4.9: Ideology & Economic Policies

4.9: Ideology and Economic Policy

How does political ideologies effect the economic policies in the American government?

Keynesian vs. Supply-Side Economics

Origin:
- Keynesian Economics originated from English Economist John Maynard Keynes, who theorized that the government should help to keep the markets and the economy stable.

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​Keynesian Economics

KEY POINTS:

- The government needs to oversee fluctuating demand and spending by the people.

- Low Demand = more government spending and/or less taxes.

- High Demand = increase taxes (mostly on the wealthy) and/or decreases in spending.

- Example: FDR and the creation of Public Works projects in the New Deal.

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​Keynesian Economics

Multiple Choice

Who created Keynesian Economics & what was their theory?

• Adam Smith who believed in letting the economy fix itself

• John M. Keynes who believed in the government should NOT be involvement in the economy

• John M. Keynes who believed the government should help the economy stabilize

• Milton Friedman who believed that only our banks should regulate the economy

Dropdown

If the economy was experiencing ​

Select answer

, then Keynesian economics would call for ​​

Select answer

and decreased government spending ​ .



If the economy was experiencing ​

Select answer

, then Keynesian economics would call for ​ decreased taxes and ​ ​

Select answer

.

Origin:

Supply-Side Economics was developed by an economic advisor to Ronald Reagan, who believed that the government should leave the money supply in the hands of the people.

Supply-Side Economics

KEY POINTS:

- Laissez-faire approach (Free-Market).

- Natural laws of economics—like supply and demand—will guide the economy.

- Less government taxing = more spending $$ = more jobs.

- The government will acquire revenue through state sales taxes and corporate profits.

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Supply-Side Economics

Multiple Choice

Supply Side Economics is all about keeping money in the hands of who?

• The government

• The people

• The rich

• The banks

Reorder

Reorder the following for "trickle down economics (reganomics)"

• Less government taxing on businesses

• Businesses will spend more (investing)

• More jobs are then created

• Eventually leads to more spending in the economy

1

2

3

4

• 1
• 2
• 3
• 4

Fiscal Policy vs. Monetary Policy

-ARTICLE I: Congress has the power to lay and collect taxes.

- 16th Amendment: Allowed Congress to tax people’s income.

- INTERNAL REVENUE SERVICE (IRS): Oversees the tax collection process.

- (Add to your notes) Taxes: Liberals support a Progressive Tax (increased income = increased taxes). Conservatives support a Flat Tax (all pay the same rate).

- BALANCING THE BUDGET: Partisanship has made it difficult to agree on government spending. (con of fiscal policy)

Fiscal Policy: Government fixing the economy through taxes & government spending

Match

Match the following

• Gives Congress the original power to collect taxes

• This has allowed Congress to collect taxes from people's incomes

• This government agency oversees the collection of our taxes

• This ideology supports a Progressive tax (more income= more taxes)

• This ideology supports a Flat tax rate (all people pay the same rate of taxes)

Article 1 of the Constitution

16th Amendment

IRS (Internal Revenue Service)

Liberals

Conservatives

• Article 1 of the Constitution

• 16th Amendment

• IRS (Internal Revenue Service)

• Liberals

• Conservatives

Open Ended

Research the word "partisanship" in terms of government. Explain how partisanship might affect the government in performing Fiscal policy.

- MONETARY POLICY: How the government manages the supply of currency and the value of the US dollar.

- FEDERAL RESERVE BOARD “The Fed”: A board of seven governors who serve for 14 years and rotate as chairman. Sets monetary policy by:

- Buying and selling bonds

- Regulating reserves at commercial banks & setting discount rates (rate of actual loaned dollars to the banks)

- Setting interest rates

Regulating Inflation: Reserve requirements for banks and rates for gov. bonds (IOU’s) are set.

Monetary Policy

Match

Match the following

• How the government controls the flow of money in the economy and the power of the u.s dollar

• Our central bank made up of a board of 14 governors

• Buying/Selling Bonds

  Setting interest rates

  Manipulating reserves

Monetary Policy

The Fed

Tools to conduct Monetary Policy

• Monetary Policy

• The Fed

• Tools to conduct Monetary Policy

Multiple Choice

If the government gave citizens a tax break, this would be an example of

• Fiscal Policy

• Monetary Policy

Multiple Choice

If the government increased our supply of money, this would be an example of

• Fiscal Policy

• Monetary Policy

- Liberals don’t think that monetary policy is enough; the Fed can only do so much.

- Conservatives like “easy money” loans from banks & low interest rates to stimulate buying.

MONETARILY:

-Liberals are more willing to budget for government programs & assistance.

- Conservatives prefer spending on defense but less taxing on income overall.

FISCALLY:

DIFFERING VIEWS ON FISCAL & MONETARY POLICY:

Political Ideologies on Global Trade

The US is quite globalized and would prefer to have a favorable trade balance (export more than you import).

1. Liberals: Laborers & unions feel that outsourcing & free trade threaten their jobs.

2. Conservatives: A free flow of global goods benefits businesses & manufacturers.

Categorize

Options (8)

Promotes taxing the rich

Equal tax rate for all

Willing to budge for government programs

Only government spending should be done on the military

Believes that conducting monetary policy is not enough to regulate the economy

Believes that giving out loans and lower interest rates is enough to help people spend more

Believes free trade threatens job security in America

Believes there should be a free flow of trade

Organize these options into the right categories

Liberals

Conservatives