economic policy november 29, 2010. long term growth and the business cycle in the united states
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Economic PolicyNovember 29, 2010
Long Term Growth and the Business Cycle in the United States
10000
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2000q1
2000q2
2001q1
2001q2
2001q3
2001q4
2002q1
2002q2
GD
P (
Co
nst
ant
2004
Do
llar
s)The Recession of 2001
Expansion
Recession Recovery
General Upward Trend
Monetary Policy
Fiscal Policy
The Structure of the Federal Reserve System
President
Senate
Federal ReserveBoard of Governors
7 Governors14-year terms
Chair serves 4-year term
Federal Open Market Committee7 Governors
6 Voting bank presidents7 Nonvoting bank presidents
Federal Reserve Banks12 Districts
12 Bank presidents
Member banks
nominates
confirms
Ben BernankeChairman of the Federal Reserve
Reasons Chair of Federal Reserve is Powerful
1. Close Communication with President.
2. Well-informed by talented professional staff.
3. Approves the appointment of 12 presidents of Federal Reserve Banks.
4. Inherits a Job held by Distinguished, Prestigious Leaders—until Greenspan?
Who Controls the Fed?Three Theories:
0. Not Congress
1. Bankers
2. Independent
3. PresidentA. Manipulates for Partisan advantage.B. Manipulates to get re-elected.
Recessions
1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Presidential Elections and Economic Growth
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1
2
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5
No Election Not Seeking Reelection Seeking Reelection
Columns show the average percentage growth in GNP for each category for the years 1960 to 2001.
The Federal Deficit or Surplus, 1950-2009
0255075
100125150175200
United S
tate
s
Japa
nIta
ly
Gre
ece
France
United K
ingdom
Sweden
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man
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Spain
Denm
ark
Canad
a
Austra
lia
Cen
tral
Go
vern
men
t D
ebt
as P
erce
nt
of
GD
P (
2009
)
U.S. Federal Debt, though growing rapidly, is Smaller Than the Debt of
Other Countries
Fiscal Policy controversial
--Did Stimulus Work?Yes, Keynesian theory—Democrats No, monetarists--Republicans.
Divided Government reduces the likelihood of spending-based stimulus
Public Opinion About Taxes
U.S. Tax Burden is Less Than That in Many Other Democracies
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100
United S
tate
s
Swed
en
Denm
ark
France
Italy
Ger
man
y
United K
ingdom
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ece
Canad
a
Spain
Austra
lia
Japa
n
Tax
Pai
d a
s P
erce
nt
of
GD
P (
2008
)
Key Features of Tax System
1. Breadth of Tax System: How Many Tax Preferences?A. Home MortgageB. College ExpensesC. Medical InsuranceD. Charitable ContributionsE. Retirement Savings
Key Features of the Tax System (continued)
2. Progressivity of Tax System
A. Progressive Tax: Tax Rate on Rich is Higher (Income Tax)
B. Regressive Tax: Tax Rate on Poor is Higher (Social Security Tax)
C. Flat Tax: Rate is the Same for Everyone (Total Impact)
Percentage of Federal Income Tax Paid by Income Percentiles (2004)
Top 1% - 37%Top 5% - 57%
Top 10% - 68%Top 25% - 85%Top 50% - 97%
Income Inequality Is Greater in the United States Than in Many Other
Countries
0
0.1
0.2
0.3
0.4
0.5
United S
tate
s
United K
ingdom Ita
ly
Canad
a
Ger
man
y
France
Japa
n
Swed
en
Ineq
ual
ity
Major Components of the Federal Budget
Social Security
Medicare andMedicaidNationalDefenseInterest onDebtOther
35%
22%
17%
15%11%
Federal Revenues by Source
Social Insurance
Taxes40%
Excise Taxes3%
Other4%
Corporate Income Taxes
8%
Individual Income Taxes
45%
The End
How Americans Feel About the Economy Is a GoodPredictor of What They Think About the President
0
20
40
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120
1955
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2006
Consumer Confidence Index President's Job Approval %