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Chapter 18 - Chapter 18 I Political Economy 1 Political...

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Chapter 18 I. Political Economy 1. Political economy is influence of politics and economy on each other; what government should do in the economy. 2. Public Policy is what a government tries to do; the choices it makes among alternatives. A. Government and the Economy 1. Everyone expects government to be involved in economy. 2. Business cycle is the tendency of economy to alternate between growth and recession over several years. 3. A recession is a period of economic decline, a shrinking GDP. 4. Inflation is a rise in prices, generally. 5. Federal Reserve board is a board that manages the U.S. economy. 6. Board can raise and lower interest rates. B. Inflation 1. Johnson tried to put money into the economy but failed. 2. Johnson believed he could win in Vietnam quickly and cheaply before an economic impact. 3. Many believe he could have avoided the inflation if he had raised taxes at the start of the war. C. Tax Hike 1. Johnson did not want to ask for a tax hike because he just got a tax cut.
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