We the Peoples 14th edition, chapters 14: Domestic Policy

The government shapes economic policy with three tools

fiscal policy, monetary policy, and regulatory policies

The Constitution provides the congress shall have the power "to lay and collect taxes..." but says nothing however about how

about how these powers can be used

Fiscal Policies

economic policies that involve government monetary, spending and taxing policies to manipulate the economy

If the economy is growing too fast, this might bring these three government responses

inflation, the government might cut back on spending or raise taxes

the largest share of federal revenue today comes from

the individual tax, accounting for about half of federal revenues

At the same time, social insurance taxes have risen as a share of federal revenues while, in contrast, ___

corporate income taxes have declined significantly

Redistribution

a policy whose objective is to tax or spend in such a way as to reduce the disparities of wealth between the lowest and the highest income brackets

taxation that hits upper income brackets more heavily

progressive

taxation that hits lower income brackets more heavily

regressive

Unlike state governments, most of which are required by the state constitution to balance their budgets from year to year, the federal government can run a ----

budget deficit

budget deficit

amount by which government spending exceeds government revenue in a fiscal year

national debt

The sum of government borrowing over time.

government spending exceeds revenues: with the federal government borrowing the difference by ___

selling government bonds on which the government pays interest

Subsidies

Financial support from the government which are government grants of cash or other valuable commodities, such as land

contracting

the power of government to set conditions on companies seeking to sell goods or services to government agencies

Today, economic sectors receiving substantial subsidies include

agriculture, energy, transportation, health, and national defense

Like any corporation, a government agency must purchase goods and services by

contract

Contracting can be used to encourage

corporations to improve themselves

contracting examples

Biden required federal contractors to pay a minimum of $15 per hour even though the prevailing federal minimum wage set by Congress is still $7.25.

Decisions about spending are so important that both the president and Congress have created institutions to assert control over the budget process:

1. The Office of Management and Budget (OMB) in the Executive Office of the President.
2. Congress created the Congressional Budget Office (CBO)

The Office of Management and Budget (OMB) in the Executive Office of the President

is responsible for preparing the presidents' budget.

Congress created the Congressional Budget Office (CBO)

so that it could have reliable information about the costs and economic impact of the policies it considers

monetary policies

efforts to regulate the economy through the manipulation of the supply of money and credit; America's most powerful institution in this area of monetary policy is the Federal Reserve Board

monetary policies manipulate

the growth of the entire economy by controlling the availability of money to the banks

Monetary policies are set chiefly by the nation's central bank called

The Federal Reserve System

The Fed, aka the Federal Reserve System has a dual mandate to

ensure price stability and maximum sustainable employment.

who Also provides financial and payment systems to the nations banks and US government

The Federal Reserve System (The Fed)

The most important banks are members of

The Federal Reserve System

The Federal Reserve System is composed of

12 Federal Reserve banks, each located in a major city

The Federal Reserve banks are not ordinary banks; they are bankers' banks that

make loans to other banks, clear checks, and supply the economy with currency

Every national bank must be a member of the _______ _______ _______ & follow the national banking rules.

The Federal Reserve System

State banks and savings-and-loan associations can join the Fed reserve system if they

accept national rules

The Fed Reserve board comprises of

seven members appointed by the President for 14-year terms

The chair of the Fed is selected by

The president

The major advantage that a bank gains from being in the Fed Res Sys

is that it can borrow from the system

Borrowing enables banks to

expand their loans operations continually

What gives the Fed it's true power

the ability to expand or contract the amount of credit available in the US

Another tool of economic policy making is Regulation and Antitrust Policy, aiming to protect the public against potential abuses in two ways

1. The Fed government can establish rules for the operation of big business to ensure fair competition.
2. It can force business to break up into smaller companies if it finds that the business has established a monopoly

antitrust policy

A policy designed to ensure competition and prevent monopoly, which is the control of a market by one company.

Deregulation

the removal of some government controls over a market

Explain the three economic policies.
Fiscal policy seeks to influence the economy through:

Fiscal policy seeks to influence the economy through taking and spending.

Monetary seek to influence the economy through:
Regulation control:

controlling the availability of money and credit to the banks

Regulation seek to influence the economy through:

protecting the public against potential abuses by concentrated economic powers

Federal Reserve administrators help manage the economy by

raising or lowering interest rates to impact credit and the money supply.