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Business Cycle: The Role of Government

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A Brief History of Business Cycles: The USA. Expansions. 1945:4-1948:4 13. 1950:1-1953:2 14 ... Atlanta. Dallas. Kansas. City. San Francisco. Minneapolis ... – PowerPoint PPT presentation

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Title: Business Cycle: The Role of Government


1
Business Cycle The Role of Government
  • Goals, Laws, Authorities, and Policies

2
Business Cycles
  • Business cycles are fluctuations in the level of
    economic activity, alternating between periods of
    recession and prosperity.

Peak
Peak
Expansion
Peak
Expansion
Contraction
Trough
Contraction
Trough
3
Business Cycles
  • Business cycles are comprised of four phases
  • Recession
  • Rate of growth in GDP falls, unemployment
    increases, excess capacity increases,
    inflationary pressures decrease, and profits
    fall.
  • Trough
  • Expansion
  • Rate of growth in GDP rises, unemployment
    decreases, excess capacity decreases,
    inflationary pressures build, and profits rise
  • Peak

4
A Brief History of Business Cycles The USA
Expansions 19454-19484 13 19501-19532 14 1954
3-19573 13 19582-19601 8 19611-19693 35 197
11-19734 12 19752-19801 20 19803-19813
5 19824-19903 32 19913-20011 97
Recessions 19491-19494 4 19533-19542
4 19574-19591 2 19602-19604
3 19694-19704 5 19741-19751
5 19802-19802 1 19814-19823
4 19903-19912 4 20011-
5
Economic Stabilization Policies
  • Economic policies used by the federal government
    to counter the cyclical fluctuations in economic
    activity
  • Monetary Policy
  • Uses changes in the rate of growth in the money
    supply to bring about changes in the level of
    economic activity
  • Fiscal Policy
  • Uses changes in government spending and taxes to
    bring about changes in the level of economic
    activity.

6
Economic Stabilization Goals
  • Price Stability
  • Maintenance of an unchanged general level of
    prices over time.
  • Full Employment
  • Full utilization of all available labor and
    capital.
  • Economic Growth
  • Growth of real output over time.

7
Economic Stabilization Laws
  • The Federal Reserve Act (1913)
  • Establish a central bank, furnish elastic
    currency, provide a lender of last resort,
    supervise the banking system.
  • The 1946 Employment Act
  • Formulate and execute policy to promote maximum
    employment, production and purchasing power.

8
Economic Stabilization Laws
  • The 1978 Humphrey-Hawkins Act
  • Provide employment and price objectives as well
    as money growth targets.
  • The 1980 Monetary Control Act
  • Deregulate the banking system.

9
THE PRESIDENT
CONGRESS
FEDERAL AGENCIES
FEDERAL RESERVE
BUDGET
TAXES
SPENDING
MONETARY POLICY
FISCAL POLICY
REGULATORY POLICY
10
Economic Stabilization The Authorities
  • The Congress
  • House of Representatives
  • Elected every 2 years 435 Members
  • Senate
  • Elected every 6 years 50 Members
  • The President of the United States
  • Elected every 4 years
  • The Federal Reserve

11
Stabilization Authorities Congress
  • Congress implements the nations fiscal policy.
  • Congress produces the governments annual budget.
  • Congress determines spending levels for the
    government.
  • Congress enacts tax laws for the nation.

12
Stabilization Authorities President
  • The President and his staff prepare an annual
    economic report that reviews the state of the
    economy.
  • The President submits an annual budget, but
    Congress has fiscal authority.
  • The President must influence members of Congress
    to adopt his budget priorities.

13
Stabilization Authorities The Fed
  • The Federal Reserve is the central bank of the
    United States.
  • The Federal Reserve was established by an Act of
    Congress in 1913.
  • It is an independent organization that reports to
    Congress, but does not receive any financing from
    the government.

14
THE FEDERAL RESERVE SYSTEM
Board of Governors (7 appointed
members) Determines reserve requirements and
approves changes in the discount
rate. Supervisory and regu- latory
responsibilities over member banks and holding
companies. Oversight of Federal Reserve Banks.
Federal Reserve Banks (12 District
Banks) Handle reserve balances for
banks. Furnish currency. Collect, clear ,
transfer funds. Handle U.S. government debt and
cash balances. Establish discount rate and
furnish loans at discount window.
Federal Open Market Committee (12
members) Meets 8 times a year in Washington,
D.C. Formulates monetary policy
directives implemented through open market
operations.
Reserve Requirements
Discount Rates
Open Market Operations
15
The 12 Federal Reserve Banks
Minneapolis
New York
Boston
Chicago
Philadelphia
Cleveland
Washington
San Francisco
St. Louis
Richmond
Atlanta
Kansas City
Dallas
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