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Chapter 17: Economic

Policymaking

• Government, Politics, and the Economy

• Policies for Controlling the Economy

• Politics, Policy, and the International

Economy

• Arenas of Economic Policymaking

• Understanding Economic Policymaking

• Summary


Chapter Outline and Learning

Objectives

• Government, Politics, and the Economy

• LO 17.1: Assess the role that government

plays in our mixed economy.


• LO 17.2: Identify the two main policy tools

that American government can employ to

address economic problems.



Objectives


Economy

• LO 17.3: Analyze the impact of the global

economy on American economic

policymaking.


• LO 17.4: Describe the economic policy

interests of business, labor unions, and

consumers.



Objectives

• Understanding Economic Policymaking

• LO 17.5: Assess the impact of economic

policies on the scope of government and

democracy in America.

Government, Politics, and the Economy LO 17.1: Assess the role that government plays

in our mixed economy.

• Capitalism

• Individuals and corporations own the

principal means of production and seek

profits.

• Mixed Economy

• Government is deeply involved in

economic decisions as regulator,

consumer, subsidizer, taxer, employer, and

borrower. To Learning Objectives



Government, Politics, and the Economy

• Multinational Corporations

• Businesses with vast holdings in many

countries.

• Products flow between regions and jobs

move to regions where they can be

performed more cheaply.

LO 17.1

To Learning Objectives



• Economic Policy at Work: Wal-Mart

• “It’s the Economy, Stupid”: Voters,

Politicians, and Economic Policy

• Two Major Worries: Unemployment

and Inflation


LO 17.1




• World’s 3rd largest company with $406

billion in revenue in 2009.

• It has low prices – Negotiates with

suppliers and has low wages.

• In U.S., it helps keep inflation rate low and

had 12% of all productivity growth in

1990s.


LO 17.1




(cont.)

• Securities and Exchange Commission

(SEC) – Federal agency regulates stock

market.

• Buyers of Wal-Mart stock are entitled to

accurate knowledge from the company,

and Wal-Mart is required to hire an auditor

and publish an annual review.


LO 17.1




(cont.)

• Minimum wage – The legal minimum

hourly wage to which most workers are

entitled.

• Wal-Mart’s employees are entitled to a

minimum wage of $7.25 per hour.


LO 17.1




(cont.)

• Labor union – An organization of workers

intended to engage in collective

bargaining.

• Collective bargaining – How labor union

representatives and management

negotiate pay and acceptable working

conditions.


LO 17.1




(cont.)

• Wal-Mart workers are protected by

regulations governing worker safety and

hiring and other employment policies.

• Wal-Mart cannot discriminate on the basis

sex, race, or age in hiring, firing, and

promotions.


LO 17.1

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LO 17.1



• Economic Policy at Work: Wal-Mart (cont.)

• Most of the merchandise in Wal-Mart comes from other countries.

• In 2002, Wal-Mart is estimated to have imported $12 billion in goods from China, one-tenth of China’s total 2002 U.S. exports.

• Wal-Mart’s low costs have forced many factories to move overseas.


LO 17.1


LO 17.1



• “It’s the Economy, Stupid”: Voters,

Politicians, and Economic Policy

• Economic conditions are the best single

predictors of voters’ evaluation of the

president.

• Democrats stress the importance of

employment, and Republicans stress

importance of inflation.


LO 17.1



• Unemployment and Inflation

• Unemployment rate – Proportion of the

labor force seeking work but unable to find

jobs.

• 125,000 new monthly needed just to keep

up with new entrants into the labor force.

• 10% unemployment rate in late 2009 with

economic recession.


LO 17.1


LO 17.1



• Unemployment and Inflation (cont.)

• Underemployment rate – Statistic that

includes the unemployed, discouraged

workers, and people who are working part-

time that cannot find full-time work.

• In July 2010, the national unemployment

rate was 9.5% and underemployment rate

was 16.5%.


LO 17.1



• Unemployment and Inflation (cont.)

• Inflation – A rise in price of goods and

services.

• Consumer price index – Change in the

cost of buying a fixed basket of goods and

services.

• The annual inflation rate in the United

States has consistently been below 4%.


LO 17.1

Policies for Controlling the Economy LO 17.2: Identify the two main policy tools

that American government can employ to

address economic problems.

• Laissez-Faire

• Principle that government should not

meddle in the economy.

• The 1929 stock market crash sent

unemployment soaring, but Hoover clung

to laissez-faire.

• Roosevelt’s New Deal involved the

government in the economy during the

Great Depression.



Policies for Controlling the Economy

• Monetary Policy and the “Fed”

• Fiscal Policy: Keynesian Versus Supply-Side Economics

• Why It Is Hard to Control the Economy

LO 17.2




• Monetary Policy and the “Fed”

• Monetary policy – Affects supply of

money in private hands.

• Monetarism – Too much cash and credit

in circulation producing inflation.

• Federal Reserve System – Makes

monetary policy and regulates the lending

practices of banks.


LO 17.2


LO 17.2



• Monetary Policy and the “Fed” (cont.)

• Federal funds rate – What banks can

charge each other for loans.

