Fiscal Policy issues

POLICY 2013 2014
Measures of the economy impact people differently
We have a ________ System
A form of economic order characterized by private ownership of
the means of production and the freedom of private owners to
use, buy and sell their property or services on the market at
voluntarily agreed prices and terms
However, that does NOT mean the
government is not involved
Two tools: Monetary vs Fiscal Policy
____________________A macroeconomic policy tool used by the government
to regulate the total level of economic activity within a nation. Examples include
setting the level of government expenditures and the level of taxation.
vs . . .
__________ tries to control the size of the total supply of money (and other highly
liquid financial assets that are close substitutes for money) available in the national
economy in order to: control inflation, and/or speed up/slow economic growth,
and/or manage the level of unemployment and/ or influence the exchange rates at
which the national currency trades for other foreign currencies
Listen to Bernanke explain
Fiscal Policy vs. Monetary Policy
________ Policy
the use of government
expenditure and revenue
collection to influence the
the process by which the monetary authority
of a country controls the supply of money,
often targeting a rate of interest to attain a set
of objectives oriented towards the growth and
stability of the economy.
Manipulating the supply of money to influence
outcomes like economic growth, inflation,
exchange rates with other currencies and
Manipulating the level of
aggregate demand in the
economy to achieve economic
objectives of price stability, full
employment, and economic
Government (e.g. U.S. Congress,
Treasury Secretary)
Policy Tools
Taxes; amount of government
spending, borrowing
Interest rates; reserve requirements; currency
peg; discount window; quantitative easing;
open market operations; signaling
Central Bank (e.g. U.S. Federal Reserve)
VS . . .
____________ ____________________ done primarily by the Board of
Governors of the federal reserve system : an I______________
R_________________ A_______________
It is made up of seven members who are appointed by the
___________ and confirmed by the _____________.
The full term of a Board member is 14 years, and the appointments are
s___________so that one term expires on each even-numbered year.
The Chairman and Vice Chairman lead the Board. They are also
appointed by the _____________and confirmed by the ___________.
The nominees to these posts must already be members of the Board or
must be simultaneously appointed to the Board. The terms for these
positions are four years, but the Chairman and Vice Chairman may be
reappointed for additional four-year terms, as long as their term as
Board member is active .
Here they are:
The Fed is an __________________ _______________________
Watch Yellen Confirmation hearing before _________________ Banking committee
(ahem, a standing committee)
Dual Mandate: When the U.S. Congress amended the Federal Reserve Act in 1977,
it essentially gave the Fed a dual mandate: to promote maximum sustainable
employment and price stability. Price stability is usually interpreted as low and
stable inflation . . . .
What Yellen Means For Student Loans, Mortgages And The Economy
The Key To Power At The Federal Reserve? Running The Meetings
3 Things the FRB does to manipulate the _________ of money
(1) It can set discount _______for money that banks borrow from the Fed. Reserve
banks--if rate down, more people can borrow, more money available in
economy but concern is ___________. If rate up, inflation may be ok but risk a
___________ cuz it is hard to borrow
(2) it can increase or decrease the _______requirements that banks must keep--if
lower, more money in economy, (also brings down interest rates) but concern is
_____________, if higher money is tied up but risk _________
(3) it can buy and sell govt._________
(bonds, treasury notes and other government
IOUs which are savings devises) ib the open
market, When the govt. buys, it puts more
money in circulation, and takes securities out
of circulation, With more money around,
interest rates tend to drop, so more private
money is borrowed and spent. But concern is
_______If the Fed sells securities, it takes
money out of circulation, (it is going into
savings) causing interest rates to rise by
See “See What is Quantitative Easing BBC (Visual)
making borrowing harder
Open Market Operations
The Fed’s most frequently used monetary policy tool is open market operations. This
consists of buying and selling U.S. government securities on the open market with the aim
of aligning the federal funds rate with a publically announced target set by the FOMC. The
Federal Reserve Bank of New York conducts the Fed’s open market operations through its
trading desk. If the FOMC lowers its target for the federal funds rate, then the trading
desk in New York will buy securities on the open market. The Fed pays for these securities
by crediting the reserve accounts of the banks that sell the securities. In essence, when
the Fed buys securities through open market operations, it is creating money. Additional
money in these bank reserve accounts puts downward pressure on the federal funds rate
according to the basic principle of supply and demand. In turn, short-term market interest
rates directly or indirectly linked to the federal funds rate also tend to fall. Lower interest
rates encourage consumer and business spending, thereby stimulating economic activity.
