American Government
POL 101: Forsberg
Topic 9.3: Economic Policy	Spring 2005

I.	
QUESTION: For each of the following, please indicate how much credit, if any, they deserve for the positive state of the economy in the past few years -- a great deal, a fair amount, not much or none at all. How about …	% saying “A Great Deal”	
The computer and Internet industry56%
The Federal Reserve34%
The Clinton Administration29%
The increase in foreign trade25%
Congress13%

Who Gets Credit?
Source: The Gallup Organization. National survey of 1021 adults, June 22-25, 2000.

II.	Revenue Sources

Source: http://www.irs.gov/.

III.	The Federal Debt Over Time
YearTotal Public DebtU.S. PopulationDebt per Capita
1799$82,976,2945,170,556$16.05
1859$58,498,38130,687,000$1.91
1869$2,545,110,59037,906,000$67.14
1899$1,436,700,70474,318,000$19.33
1919$25,484,506,160105,003,065$242.70
1939$40,439,532,411131,028,000$308.63
1949$252,610,000,000149,188,000$1,693.23
1969$365,769,000,000202,736,000$1,804.16
1979$829,470,000,000225,106,000$3,684.80
1989$2,868,039,000,000247,397,000$11,592.86
1999$6,357,759,000,000266,640,400$23,843.94
IV.	Management of Economy
A.	The management of the economy involves three major areas of policy:
–	trade policy (regulating trade with other countries)
–	fiscal policy (taxing and spending)
–	monetary policy (control of the money supply)
V.	Trade Policy
A.	Regulating international trade
–	Trade Deficits or Surpluses?
B.	Other uses of trade policy:
–	Foreign relations tool
–	Pressure foreign governments
–	Embargoes and trade wars
VI.	Fiscal Policy
A.	Taxing and Spending Activities
B.	Keynesian Economic Theory
–	Recession:
•	Increase Spending
•	Decrease Taxation
–	Inflation:
•	Decrease Spending
•	Increase Taxation
VII.	Monetary Policy
A.	Controlling the monetary supply
B.	Recession:
–	Increase money supply
•	Reduces interest rates
•	Makes borrowing cheaper
C.	Inflation:
–	Decrease money supply
•	Increases interest rates
VIII.	The Federal Reserve Board
–	Six governors plus one chairman
–	Fourteen year terms of office
–	Appointed by president
•	with advice and consent of Senate
–	Otherwise totally independent
IX.	The Public Debt
A.	Debt:
–	how much we owe
B.	Deficit:
–	how much our expenses exceed our income.
C.	The Debt is now in excess of $6 trillion.
–	That is an average increase of $1.58 billion per day
–	That is over $23,000 per citizen.
•	Source: http://www.brillig.com/debt_clock/
D.	Effects:
–	Buying Treasury Bills (T-Bills)
•	long-term or short-term
–	Interest Payments  (11% of budget)
–	“Crowding Out”
X.	Questions
A.	Is the independence of the Federal Reserve Board a good thing?
B.	How important is the public debt?
C.	How serious is “Crowding Out”?
D.	What should we do with budget surpluses?
E.	Is any one person really responsible for the economy?