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Unformatted text preview: 8/17/2011 1 Economic Policy Politics and Economics h Economics- deciding what shall be produced, how, and for whom. h Laissez-faire economics, a French term literally meaning to allow to do, to leave alone, it is a hands-off governmental policy that is based on the belief that governmental involvement in the economy is wrong. h A major economic policy issue is how to maintain stable economic growth without falling into either excessive unemployment or inflation (rising prices). h Predictors of a good economy - Inflation, Unemployment, US Stock Market (NYSE, NASDAQ, S&P 500, Prime Rate, Consumer Price Index) Economic Decision Making h Financial Overhaul - In an effort to prevent a repeat of the financial crisis, Congress passed a sweeping overhaul of the nations financial regulations in 2010. 8/17/2011 2 Economic Decision Making h Congress, the President, and Fiscal Policy h Fiscal policy- achieving economic policy goals through changes in taxing, spending, and borrowing activities of the national government. h Keynesian Economics Theory , using fiscal policy can alter economic variables (increasing government spending during economic turn downturns, for example) h Government Spending h Government Borrowing h Discretionary Fiscal Policy h The Thorny Problem of Timing h Automatic Stabilizers h The Constitution of the United States places all taxing, borrowing, and spending powers in the hands of Congress. h There are no constitutional limits on Congresss spending power. h Congresss borrowing power has always been unlimited constitutionally; there is no constitutional requirement for a balanced budget . Economic Decision Making h Monetary Policy - refers to decisions determined by the Federal Open Market Committee (FOMC), part of the Federal Reserve System, regarding the supply of money in the economy, including private borrowing, interest rates, and banking activity. h The task of the Federal Reserve Board (the Fed) is to regulate the money supply and by so doing to help avoid both inflation and recession....
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- Fall '11