On the other hand, if the FOMC raises its target for the federal funds rate, then the New
York trading desk will sell government securities, collecting payments from banks by
withdrawing money from their reserve accounts. Less money in these reserve accounts
means a smaller supply of money in the banking system, putting upward pressure on the
federal funds rate. That typically causes market interest rates to rise, which damps
consumer and business spending, slowing economic activity and reducing inflationary
Best explanation:
_____Policy the
use of
expenditure and
revenue collection
to influence the
Fiscal Policy issues
The Keynes vs. Hayek Debate
John Maynard Keynes and Friedrich Hayek were two famous economists with
differing opinions on how to address the boom bust cycle that leads to budget
deficits. In fact, the debates between these two economists were somewhat famous
for being rather boisterous and unruly.
Keynes argued that governments should intervene to help put jobless back to work
by implementing economic stimulus and other programs. If these people were
employed, GDP growth would accelerate and debt as a percentage of GDP would be
reduced. The prospects of a long-term growth rate would also making financing
current projects much easier.
Hayek insisted that these programs would simply delay a day of reckoning. Instead,
the economist argued that governments should instead reduce spending and taxes
in order to make room for the free markets to determine the right course of action.
While this could mean a deleveraging in the short-term, it would equate to a far
healthier long-term economy.
See Keynes v Hayak on the impact of gov’t spending on the economy
The Economic Stimulus Act of 2008 (Pub.L. 110-185, 122 Stat. 613, enacted February 13, 2008)
was an Act of Congress providing for several kinds of economic stimuli intended to boost the
United States economy in 2008 and to avert a recession, or ameliorate economic conditions. The
stimulus package was passed by the U.S. House of Representatives on January 29, 2008, and in a
slightly different version by the U.S. Senate on February 7, 2008. The Senate version was then
approved in the House the same day.[1] It was signed into law on February 13, 2008 by President
Bush with the support of both Democratic and Republican lawmakers
The 2009 American Recovery and Reinvestment Act, (aka the “________Package”) was
designed to help the economy recover from the 2008 financial crisis and subsequent
r__________. Unlike TARP, which helped big business, ARRA was specifically designed to put
more money into the pockets of American families and small businesses.
The goal was to stimulate d__________ by redirecting $260 billion in federal funding through
tax cuts, tax credits and unemployment benefits.
• Cut taxes by $400 for individuals and $800 for families through reduction of withholding.
This caused confusion, since many people expected checks like the Bush Tax Cuts.
• A payment of an additional $250 each to recipients of Social Security, veterans pension
and Supplemental Security Income (SSI) benefits.
• $70 billion to extend the AMT tax shelter. (This is usually extended each year by Congress,
• Greater access to the child tax credit for the working poor and an expanded earned________ tax ______ to families with three children.
• A $2,500 college tuition tax credit for 2009 and 2010.
• An $8,000 tax credit for first-time homebuyers in 2009 only. (This was later extended
through April 2010.) Deduction of sales tax on new car purchases through 2009 only.
• Unemployment benefits were extended for another 33 weeks.
• Suspension of taxes on the first $2,400 of unemployment benefits through 2009
House Passes Stimulus Plan With No G.O.P. Votes
House Speaker
Nancy Pelosi and
Majority Leader
Steny Hoyer at a
news conference on
the economic
stimulus package
January 28, 2009
WASHINGTON — Without a single Republican vote, President Obama won House
approval on Wednesday for an $819 billion economic recovery plan as
Congressional Democrats sought to temper their own differences over the
enormous package of tax cuts and spending. . . .
All but 11 Democrats voted for the plan, and 177 Republicans voted against it. The
244-to-188 vote came a day after Mr. Obama traveled to Capitol Hill to seek
Republican backing, if not for the package then on other issues to come
Oooh ahh review: _________ship . . . This is a __________vote
Flexible Cohesive Wrap Bandage
More . . . . .Fiscal Policy issues
Debt Ceiling / Debt Limit: When the revenues collected by the federal government are
not sufficient to cover its expenditures, it must finance the shortfall through borrowing.
In addition, the federal government is compelled to incur debt because of requirements
that trust fund surpluses be invested in federal securities. Federal borrowing is subject to
a public-debt limit established by statute: public debt is subject to a statutory limit, 31
U.S.C. 3101. As long as the federal government incurs annual deficits and trust funds
incur annual surpluses, the public-debt limit must be increased periodically. The
frequency of congressional action to raise the debt limit has ranged in the past from
several times in one year to once in several years.
