Economic Policy - PUBL 101

Goals of Economic Policy

1. Economic Growth

2. Low Levels of unemployment

3. Low levels of inflation

4. Positive balance of trade

5. Managing deficits and debt

Economic Growth

• Increase in production of goods/services each year

• strong economy → increase tax revenues → budge surplus (late 1990s to early 2000s)

• redistributive programs

Redistributive programs

• government distributes goods/services to aid those that are disadvantaged

Unemployment

• the state of not being employed, in larger contexts the percentage of people who aren’t employed in an area

• Full Unemployment

• < 5% is good

• Unemployment harms economy by

  • less revenues to treasury (income & social security taxes)

  • more gov. spending for low income households (Medicaid, food stamps, welfare payments)

Full Unemployment

• a goal of economic policy generally defined as the lowest level of unemployment that can be sustained in light of the structure of the overall economy

• the condition in which everyone who wishes to work as the prevailing wage rates can find a job

Inflation

• the change in value of a currency

• increase in inflation means decrease in value

• generally due to more currency being put into the economy (printed)

• < 3% a year is good

• CPI

Consumer Price Index (CPI)

• average change in price over time of a market basket of consumer goods/services

• measurement of inflation

CPI Major Categories (parts of the basket)

1. Housing

2. Apparel

3. Transportation

4. Education/Communication

5. Other goods/services

6. Recreation

7. Medical Care

8. Food & Beverages

Trade 

• the exchange of goods, sometimes in exchange for currency between two or more parties

Protectionist Trade Policy

• Policies that incentivize supporting domestic products over foreign products (tariffs on imports)