• Fed buys and sells government bonds to

determine amount of money banks have to

lend out.

• Borrowing is cheaper when banks have

more money and expensive when they

have less money.


LO 17.2



• Fiscal Policy: Keynesian Versus

Supply-Side Economics

• Fiscal policy – Use of federal budget to

influence economy and is almost entirely

determined by Congress and the president.

• Keynesian economic theory – That

government spending and deficits can help

the economy deal with its ups and downs.


LO 17.2


LO 17.2



• Fiscal Policy: Keynesian Versus

Supply-Side Economics

• Supply-side economics – Cutting tax

rates will stimulate the supply of goods.

• Supply-siders – Lower tax rates stimulate

supply of goods, as people are motivated

to work longer, increase savings and

investments, and produce more.


LO 17.2


LO 17.2



• Why It Is Hard to Control the

Economy

• Most policies must be decided a year or

more before their full impact will be felt on

economy.

• Budgetary process is dominated by

uncontrollable expenditures mandated by

law, and many benefits automatically

increase with the cost of living.


LO 17.2



• Why It Is Hard to Control the

Economy

• Capitalist system make it hard to control

the economy because the private sector is

much larger than the public sector.

• Federal government spends about 25% of

GDP, but consumers and businesses

make the majority of our economic

decisions.


LO 17.2

Politics, Policy, and the International

Economy LO 17.3: Analyze the impact of the global

economy on American economic

policymaking.

• Foreign-Owned Assets

• At end of 2008, foreigners owned $23,357

billion in assets in U.S., and Americans

owned $19,888 billion in assets in other

countries.

• Protectionism

• Shielding economy from imports.



Politics, Policy, and the International

Economy

• World Trade Organization

• International organization that promotes

free trade.

• International trade creates long term gain

and short term pain.

• Markets gained for American businesses in

developing countries may cost jobs at

home.

LO 17.3



LO 17.3

Arenas of Economic Policymaking LO 17.4: Describe the economic policy

interests of business, labor unions, and

consumers.

• Business and Public Policy

• Consumer Policy: The Rise of the

Consumer Lobby

• Labor and Government



Arenas of Economic Policymaking

• Business and Public Policy

• Antitrust policy – Designed to ensure

competition and prevent monopoly.

• Antitrust legislation permits the Justice

Department to sue in federal court to break

up companies that control too much of the

market.

LO 17.4




• Business and Public Policy (cont.)

• In 2008, the government purchased

troubled mortgage assets from banks to

help them loan money to businesses and

consumers to prevent a depression.

• In 2010, Goldman Sachs was fined $550

million for not disclosing mortgage

investments it sold as the housing market

took a dive.


LO 17.4


LO 17.4




Consumer Lobby

• Food and Drug Act of 1906 prohibited the

interstate transportation of dangerous or

impure foods and drugs.

• Food and Drug Administration can

regulate contents, marketing,

manufacturing, and labeling of foods and

drugs sold.


LO 17.4




Consumer Lobby (cont.)

• Consumer Product Safety Commission

can ban hazardous products from the

market.

• Federal Trade Commission – Truth in

advertising and regulations on product

labeling, exaggerated product claims, and

the use of celebrities in advertising.


LO 17.4




Consumer Lobby (cont.)

• Consumer Financial Protection Bureau

works to ban deceptive practices, to

ensure the safety and fairness of new

consumer financial products that come on

to the market, and to promote equal

access to financial services for all

consumers.


LO 17.4




• Clayton Antitrust Act of 1914 exempted

unions from antitrust laws.

• National Labor Relations Act of 1935

(Wagner Act) guarantees workers the right

of collective bargaining, sets down rules to

protect unions and organizers.


LO 17.4



• Labor and Government (cont.)

• National Labor Relations Board, created

by Wagner Act, regulates labor–

management relations.

• The Taft-Hartley Act of 1947 prohibited

unfair practices by unions, and gave the

president power to halt major strikes by

seeking a court injunction for an 80-day

“cooling off” period.


LO 17.4




• The Taft-Hartley Act of 1947 also

permitted states to adopt right-to-work

laws, which forbid labor contracts from

requiring workers to join unions to hold

their jobs.


LO 17.4



• Labor and Government (cont.)

• Labor Unions have had 2 notable

successes:

• Government provides unemployment

compensation to employees during lay-offs

that is paid for by workers and employers.

• Government guarantees a minimum wage

to be paid to employees.


LO 17.4

Understanding Economic Policymaking LO 17.5: Assess the impact of economic policies

on the scope of government and democracy in

America.

• Democracy and Economic

Policymaking

• Economic Policymaking and the

Scope of Government



Understanding Economic Policymaking

• Democracy and Economic

Policymaking

• One consequence of democracy for

economic policymaking is that it is difficult

to make decisions that hurt particular

groups or that involve accepting short term

pain in return for long-term gain.

LO 17.5



LO 17.5


Understanding Economic Policymaking

• Economic Policymaking and the

Scope of Government

• Government involvement in the economy –

Liberals tend to want more and

conservatives tend to want less.

• Democrats are more concerned with

curbing unemployment, and Republicans

are more concerned with controlling

inflation.