Watch: CPJ Grey: Debt Limit
Capitol Leaders Agree to a Deal on the Budget
Patty Murray: Democrats' Unlikely Iron Lady
Of The Budget Battle
three ways to address federal deficits:
•Spending - Countries can increase spending in hopes of spurring growth rates. The
higher growth rates increase GDP and reduce debt as a percentage of GDP and make it
more manageable.
•Austerity - Austerity measures involve cutting government spending. These cuts
can produce immediate reductions in future debt, which means debt as a percentage of
GDP will decline, if GDP remains stable.
•Taxes - Raising taxes can help shore up government finances, but they put strain on
taxpayers and corporations operating within the country. Conversely, lowering taxes can
be a way to spur growth by encouraging private spending and investment.
________policy is typically implemented by a central bank, while
_________ policy decisions are set by the national government
__________ Policy: The stance taken by government with regard to its spending or
taxation with a view to influencing the level of economic activity.
________ Policy The use by government of changes in the supply of money and interest rates
to achieve desired economic policy objectives. They aim therefore to influence the level of
economic activity. The government may want to use this kind of policy to either boost
economic activity (if the economy is in a recession) or perhaps to reduce economic activity (if
the economy is growing too fast, causing inflation)
_______ _________The actions of a central bank, currency board or other regulatory
committee that determine the size and rate of growth of the money supply, which in turn
affects interest rates. This kind of policy is maintained through actions such as increasing the
interest rate, or changing the amount of money banks need to keep in the vault (bank
_______ Policy The federal government’s decisions about the amount of money it spends and
collects in taxes to achieve full employment and a noninflationary economy.
Why one over the other?
Most politicians prefer ____________ to ____________policy.
• it shifts responsibility from them to the _______--an
independent board of bankers and economists. During
periods of _______, this can be particularly attractive since
the goal is to ____________money from circulation, the
fiscal policy response of increasing ______and/or cutting
government _______ is not very popular with voters.
• In addition, some argue that business leaders and
consumers are better equipped to manage the money that
is injected into the economy during period of recession.
Even though a government institution—the _____—makes
the decision to ______ interest rates, private borrowers
(businesses and consumers) actually decide where and how
to spend that money.
Ok do you get it?
Each policy has a name(s)/position associated with its execution. What are they?
One is in the cabinet, the other heads an independent agency—which
One could be fired by pres, one could not: which?
Which one could congress fire?
Which has to be appt by pres, approved by Senate?
What are the 3 tools of Monetary Policy?
Assume the fed wants to boost economic productivity—would it increase supply or decrease?
For each tool, how would it do that?
Ok do you get it?
Each policy has a name(s)/position associated with its execution. What are they?
One is in the cabinet, the other heads an independent agency—which
One could be fired by pres, one could not: which?
Which one could congress fire?
Which has to be appt by pres, approved by Senate?
What are the 3 tools of Monetary Policy?
Assume the fed wants to boost economic productivity—would it increase supply or decrease?
For each tool, how would it do that?
‘”Quantitative Easing”
A government ________policy used to ________the money supply by
_______government securities or other securities from the market.
Quantitative easing increases the money supply by flooding
institutions with capital, in an effort to promote increased
lending and liquidity and by decreasing the value of investments such
as bonds so that they are _______ attractive and investors will invest
________banks tend to use quantitative easing when _______ ______have
already been lowered to near 0% levels and have failed to produce the
desired effect. The major risk of quantitative easing is that, although more
money is floating around, there is still a fixed amount of goods for sale. This
will eventually lead to higher prices or inflation. It also hurts people who
have or are about to _______________ because they need a safe place to
The revenue side
graduated tax - any tax in which the rate increases as the amount subject to
taxation increases
Income Taxes
If you work in the United States, you will probably incur some sort of federal income tax liability
each year. Most people will also owe state income taxes, A few cities and townships add another
layer to the mix of taxes you’ll pay; this list details what the various state and local governments
The amount you owe — for federal, state and local taxes — is determined by how much you earn
each year. The United States uses a progressive tax system, which means the more money you
earn, the higher your tax rate. The chart above lays out the different tax brackets and rates,
which depends on your filing status (single, married couples filing jointly, married filing
separately, etc.).
