Economic Policy

Type of Economy in the US

Mixed/Regulated capitalist economy

Economic policy

The set of policies and regulations the uS govt enacts to achieve certain economic goals

3 Major Goals of Economic Policy

-Stability
-Economic prosperity
-Consumer protection

Prosperity

-goal is to lessen/medigate impact of recessions and depressions

Stability

-goal is to control inflation

Recession

Less severe decline of economy

Depression

A steep, sustained decline of economy
-unemployment reaches high lvls
-EC growth stagnates and declines

Inflation

Consistent increase in price lvl of goods and services
-opposite is deflation

Consumer Protection

-Consumers, workers/wage earners
-During a deflation, consumers benefit
-During an inflation, wage earners benefit

Schools of economic thought

-Laissez faire economics/capitalism
-Keynesian economics/demand-side economics
-Supply-side economics/reaganomics

Laissez-faire economics/capitalism

-means of production and distribution must be privately owned and operated for the sake of profit with no govt
interference.
-maximize profit
-problem: coorps can ctrl expenses and go after employee wage
-Great Depression: result of this philosophy, less regulation

Keynesian economics/demand-side economics

-focus on demand side and consumers
-tool of preference: govt spending
-recession: more spending on consumers
-inflation: decrease spending, save more

Supply-side economics/reaganomics

-focus on supply side and producers
-tool of preference: govt tax on producers
-recession: decrease govt tax on producers
-inflation: increase tax on coorps

Fiscal policy

-when govt relies on govt spending and taxation
-Congress enacts this and uses budget to articulate spend policy
-Budget deficit
-Budget surplus
-Balanced budget

Budget deficit

Revenues < expenses

Budget surplus

Revenues > expenses

Balanced budget

Revenues = expenses

Progressive tax

Refers to situations when income and effective tax rate increases/make more money, pay more tax
-ex: income tax

Regressive tax

Refers when income increases and effective tax rate decreases/make more money, pay less tax
-middle/low income ppl get affected
-ex: property and sales tax