Public Policy

1. Public policy defined: authoritative government statements backed by rewards and punishments Examples of public policies include: Acts of Congress Executive orders Court rulings Public Policy

2. Why is Government Involved in the Economy? At the most basic level, government involvement makes it possible for the economy to function by: • setting the rules for exchange • defining property rights • enforcing contracts • developing common currency

3. Economic Policy The government plays important roles in: • managing the economy • protecting individual property and welfare • regulating competition to ensure fairness and avoid monopolies • provide the public goods that the market cannot provide alone

4. Those who believe in laissez-faire capitalism argue that the government should only be minimally involved in the economy, thus allowing the market to flourish in the absence of government meddling. Keynesians, by contrast, argue that the government should play a role in stimulating the economy through tax and spending policies. Economic Policy

5. Economic Policy Monetarists argue that the government can play a role in the economy, particularly in controlling inflation and promoting economic stability, by regulating the supply of money in the economy.

6. In seeking to promote a strong and stable economy, the government closely monitors the economic growth of the national economy. Gross Domestic Product (GDP) defined: index of the total output of goods and services produced in the economy What Are the Goals of Economic Policy?

7. Government efforts to promote economic growth include: 1. Promoting business, investor and consumer confidence; 2. Support and promote research and innovation; 3. Promote a sufficient, well-educated, and skilled workforce. Economic Policy

8. Economic Policy Americans have come to expect that the government will promote near full employment and low inflation in the economy.

9. Economic Policy The American economy is tied to the global economy. Our government seeks to promote American goods abroad and maintain American competitiveness.

10. Economic Policy Usually, the United States grants other countries most favored nation status; that is, the same tariff rate it already gives to its most favored trading partner .

11. Economic Policy By participating in free trade international organizations and agreements like the World Trade Organization (WTO), the General Agreement on Tariffs and Trade (GATT), and the North American Free Trade Agreement, the United States seeks to promote its competitiveness in the world economy.

12. Economic Policy In addition to promoting the workings of the economy, the government also regulates potential abuses in the marketplace. In order to ensure fairness in relations between workers and their employers, the government regulates industrial relations between employers and unions.

13. Environmental Policy Because proper waste disposal, clean-up, and environmental protections are costly, the government also regulates the market through establishing environmental standards and regulations. Because businesses and consumers bear the costs of environmental regulations, policy makers must balance environmental concerns with their efforts to promote industry.

14. Consumer Safety Government also has the responsibility to protect consumers in the marketplace. Government efforts to maintain the safety of products ranging from food and drugs to automobiles are an important part of maintaining consumer confidence in the American economy.

15. monetary policies defined: efforts to regulate the economy through the manipulation of the supply of money and credit The Federal Reserve System of twelve Reserve Banks regulates member banks to affect the supply of money and credit in order to fight inflation and deflation in the American economy. Fiscal Policy

16. Fiscal Policy The Federal Reserve affects monetary policy through: • the interest rates it offers member banks • setting the requirement (the reserve requirement)of how much cash banks are required to hold at any given time • buying and selling government securities • setting an interest rate (the federal funds rate) that banks charge each other

17. Fiscal Policy Fiscal policies include the government’s use of taxing and spending to affect the economy. Although fiscal policies are used to affect economic growth, they can also be used for the purposes of redistributing wealth in society.

18. Policy The government’s spending and budgeting decisions also have a large impact on the economy. The government can address priorities by directing resources toward a certain sector or problem. The government’s budget deficit can affect long-term growth and interest rates.

19. Policy A large portion of federal spending is made up of “uncontrollable” or mandatory spending like Social Security and Medicare. These costs limit policy makers’ abilities to direct resources to other priorities and keep the budget in balance as the portion of the budget that is discretionary declines.

20. Policy Free-market capitalism requires a certain amount of competition. As such, the government must compensate for the tendencies of some markets toward monopoly. To maintain competition, the government uses antitrust policies to keep some businesses from growing too large and monopolizing markets.

21. The government also has many tools that work to promote businesses and employ private sector efforts to achieve policy goals. Government uses subsidies to promote business activities that it deems desirable but for which there are not enough market incentives. Government also contracts with businesses to achieve its policy goals. Policy