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Economic Policy

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Ashley Pierre

on 11 February 2015

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Transcript of Economic Policy

How do we understand the functions of our nation's economic policies?
Do Now:
What do you already know about our economic policies?
North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement (NAFTA) is a trade agreement that sets the rules of trade and investment between Canada, the United States, and Mexico.
Signed in 1992
Put into effect on January 1st, 1994
Created the world's largest free trade zone in North America
Supply-Side Economics
Keynesian Economics
Fiscal Policy
Involves the government changing the levels of taxation and government spending in order to influence economic activity
Stimulates growth of economy during recessions
Two types of fiscal policy:
1. Expansionary (Loose) Fiscal Policy
2. Deflationary (Tight) Fiscal Policy
Aggregate Demand: the amount of money the government plans to spend yearly
2 Types Of Fiscal Policy
1. Expansionary (Loose) Fiscal Policy:
increases aggregate demand
the government will increase spending or cut taxes

2. Deflationary (Tight) Fiscal Policy:
decreases aggregate demand
the government will decrease spending or increase taxes
Answer the following question
John Maynard Keynes
An economic theory of total spending in the economy and its effects on output and inflation.
Main Ideas :

- More social programs (social security, medicare, free housing, veterans benefits, etc.) = increased government expenditures
- Lower taxes -> stimulates demand
- Against laissez-faire
- Monetary policy is an important tool for tweaking the economy and dealing with business cycles
- Democratic practice
"Reaganomics" or the "Trickle Down" policy
President Ronald Reagan

What are the beliefs of supply-siders?
Greater tax cuts for investors and entrepreneurs = incentives to save and invest, and produce economic beliefs that trickle down into the overall economy
Supply-siders believe strongly in laissez-faire
Republican practice
Supply-Side Economics
Tax Policy:
supply-siders argue for lower marginal tax rates
lower marginal rates will induce investors to deploy capital productively.
Regulatory Policy:

supply-siders tend to ally with traditional political conservatives - those who prefer smaller government and less intervention in the free market.
Monetary Policy:
Federal Reserve's ability to increase or decrease the quantity of dollars in circulation.
Monetary Policy
Involves the Federal Reserve (central bank) regulating the amount of money and credit of the economy

Aims to promote maximum employment and maintaining long-term economic growth
Federal Reserve
Central bank of the U.S
Created by President Woodrow Wilson when he signed the Federal Reserve Act into law
Responsible for maintaining the nations monetary policy, regulating banks and other financial institutions
Council of Economic Advisors
Agency within Executive Office of President

Council offers the President economic advice on activities that involve domestic and international economic policies

Created under the Employment Act of 1946
Office of Management and Budget
Assists the President in making decisions regarding the Federal Budget and its agencies
Largest component of Executive Office of President
5 processes through which the OMB carries out the President's priorities:
1. Budget development and Execution
2. Management
3. Coordination/Review of Federal Regulations
4. Legislative clearance
5. Executive orders
Congressional Budget Office
The Federal Budget and Taxes
1. President submits a budget request to Congress
2. House and Senate pass budget resolutions
3. House and Senate Appropriations Subcommittees "markup" appropriation bills
4. House and Senate vote on appropriation bills and reconcile differences
5. President signs each appropriation bill and the budget becomes a law
Responsible for fiscal policy analysis
Advises Congress on the outcomes of their economic decisions and gives them budget data
Allows Congress to make decisions on spending and taxation levels
Full transcript