Understanding Business Cycles and Economic Policies

1. Business Cycle 59 Source: http://business.semo.edu/redmond/CH11a/img025.gif Gross Domestic Product Source: http://www.efficientfrontier.com/ef/702/Fig1.gif Effects of Inflation Source: http://www.davidgothard.com/edi/images/inflation.jpg The Business cycle can be traced back over the last century to see many periods of ups and downs. The business cycle goes through periods of expansions, peaks, contractions, and troughs. The ups and downs of the business cycle can affect the public’s opinion of a President’s performance. Inflation, or the rise of prices, has the effect of cutting purchasing power. GDP data is examined to determine growth from year to year. GDP data is also used to compare economic growth over long periods of time.

2. Government Spending 60 Source: http://www.mindspring.com/~bupper1/money.gif Taxation Policies Source: http://images.freeadvice.com/images/law/images/at/taxes.gif Interest Rates Source: http://208.178.193.154/snippetimages/c/rate.gif Sometimes the efforts of the Federal Reserve is not enough to get the economy to respond. Monetary policy is how the government controls the amount of money in circulation. The gov’t controls the interest rates in order to control the rate of growth in the economy. --- President Reagan in the early 1980 pushed for tax cuts in order to put more money into investments and business. The Federal Reserve tries to make corrections to the interest rate in small increments. The economy responds to influxes of money---more money means a rising economy. FDR used higher government spending to try and end the Great Depression.

3. Mergers / Trusts 61 Business # 1 Larger Business Business # 2 Labor Unions Logo of the United Auto Workers Source: http://www.uawlocal160.org/sys-tmpl/nss-folder/postings/uaw%20logo%20%20web%20page%20%20new.jpg Bargaining Tools Source: http://athena.english.vt.edu/~appalach/stuart/strike.gif The overall goal of a labor union is to improve the conditions for its members. Both workers and employers use many tactics to achieve their goals. However many of these tactics are nor in the best interest of both groups. A merger is when two or more companies join together to become one. The government still regulates the role of monopolies in the economy. One major concern of workers in the economy are the conditions in which they work. One major point of contention between owners and workers is the wages they receive. One tactic used by labor unions is to strike against their employers.

4. Income Tax 62 Source: http://www.ci.muskegon.mi.us/images/tax.jpg Sales Tax Source: http://www.studio8.net/PictureStories/ThriftStore/price-tag.jpg Other Revenue Sources Source: http://www.users.cloud9.net/~bradmcc/jpg/lottery.jpg Excise taxes are special taxes placed on certain products like gas, alcohol, and cigarettes. One criticism of the tax system is the idea of how much tax should be levied against citizens. Many citizens are against increased taxes no matter reason . The problem of overspending is often a difficult opponent for government leaders. One regressive tax is the sales tax many forms of government charge. It is an easy tax to collect. One way of increasing government revenue in recent years has been the formation of state lotteries. Progressive taxes such as the income tax require those who make more to pay a greater percentage. Personal Income tax returns are due to the IRS by April 15th every year.

5. Drafting Budgets 63 Source: http://www.ibo.nyc.ny.us/budgetroadmap/budgetroadmap.jpg Expenditures Source: http://www.kowaldesign.com/budget/images/interest.gif Balancing Budgets Source: http://www.lubbockonline.com/news/030597/images/budget.jpg One suggested solution to the deficit problem has been a balanced budget amendment to the Constitution. The budget deficits of the last twenty years have built a large public debt. Many times the only way to be rid of deficits is to increase taxes or cut services. This cartoon refers to the small surplus in the late 1990’s that encouraged more federal spending. Although the budget process requires tough decisions, no one wants it to affect their interests. The process of designing a budget can be a year long process. “pork barrel” projects are often blamed for the deficit spending. The federal budget is dominated by government benefits paid to individuals

6. Banking Services 64 Source: http://www.secu.org/checkingsavings/images/checking.jpg Stocks, Bonds, Mutual Funds Source: http://www.telmex.com.mx/internos/inversionistas/ingles/logos_inver/nyse.gif Consumer Credit Source: http://www.pmlco.com/images/credit-report.jpg The Federal Depositors Insurance Corporation (FDIC) insures that one’s money is safe in a financial institution. One of the major services provided by banks is checking accounts or debit accounts. Traditional banks provide financial services while making a profit from interest charges and fees. Consumers have a credit report that shows their history of paying debts. The New York Stock Exchange is the place where corporations have their share sold on the open market. The level of one’s education has a great impact upon earning potential. Too much debt can lead a person to bankruptcy and a bad credit rating. The overuse of credit cards leads many people into financial difficulties.

7. U.S. Balance of Trade 65 Source: http://www.ny.frb.org/pihome/educator/fx/Image5.gif United Nations Source: http://www.un.org/media/main/biglogo.gif War on Terrorism Source: http://www.newsmax.com/images/headlines/terrorists.jpg The major role of the United Nations is to keep world peace and prevent conflict. The NAFTA agreement created a new free trade zone in North America. --- --- One of the major topics in world politics in the modern era is the activities of terrorists. Many of these terrorists operate in nations where the government supports their activities. A trade deficit is when a nation imports more than it exports causing more money to leave then nation that enter through trade.