Chapter 7 Economic and Budgetary Policy- Economic Growth – Defined as an increase in Gross Domestic Product- Gross Domestic Product (GDP) – the market value of all officially recognized final goods and services produced within a country in a yearo The sum of Consumption, Investment, Government Spending, and Net Exports- Full Employment - 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. Also described as the condition in which everyone who wishes to work at the prevailing wage rates can find a job.- Past several decades have seen increases in the amount of two-income families and an increasing amount of women in the workforce- Inflation – increase in the costs of goods and serviceso 3 percent a year or less is considered acceptable- Consumer Price Index (CPI) - An economic statistic used to measure the inflation rate. The index is calculated by examining percent price changes for a typical market basket of goods.o CPI has been demonstrated to be inaccurate in some areas, overstatedinflation by 1.1 percent- Balance of trade - economic goal related to the role of the United States in an international economy; examines the value of a nation’s exports compared toits imports.o Positive balance – imports more than exports, negative – vice versa o Protectionists – favor positive balance of tradeo Other analysts assert that countries should import/export based on the theory of comparative advantage, maintaining a positive balance of trade is not that important- Globalization – increasing integration of economies around the world, particularly through trade and financial flows- National Debt - The accumulation of all of the deficits the nation has run historically.o US national debt - currently upwards of $17 trillion- Debt ceiling – legal limit on the amount of money the government can owe- Fiscal Policy - describes the taxing and spending tools at the government’s disposal to influence the economy.o In a recession, the economy should be stimulated Cut taxes Increase spendingo When the economy is “too hot”, the government does the opposite in order to reduce inflation- Monetary Policy - implemented by the Federal Reserve Board to influence economic policy goals; it attempts to control economic fluctuations by controlling the amount of money in circulation, also referred to as the money supply.o Independent of the government, monetary policy decisions are free of politicso Open market operations increase or decrease the money supply Buys US Treasury bonds to increase money supply and vice versao Discount rate – the rate the Federal Reserve Board charges member banks to borrow money from the Federal Reserve Banko Reserve Requirement – amount of money that member banks must keep on reserve ( a percentage of deposits)- Supply-side Economics - economic theory that states that the government can increase economic growth by cutting taxes, especially for the richest individuals.- Regulation – tool that the government uses to correct an unfavorable market situationo Minimum wageo Illegalization of monopolieso Ensuring safe practices- Tax Expenditures - a tax subsidy, such as an investment credit or deduction that is designed to favor a particular industry, activity, or set of persons. Called expenditure because such a subsidy reduces government revenue and thus is like spending money. Also sometimes called corporate welfare.- Tax Policy – how the government chooses to tax its economyo Regressive tax - tax that, when applied, taxes all individuals at the same rate regardless of their income or socioeconomic standing.o Progressive tax - A tax that is based on the philosophy that higher earners should pay higher taxes both in terms of actual dollars and as a percentage of income.- Variables in Tax Policyo Collectability – ease of collecting tax and ability to generate revenueo Fiscal neutrality – whether or not the system gives preference to a single kind of revenue without good reasono Buoyancy – ability to keep up with inflation/economic growtho Distributive Effects – impact of the tax on different groups in the populationo Visibility – extent to which the tax is visible/acceptable to the general publico Horizontal and vertical equity – degree to which the tax system is fair or equitable- Internal Revenue Service (IRS) – collects federal taxes- Federal Budgetary Process1. Assumptions and Planning: Set goals, assumptions made about economic conditions2. Agency Budget Development – prepare estimates from current programs, new programs try to get more funding (referred to as incrementalism)3. OMG Budget Review – (Office of Management and Budget) presidential agency, reviews agency budgets, ensure they conform to agenda. Negotiates with agencies over amounts4. Congressional Review – committees, subcommittees, bureaucratic bull****, they send it to the president. He vetoes or signs, sometimes he wishes he had the line-item veto (budgeting tool that allows chief executives to delete specific items from an appropriations bill withoutrejecting the whole bill)5. Budget Execution and Control – money is spent. Government Accountability Office (GAO) makes sure money is spent properly- Entitlement program - program in which payment obligations are determined by the law that created it, not by the budget associated with that program. Under entitlement programs, any person who meets the eligibility requirements is entitled to receive benefits from the program.o Social security, for exampleo Expenses on entitlement programs constantly increasing- 2008 Economic Crisis – caused by subprime mortgages and risky/exotic WallStreet securitieso Resulted in Dodd-Frank Wall Street Reform Act and Consumer Protection Act- American Recovery and Reform Act (ARRA) – injected several hundred billion dollars into the economy to shorten the recession, worsened the debt and deficit even more- How do we reduce the deficit?o Decrease entitlementso Decrease discretionarieso Increase revenuesChapter 8 Healthcare Policy- National health insurance - A common health care policy in industrialized nations in which the national government provides health insurance to all citizens. Also called a single-payer system.- Affordable Care Act (Obamacare) – highly complex and multifaceted, politically controversialo Expands Medicaid and Children’s Health Insurance Program,
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