1 / 15

Chapter 14 Economic Policy

Chapter 14 Economic Policy. Basic Economic Issues Fiscal Policy Monetary Policy Deficit Spending Budget Process. Basic Economic Issues. Government role in economic system Governments tools to control economic activity Fiscal or monetary or both. Protectionism Free Trade

rodney
Download Presentation

Chapter 14 Economic Policy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 14Economic Policy • Basic Economic Issues • Fiscal Policy • Monetary Policy • Deficit Spending • Budget Process

  2. Basic Economic Issues • Government role in economic system • Governments tools to control economic activity • Fiscal or monetary or both. • Protectionism • Free Trade • Government regulating economic equality

  3. Fiscal Policy • Federal taxation and spending policy • Office of Management & Budget (OMB) • Supply and Demand controls • Too much supply - low demand • unemployment and recession/depression • Too much demand - low supply • inflation causes prices to rapidly rise • Keynesian Economics • Use of fiscal policy by government to maintain the correct balance between supply and demand to encourage stability

  4. Monetary Policy • Government control of money supply • Federal Reserve Board sets interest rates • Supply of money • Cost of money • Monetarism • use of monetary policy to control supply and demand issues • low interest rates will cause high demand • high interest rates will cause supply to grow

  5. Supply Side Economics • Focuses on supply control • Tax cuts encourage investment and capital growth • Results in supply growth • Gradually taxes grow with economic growth • Liberals feel this increases economic inequality

  6. Deficit Spending • Spending more than revenue collected • 2004 Revenue $1.4 Trillion • 2004 Budget $1.8 Trillion • 2004 Deficit $400 Billion • Difference is made up by borrowing • Deficit has grown over 40 years • 1965 $1.4 Billion • 1985 $200 Billion • 2005 $390 Billion Congressional Spending • National Debt • 1965 $322 Billion • 1985 $2 Trillion • 2004 $7.4 trillion National Debt Clock

  7. Major Components of 2005 Budget • Social Security - $515 Billion • Defense - $443 billion • Interest on Debt - $375 billion • Medicare - $290 Billion • Medicaid - $193 Billion • Sub Total - $1.816 Trillion

  8. Mandatory versus Discretionary Spending • Mandatory spending - increases every year without government appropriations • Social Security • Medicare • Medicaid • Unemployment • Discretionary spending - spending on programs at the discretion of the Congress • Defense • Education • NASA

  9. Budgeting Process • Presidential Proposal • Congressional Response • Agency Expenditure of Funds

  10. Budget Process

  11. Presidential Proposal • Fiscal Year - Oct 1st to Sept 30th • Office of Management and Budget (OMB) • Multi Year Planning/Proposal Process • April 2003 OMB begins 2004 Proposal • Feb 2004 Congress begins working 2004 Proposal • OMB working 2004 with Congress and planning 2005 • Agencies working on 2006 needs • Oct 2004 Agency have money to spend • Line item veto option

  12. Congressional Action • Step One - Authorization • Numerous Substantive Committees decide to authorize and fund various discretionary agencies. • May be for one year, several years, or open-ended. • May be for specific amount or not to exceed cap • Step Two - Appropriations (13 separate bills) • decision to fund an authorized program with specific sum of money. • Funding amounts authorized may be modified at this point. • Congressional Budget Office

  13. Agency Spending • Oct 1st - funds are available for various bureaucratic agencies to spend. • This assumes Congress finished appropriation process on time. • Continuing resolution - legislative action allowing agencies to continue spending money based on previous budget because appropriations bills are not completed.

  14. Major Changes to Process • Congressional Budget & Impoundment Act - 1974 • Created CBO • Moved fiscal year from Jul 1st to June 30th • Limited president from impounding(refusing to spend money) • Gramm-Rudman-Holling - 1985 • required annual reduction in deficit to balanced budget in 1991. • Declared unconstitutional by Supreme Court

  15. Major Changes to Process • Budget Enforcement Act - 1990 • redesign of Gramm - Rudman • limiting by capping discretionary spending • mandatory program increases had to be balanced by cuts in discretionary spending or increased taxes • Balanced Budget Amendment - 1997 • House voted to amend the Constitution to require a balanced budget • Senate failed to achieve a 2/3 majority by one vote.

More Related