Domestic Policy

DOMESTIC ECONOMIC POLICY — TEST‑READY SUMMARY

(Based entirely on your professor’s lecture transcript)

🔷 WHAT “POLICY” MEANS

✔ Important Facts

• Policy = official government action

• Includes: laws, court decisions, regulations

• Economic policy = policies that impact the economy

🔷 GOALS OF ECONOMIC POLICY (VERY IMPORTANT)

Your professor emphasized three core goals:

⭐ 1. Economic Growth

• Capitalism requires constant growth

• Even though the planet is finite, the economy must keep expanding

• Growth = more production, more jobs, more income

HIGHLIGHT:
➡ Economic growth is essential to capitalism.

⭐ 2. Full Employment

• Full employment ≠ 100%

• Target: ~90% employment

• Acceptable: ~10% structural unemployment

• Structural unemployment = normal churn in the economy

HIGHLIGHT:
➡ Full employment = ~90% of job‑seekers employed.

⭐ 3. Price Stability

• Goal: keep inflation predictable and low

• U.S. target: 2–2.5% inflation

• Too much employment → too much money → prices rise

• Too little employment → recession

HIGHLIGHT:
➡ Inflation target = 2–2.5%.

🔷 THE BUSINESS CYCLE

Your professor described the classic boom–bust cycle:

• Booms (peaks)

• Busts (troughs)

• Long‑term trend = upward

• But cycles cause instability

Federal Reserve’s job:

Meaning:

• Prevent overheating (too much growth → inflation → crash)

• Prevent deep recessions (too little growth → unemployment)

HIGHLIGHT:
➡ The Fed stabilizes the business cycle.

🔷 MONETARY POLICY (EXTREMELY IMPORTANT FOR TEST)

Monetary policy = controlling the money supply.

Who controls it?

➡ The Federal Reserve System (The Fed)

🔷 THE FEDERAL RESERVE SYSTEM

⭐ Created in 1913

⭐ Structure

• Federal Reserve Board of Governors

  • Appointed by the president

  • Confirmed by the Senate

  • Serve 5‑year terms

  • Purpose: insulate monetary policy from politics

• Federal Reserve Chair

  • Also appointed

  • Extremely powerful

HIGHLIGHT:
➡ Fed leaders serve 5‑year terms to stay independent from politics.

🔷 WHY THE FED EXISTS

The Fed tries to:

• Prevent runaway inflation

• Prevent mass unemployment

• Keep the economy stable and predictable

🔷 THE THREE TOOLS OF MONETARY POLICY

(This WILL be on the test.)

⭐ 1. Open Market Operations (OMO)

If the Fed SELLS bonds → pulls money OUT of the economy

• Shrinks money supply

• Cools economy

• Reduces inflation

If the Fed BUYS bonds → pushes money INTO the economy

• Expands money supply

• Stimulates economy

• Reduces unemployment

HIGHLIGHT:
➡ SELL = shrink money supply
➡ BUY = boost money supply

⭐ 2. Federal Funds Rate (Interest Rates)

Lower interest rates

• Borrowing becomes cheap

• More spending

• Stimulates economy

• Risk: inflation

Higher interest rates

• Borrowing becomes expensive

• Less spending

• Cools economy

• Risk: unemployment

HIGHLIGHT:
➡ Lower rates = stimulate
➡ Higher rates = slow down

⭐ 3. Reserve Requirement

Lower reserve requirement

• Banks can loan more

• Money supply increases

• Stimulates economy

Higher reserve requirement

• Banks must hold more

• Money supply decreases

• Cools economy

HIGHLIGHT:
➡ Lower reserve requirement = more loans
➡ Higher reserve requirement = fewer loans

🔷 WHY RESERVE REQUIREMENTS EXIST

To prevent bank runs

• Banks invest deposits

• They don’t keep all your money in the vault

• Reserve requirement ensures banks have enough cash

FDIC

• Insures deposits up to $200,000

• Created after the Great Depression

• Prevents mass panic and bank failures

HIGHLIGHT:
➡ FDIC protects deposits up to $200,000.

🔷 MONETARY POLICY TRADE‑OFFS

To fight inflation → Fed cools economy → unemployment rises

To fight unemployment → Fed stimulates economy → inflation rises

HIGHLIGHT:
➡ Inflation vs. unemployment = unavoidable trade‑off.

🔷 FISCAL POLICY (PREVIEW)

Your professor previewed this for next class:

• Fiscal policy = taxing and spending

• Can fight inflation by raising taxes on the rich

  • But politically unpopular

• Monetary policy is used more often because it’s politically easier

⭐ THE MOST IMPORTANT FACTS TO HIGHLIGHT FOR THE FINAL

• Economic policy goals: growth, full employment, price stability

• Full employment = ~90%

• Inflation target = 2–2.5%

• Fed created in 1913

• Fed leaders serve 5‑year terms

• Fed tools:

  • Open Market Operations

  • Interest Rates

  • Reserve Requirement

• OMO: SELL = shrink, BUY = boost

• Interest rates: lower = stimulate, higher = cool

• Reserve requirement: lower = more loans, higher = fewer

• FDIC insures deposits up to $200,000

• Monetary policy trade‑off: inflation vs. unemployment

Long-term Effects of Negative Partisanship

• Definition: Negative partisanship refers to political behavior motivated by opposition to the opposing party rather than loyalty to one's own party.