Historical federal marginal tax rates for
income for the lowest and highest income
earners in the US
Among OECD countries only
Mexico, Turkey, Korea,
and Japan had lower taxes than
the United States as a percentage
of GDP. In many European
countries taxes exceeded 40
percent of GDP, but those
countries generally provide much
more extensive government
services to their citizens than the
United States does.
The United States relies less on
consumption taxes—17 percent
of total 2006 tax receipts—than
any other OECD country. Revenue
from such taxes averaged 32
percent of total taxes among the
30 OECD countries. Mexico, in
contrast, collected 56 percent of
its 2006 tax revenue from
consumption taxes.
Health care law
Provisions Explained: Kaisar Foundation
Supreme Court Opinion explained
Obamacare explained Fox talk radio:
Subsidy: Monetary assistance granted by a government to a person or group in support of an
enterprise regarded as being in the public interest.
Farm Bill
Why $7-Per-Gallon Milk Looms Once Again
Price supports
Congress Poised To Make Crop Insurance Subsidies More
Farm Bill Conference Committee:
Still no resoultion Dec 12:
Regulations impact the economy
• Romney and Obama debate regulations:
See ted talk:
The Gini index measures the extent to which the distribution of income (or, in some cases,
consumption expenditure) among individuals or households within an economy deviates from a
perfectly equal distribution. A Gini index of zero represents perfect equality and 100, perfect
index ranged from 0.21 to 0.65 in 2010 across the United States, according to Census Bureau estimates.[27]
Income Gini coefficient United States, 1947–2011
(first year reported)
Trend since the 1980s is
market _______________
Double Take 'Toons: The Popeulist?
December 01, 2013 5:23 AM
Pope Francis recently issued an 84-page paper criticizing the excesses of
capitalism, stating "it is evident that unbridled consumerism combined with
inequality proves doubly damaging to the social fabric." Mike Luckovich
doubts some will hear him, while Rainer Hachfeld believes the Holy Father
has joined the company of Karl Marx and Friedrich Engels.
The Car Allowance Rebate System (CARS), colloquially known as "cash for clunkers",
was a $3 billion U.S. federal scrappage program intended to provide economic
incentives to U.S. residents to purchase a new, more fuel-efficient vehicle when trading
in a less fuel-efficient vehicle. The program was promoted as providing stimulus to the
economy by boosting auto sales, while putting safer, cleaner and more fuel-efficient
vehicles on the roadways
Definition of 'Government Security
government debt obligation (local or national) backed by the credit and taxing
power of a country with very little risk of default
Treasury bills (T-Bills), notes and bonds are marketable securities the U.S. government
sells in order to pay off maturing debt and to raise the cash needed to run the federal
government . When you buy one of these securities, you are lending your money to
the government of the United States.
T-bills are short-term obligations issued with a term of one year or less, and
because they are sold at a discount from face value, they do not pay interest before
maturity. The interest is the difference between the purchase price and the price
paid either at maturity (face value) or the price of the bill if sold prior to maturity
Treasury notes and bonds, on the other hand, are securities that have a
stated interest rate that is paid semi-annually until maturity. What makes
notes and bonds different are the terms to maturity. Notes are issued in two-,
three-, five- and 10-year terms. Conversely, bonds are long-term
with terms of more than 10 years.
The yield on a bond is determined at auction.
Bonds are sold in increments of $100. The minimum purchase is $100.
You can hold a Treasury bond until it matures or sell it before it matures.
In a single auction, an investor can buy up to $5 million in bonds by non-competitive
bidding or up to 35% of the initial offering amount by competitive bidding. treasury bond price explained
My Father's friend got a 500,000,000 federal
reserve bond series of 1934?
It was like a whole bond paper with a dollar
amounting $500,000,000 and there are lots of
small stab at the side (federal reserve notes) as
payments for all debts and expenses series in
1934. they hunt it 3 weeks ago in a cave here
in Phils. It was in a metal box with i think 10x12
inches size, total of 250pcs. including
certificates and 3 gold coins at the top. We are
just curious where to ask about it, does it has a
value if ever, and where to surrender the said
treasure. Is any protections given to the one
who hunts it? Pls. advise. thank you...
Best Answer - Chosen by Voters
What you have there is a lovely box full of fakes.
First, the US never issued any kind of bonds in that high a denomination.
Second, a real bond would be engraved and printed on the same cotton fiber substrate as
US banknotes, and NEVER on watermarked bond paper.
This scam has been going on in the Philippines for years. The back story is always a
variation of the bonds were newly discovered from their WW2 hiding place, and they are
always insanely high denominations. They are not real. Period.

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