exam 4 - CHAPTER 14 Chapter Summary Case Study: The 2008...

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CHAPTER 14 Chapter Summary Case Study: The 2008 – 2009 Economic Crisis It was in late 2008 that the National Bureau of Economic Research announced that the U.S. economy had been in a recession for a year. A recession takes place when economic output declines and unemployment rises. There were 2.6 million jobs that were lost as unemployment increased from 4.9 percent to 7.2 percent. Additionally, the stock market lost nearly half its value between October 2007 and November 2008. The downturn in the housing market is seen by many economists as the cause of this recession. Some homeowners were faced with foreclosure while several banks declared bankruptcy or sold out to competitors. It became more difficult for consumers to get loans for homes and automobile purchases because of the credit squeeze. American car companies faced the possibility of bankruptcy. The U.S. government intervened in early 2008 with a $600 tax rebate to individuals, billions of dollars of loans to companies to prevent them from failing, a $700 billion bail out of the financial sector in order to free up the credit market. In 2009 a $787 billion stimulus package with tax cuts and increased government spending to jump start the economy was initiated. More help for the financial markets along with more stringent regulations were meted out. Government efforts to respond to the recession of 2008-2009 introduce this chapter on economic policymaking. The Goals of Economic Policy Economic policy reflects the priorities of policymakers. Americans disagree about the goals of economic policy. Some of the main goals of economic policy include the following. Fund Government Services In 2008, the federal government spent more than $2.9 trillion on government programs. Liberals and conservatives disagree about how the government spends this revenue. Encourage/Discourage Private-Sector Activity The government uses tax deductions, such as the home mortgage interest deduction, to encourage certain behavior (e.g., purchasing a home). It gives tax breaks to people who donate money to charity. Cigarette taxes are designed to discourage smoking, and raising such taxes may discourage some teenagers from smoking. Redistribute Income This involves taking items of value, such as money, from some Americans and then giving items of value, either in cash or services, to other Americans. The Social Security system is an example. Economic Growth with Stable Prices Some Americans believe that the government should seek to avoid depression, minimize the severity of recession, and control inflation. Others disagree, arguing that government interference in the marketplace is harmful rather than good. Tax Revenues
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This note was uploaded on 04/20/2011 for the course GOVT 2301 taught by Professor Staff during the Spring '08 term at HCCS.

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exam 4 - CHAPTER 14 Chapter Summary Case Study: The 2008...

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