much money and credit leads to what? Pop question!
Our key measure of inflation is called the...
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