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Economics Chapter 17

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Title: Economics Chapter 17


1
Economics Chapter 17
  • Stabilizing the National Economy

2
Section 1 Unemployment and Inflation
  • Stabilization Policies
  • Monetary Policy- Interest rates, the fed policies
  • Fiscal Policy- How they spend tax dollars
  • Unemployment rate- Percentage out of work and
    still seeking work
  • Not counted, retired, students, and long-term
    hospital

3
Unemployment
  • Reasons
  • Cyclical- Business cycle fluctuation
  • Structural- Change in the economy, tech advances
  • Seasonal
  • Frictional- temporary, layoffs, firings ect.
  • Full employment- unemployment around 5
  • Underground Economy- unreported workers

4
Inflation
  • Demand-Pull Theory- excessive business and
    consumer demand raises Prices.
  • Cost-Push inflation- Higher wages push up prices.
  • Stagflation- Inflation plus low economic
    activity.

5
Section 2 The Fiscal Policy Approach to
Stabilization
  • Circular Flow of income and output- Income
    flowing between business and consumers.
  • Leakage- removal of money income, taxes and
    savings
  • Injections- business investment and government
    spending

6
Fiscal Policy and Supply-side effects
  • Producing jobs and cutting taxes as ways to
    stimulate the economy
  • Supply-side effects- business tax credits for new
    capital equipment
  • Bush used it in 2003
  • Maximum tax from 39.6 to 35

7
Section 3 Monetarism and the Economy
  • Amount of money in circulation and the amount of
    economic activity
  • Milton Friedman
  • New money in the economy based on growth of GDP

8
Government Policy according to Monetarists
  • Monetary rule- smooth consistent growth in money
    supply.
  • Inflation Targeting- use policy to keep inflation
    at a steady rate.
  • Monetarist Theory and the Federal Reserve- Used
    in the 1980s

9
Monetarists Criticism of Fiscal Policy
  • The political process- Too many groups involved
    in Fiscal Policy
  • Time lags- How long it takes fiscal policy to
    work.
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