• Effectiveness:
    - Long-term strategy: Negative partisanship is not effective as a long-term motivator.
    - Short-term effectiveness: While it can drive turnout during elections, reliance on negativity has diminishing returns; it risks turning voters against all parties, leading to disengagement and apathy.

• Example: In recent presidential elections, disappointment in leadership (e.g., unpopularity of presidents) influences voting behavior negatively, leading to potential voter apathy in response to disillusionment.

Political Dynamics in France

• Current Situation: Voter sentiment is complex; the far-right emerges as a viable option due to dissatisfaction with existing parties.
    - Example: The individual running for election on the far-right party has no higher education, illustrating the decline in political options.

• Political Parties:
    - National Rally (formerly National Front): The far-right party in France, which represents a major challenge to other political entities neglected by negative partisanship.
    - France Unbowed: A left-wing coalition attempting to counter the influence of the far-right, indicative of ideological polarization in French politics.
    - Macron's Reliance on Negative Partisanship: Macron campaigns emphasizing opposition to the far-right, though this strategy may be exhausting.

Election Turnout Trends

• Types of Elections:
    - Presidential Elections: Highest turnout, approximately 60%.
    - Midterm Elections: Generally lower, around 40%.
    - State/Local Elections: Often below 20%, with significant variability and low public engagement.

• Observations:
    - Local elections: Example of Gainesville, where turnout was merely 12% for a mayoral election, suggesting apathy in local governance issues.

• Factors Influencing Turnout:
    - Interest levels: Low interest in local issues leads to poor voter engagement, often resulting in unrepresentative outcomes.

Methodology for Calculating Turnout

• Denominator Options:
    - Total Population: Used inaccurately, leads to skewed turnout statistics.
    - Voting Age Population (VAP): More accurate as it accounts for individuals eligible based on age.
    - Voting Eligible Population (VEP): Includes registered voters and further narrows the denominator for a more precise turnout calculation.

• Historical Context:
    - Voting age historically 21, shifted to 18 due to draft-age qualifications during significant conflicts.

Barriers to Voting for Felons in Florida

• Explanation: Florida restricts voting rights for felons; restored rights contingent upon settling fines and fees.

• Context of Disenfranchisement: Systemic issues with legal definitions and access create a cycle of disenfranchisement particularly among certain demographics.
    - Example: Conversion of non-criminal behaviors (vagrancy) into felonies to disenfranchise targeted groups (e.g., racial minorities).

Importance of Local and State Elections

• Political Engagement: Voter awareness is critical; lack of engagement leads to low turnout and misrepresentation of community priorities.

• Potential Solutions: Nationalizing local elections could increase awareness but diverges from true local issues that should prevail in governance.

Dynamics Influencing Turnout

• Presidential Elections: Higher turnout associated with engaging candidates; the 2020 election saw unusually high turnout, contrasting with historical performances in midterm elections.

• Historical Examples: Notable elevations and declines in voter turnout historically tied to candidates that inspire voter passion.

Short-term and Long-term Strategies for Engagement

• Effective Strategies:
    - Positive Partisanship: Fostering enthusiasm around candidates rather than negative opposition can improve turnout.

• Cyclical Nature of Elections: Recognizing trends may crucially influence voter behavior and understanding how to galvanize exciting candidates.

Economic Policy Overview

• Definition: Economic policies are government actions designed to influence the economy through laws, regulations, and fiscal measures.

• Goals:
    - Economic Growth: Continuous increase in economic output.
    - Full Employment: Targeting an employment rate of approximately 90% for those seeking jobs.
    - Price Stability: Maintaining inflation levels around 2-2.5% yearly to ensure affordability.

Federal Reserve System and Monetary Policy

• Background: Established in 1913, the Federal Reserve (Fed) oversees U.S. monetary policy and strives to stabilize the economy over business cycles.

• Functions:
    - Federal Open Market Operations: Involves buying and selling government securities to regulate money supply; increasing supply encourages spending, while decreasing it curbs inflation.
    - Federal Funds Rate: The interest rate at which banks lend to each other; by altering this rate, the Fed influences borrowing and spending across the economy.
    - Reserve Requirement: The minimum amount of reserves banks must hold; lower requirements release money into circulation, while higher requirements tighten it.

Implications of Monetary Policy

• Trade-offs: Managing inflation often results in higher unemployment; an essential understanding of fiscal responsibility in relation to inflation control.

• Future Considerations: The role of fiscal policy in addressing economic challenges should be tied to broader economic strategies creating balanced growth without worsening debt conditions.