LO 17.5


LO 17.1 Summary

• Government, Politics, and the

Economy

• The federal government regulates stock

transactions, corporate accounting

practices, labor practices, workers’

collective bargaining rights, and set the

minimum wage.



LO 17.1 Summary


Economy (cont.)

• Voters expect politicians to keep the

economy humming along, and will often

vote them out of office if they fail to do.

• Two particular concerns of voters and

politicians alike are unemployment and

inflation.



LO 17.1 Summary


Economy (cont.)

• Democrats tend to focus more on keeping

unemployment low.

• Republicans tend to place more emphasis

on keeping inflation in check.



In their economic policies, Democrats have

tended to focus on _______ whereas

Republicans have tended to focus on _______.

A. inflation; employment

B. employment; inflation

C. trade; business practices

D. business practices; trade

LO 17.1



LO 17.2 Summary


• Two major instruments are available to

government for managing the economy:

monetary policy and fiscal policy.

• Republicans are the party of supply side

economics, believing that tax cuts will lead

to economic growth and jobs.



LO 17.2 Summary


(cont.)

• Democrats stick with Keynesian economic

theory, which recommends government

spending in order to stimulate demand for

goods during economic downturns.



The most important tool the government

has for directing the economy is

A. its control over trade policy.

B. its control over government

subsidies.

C. its control over labor laws.

D. its control over the money supply.

LO 17.2



A. its control over trade policy.

B. its control over government

subsidies.

C. its control over labor laws.

D. its control over the money supply.

LO 17.2

The most important tool the government

has for directing the economy is



LO 17.3 Summary


Economy

• The American economy has become quite

dependent on trade with other countries.

• Both imports and exports now constitute

over 10 percent of the nation’s gross

domestic product (GDP), with imports

regularly exceeding exports.



LO 17.3 Summary


Economy (cont.)

• American jobs are often lost when we

import goods that are made more cheaply

in countries with low labor costs.

• Sending U.S. dollars overseas opens

foreign markets for U.S. companies to sell

their products to, thereby creating new

jobs.



In recent years the gap between U.S.

imports and exports has generally

A. widened.

B. closed.

C. tighten.

D. decreased.

LO 17.3



In recent years the gap between U.S.

imports and exports has generally

A. widened.

B. closed.

C. tighten.

D. decreased.


LO 17.3


LO 17.4 Summary


• Businesses generally want lower taxes and

less regulation by the government.

• Yet, they sometimes profit from

government antitrust actions, which ensure

that individual companies do not control

too much of the market.



LO 17.4 Summary


(cont.)

• In 2008, the government stepped in to

prevent many firms in the financial services

industry from going bankrupt.

• Labor unions want government support to

organize workers, get a high minimum

wage, and to get unemployment insurance

benefits.



LO 17.4 Summary


(cont.)

• Consumer groups seek government

protection from business practices that can

harm the buying public, such as the

defective products or deceptive lending

practices.



Antitrust legislation is intended to

restrict the

A. influence of business lobbyists.

B. unethical management practices of

businesses.

C. nationalization of businesses.

D. establishment of monopolies by

businesses.

LO 17.4



Antitrust legislation is intended to

restrict the

A. influence of business lobbyists.

B. unethical management practices of

businesses.

C. nationalization of businesses.

D. establishment of monopolies by

businesses.


LO 17.4


LO 17.5 Summary

• Understanding Economic

Policymaking

• Liberal focus on free enterprise problems

and involve expanding the scope of

government.

• Conservative focus on problems that can

arise from excessive government

intervention in the economy and involve

reducing the scope of government.



LO 17.5 Summary

• Understanding Economic

Policymaking (cont.)

• Through the democratic process,

Americans seek to enact regulations that

will protect businesses, labor, and

consumers alike without impinging upon

fundamental economic freedoms.



Whereas _______ focus on the imperfections of the

market and what government can do about them,

_______ focus on the imperfections of government.

A. conservatives; liberals

B. liberals; conservatives

C. conservatives; moderates

D. moderates; liberals

LO 17.5



Whereas _______ focus on the imperfections of the

market and what government can do about them,

_______ focus on the imperfections of government.

A. conservatives; liberals

B. liberals; conservatives

C. conservatives; moderates

D. moderates; liberals


LO 17.5


Text Credits

• Bureau of Labor Statistics. U.S. Census Bureau, Foreign Trade

Division.



Photo Credits

• 502: Chip Somodevilla/Getty Images

• 503T: Scott Olsen/Getty Images

• 503TC: Getty Images

• 503TB: AP Photos

• 503B: Lewis Hines/George Eastman House/Getty Images

• 505: Scott Olsen/Getty Images

• 510: Getty Images

• 511: Jonathan Ernst/Corbis

• 512: Paul Singer

• 516: Paul Sancya/AP Photos

• 519: Lewis Hines/George Eastman House/Getty Images


Copyright © 2011 Pearson Education, Inc. Publishing as ... · •10% unemployment rate in late...

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Transcript of Copyright © 2011 Pearson Education, Inc. Publishing as ... · •10% unemployment rate in late...