1.Monetary and Fiscal Policy
Academic Current Issues

2. Fiscal Policy
How to Spend and Tax Our Money
3. Vocab to Know
Fiscal policy
Monetary Policy
The Fed
John Maynard Keynes
Interest Rate
Deficit
Recession
Depression
Adam Smith
Marshal
4. Three competing economic philosophies
Classical Economics
Keynesian Economics
Supply Side Economics (Reaganomics)
5. Classical System,
Adam Smith: Wealth of Nations 1776
Government had no role in management of the economy Laissez-faire or do nothing
Law of Supply and Demand takes care of economy
The economy regulates itself. In the long run, the economy will always balance itself out
6. Classical Econ
Classical Econ theory
When prices risewe buy less (demand goes down) surplusesprices dropwe buy moreprices going up
When we buy less, businesses lay off workers less people with jobs less buying recession or depression.
Eventually, businesses drop prices to point where people buystuff businesses make $ - businesses hire more workers workers spend $ - Depression over
All Self Regulating without any need for government interference
7. Keynesian Economics: Demand Side Economics
John Maynard Keynes (early 1900s)
Economies are unstable and always changing
Inflation caused by DEMAND Too many $ trying to buy too few goods
Economies will NOT balance themselves out in a timely manner
Too many people will get hurt waiting for the economy to adjust to imbalance in Supply & Demand
Government must step in to correct the inherent instability of the economy
In the long run, were all dead
J M Keynes
8. Fiscal Policy (Keynes view)
In a recession (not enough spending) Government must increase demand by spending more; lowering taxes; lowering interest rates; increasing welfare
Examples:FDRs New Deal programs,Bush/ObamasStimulus Package
Deficit Spending is good
When in debt, govt should SPEND money and tax less to get out of debt
Explain how this works.
9. Supply Side Economics (Reaganomics)
Believes inflation caused by lack of supply
Tax less, Regulate less ANDcut Government Spending
Trickle Down Economics
Put more $ in hands of the producers
They will make more stuff and hire more workers
Workers will spend more money and buy more stuff etc etc
E.g. Ronald Reagan in 1980s (Reaganomics)