Copyright © 2011 Pearson Education, Inc. Publishing as Longman Chapter 17: Economic Policymaking Government, Politics, and the Economy Policies for Controlling

Copyright © 2011 Pearson Education, Inc. Publishing as Longman

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

Government, Politics, and the EconomyLO 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 ObjectivesCopyright © 2011 Pearson Education, Inc. Publishing as Longman


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



• Economic Policy at Work: Wal-Mart• 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



• Economic Policy at Work: Wal-Mart (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



• Economic Policy at Work: Wal-Mart (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



• Economic Policy at Work: Wal-Mart (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



• Economic Policy at Work: Wal-Mart (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

Copyright © 2011 Pearson Education, Inc. Publishing as Longman To Learning Objectives

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

Copyright © 2011 Pearson Education, Inc. Publishing as LongmanTo Learning Objectives

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 EconomyLO 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 EconomyLO 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 PolicymakingLO 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 Policy: The Rise of the 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 Policy: The Rise of the 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 Policy: The Rise of the 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



• Labor and Government• 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



• Labor and Government• 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 PolicymakingLO 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

Documents

Copyright © 2011 Pearson Education, Inc. Publishing as Longman Chapter 17: Economic Policymaking Government, Politics, and the Economy Policies for Controlling