Chapter 15
Chapter 15
Government as Regulator of the EconomyEfficiency through government intervention
Promoting competitionMaking business pay for indirect costsDeregulation and underregulation
Equity through government interventionThe politics of regulatory policy
© 2014, McGraw-Hill Education. All Rights Reserved. 2
© 2014, McGraw-Hill Education. All Rights Reserved. 3
Insert Table 15-1The Main Objectives of Regulatory Policy
Government as Protector of the EnvironmentConservationism: the older waveEnvironmentalism: the newer wave
Environmental protectionGlobal warming and energy policy
© 2014, McGraw-Hill Education. All Rights Reserved. 4
© 2014, McGraw-Hill Education. All Rights Reserved. 5
Insert Figure 15-1Average Temperature of the Earth’s Surface, 1850-2010
Government as Promoter of Economic InterestsPromoting business
Government promotion of business Government-provided loans Special tax breaks Traditional services: education, transportation, and defense
Tax burden has shifted from business to individuals
© 2014, McGraw-Hill Education. All Rights Reserved. 6
Government as Promoter of Economic InterestsPromoting labor
National Labor Relations Act of 1935Minimum wageMaximum work weekUnemployment benefitsNondiscriminatory hiring practices
© 2014, McGraw-Hill Education. All Rights Reserved. 7
Government as Promoter of Economic InterestsPromoting agriculture
Homestead Act of 1862Farm programs to eliminate some farming riskFederal payments account for more than a fourth of net
agricultural incomeAmerican farmers among the most heavily subsidized in
the world
© 2014, McGraw-Hill Education. All Rights Reserved. 8
Fiscal Policy as an Economic ToolDemand-side policy
Emphasizes the consumer (demand) component of the supply–demand equation.
Government spending to alleviate economic depression or recession
Generally preferred by Democratic lawmakersCan result in budget deficit/increased national debt
© 2014, McGraw-Hill Education. All Rights Reserved. 9
Fiscal Policy as an Economic ToolSupply-side policy
Emphasizes the business (supply) component of the supply–demand equation
Tax breaks for firms and upper-income individuals intended to encourage business investment with resulting increases in employment and income
Generally preferred by Republican lawmakers Can result in budget deficit/increased national debt
© 2014, McGraw-Hill Education. All Rights Reserved. 10
Fiscal Policy as an Economic ToolFiscal policy: practical and political limits
Demand-side or supply-side work most effectively with smaller government and balanced budgets
Republican and Democratic lawmakers are miles apart on how best to deal with recessionary periods
© 2014, McGraw-Hill Education. All Rights Reserved. 11
© 2014, McGraw-Hill Education. All Rights Reserved. 12
Insert Figure 15-2The Federal Budget Dollar, Fiscal Year 2013
© 2014, McGraw-Hill Education. All Rights Reserved. 13
Insert Table 15-2Fiscal Policy: A Summary of the Government’s Role
© 2014, McGraw-Hill Education. All Rights Reserved. 14
Insert Figure 15-3The Federal Budget Deficit/Surplus
Monetary Policy as an Economic ToolThe Fed
Control over money supply Raise/lower the cash reserve required of member banks Raise/lower interest rate on member banks
Fighting an economic downturn Decreasing interest rate on loans to member banks Lowering reserve rate Buying government securities (bonds, notes, etc.)
© 2014, McGraw-Hill Education. All Rights Reserved. 15
© 2014, McGraw-Hill Education. All Rights Reserved. 16
Insert Figure 15-4The Federal Reserve System
© 2014, McGraw-Hill Education. All Rights Reserved. 17
Insert Table 15-3Monetary Policy: A Summary of the Fed’s Policy Tools
Monetary Policy as an Economic ToolThe Fed and control of inflation
Opposite of fighting an economic downturnIncreasing interest rate on loans to member banksRaising reserve rateSelling government securities (bonds, notes, etc.)
The politics of the Fed
© 2014, McGraw-Hill Education. All Rights Reserved. 18
© 2014, McGraw-Hill Education. All Rights Reserved. 19
Insert Figure 15-5The Annual Rate of Inflation, 1979-2010