13 eco 202 fiscal policy actions president kennedy

This preview shows page 13 - 18 out of 23 pages.

13
ECO 202Fiscal Policy ActionsPresident Kennedy took office in 1961. His fiscal views were also conservative, and he believed that tax cuts would generate government revenue. The recession by this time had essentially ran it’s course. However, the employment rate was 6.8% and the nation was far below its potential output. President Kennedy wanted to improve this employment rate, pull the economy completely out of recession, and strengthen the economy. He wanted to spend more on education, cutting taxes, and research and development. He also wanted to decrease the income tax rate from 91% to 65%. President Kennedy added $23 Billion to the national debt. However, his deficit spending ended the recession and fueled an expansion that lasted until 1970. 14
Fiscal Policy ImpactPresident Kennedy proposed a tax cut that would not come into effect until after his death in 1963. President Johnson passed the Tax Reduction Act of 1964. These tax cuts improved the unemployment rates, stimulated the economy, and decreased the deficit. Consumers were spending more, investing more, and purchasing houses and cars. Jobs were becoming easier to find and obtain and providing a livable wage. This time period is looked back upon fondly as a prosperous time in this decade. Unfortunately, President Kennedy did not live to see these positive effects, but President Johnson made sure this was passed and implemented with successful results.15
ECO 202Monetary PolicyBank Holding Company Act In 1956Congress gave the Federal Reserve increased oversight of the banking industry. Bretton Woods The international currency system became operational in 1959William McChesney Martin was chairman of the Federal Reserve from 1951 to 1970. He was known for his “tight money” policies. At the beginning of the 1960’s, Mr. Martin and the Federal Reserve followed a “lean against the wind” policy that strived to keep economic growth and inflation at a reasonable and stable place. They also implemented a restrictive monetary policy to counter the loss of gold that caused the economy to go into a recession. Because of this outcome, the financial markets had expectations of price stability. The Treasury and the Fed combined resources to maintain the cautious monetary policy. The discount rate started at 4% in January of 1960. At the end of the same year, it fell to 3%. Inflation remained low and stable throughout the early 1960’s.16
Monetary Policy ActionsThe Political system was very wary on Mr. Martin’s attention to price stability. The Treasury was concerned with the a threat to the dollar caused by the gold outflows. The Federal Reserve implemented an expansionary policy in 1961. They purchased government bonds to lower interest rates and increase the money supply. The Federal Open Market Committee also introduced “Operation Twist” in 1961. Their goal was to lower long-term rates and increase short-term rates. The desired outcome was that lower long-term rates would increase investments and higher short-term rates would put an end to capital outflows.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture