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The Machinery of Economic Policy-Making

The Machinery of Economic Policy-Making. Explain the role of Congress in economic policy making. What is the difference between fiscal policy and monetarism? How does the executive branch play a role in policy making? How is the Fed involved in policy making?. The Executive’s role.

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The Machinery of Economic Policy-Making

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  1. The Machinery of Economic Policy-Making Explain the role of Congress in economic policy making. What is the difference between fiscal policy and monetarism? How does the executive branch play a role in policy making? How is the Fed involved in policy making?

  2. The Executive’s role • Making economic policy decisions is complex and not under full presidential control • 132 separate government bureaus are actually involved in formulating economic policy, among other groups • Three people in the executive branch are special for this role, called the troika(Russian word for carriage pulled by three horses) • Chairman of Council of Economic Advisers (CEA) • Director of Office of Management and Budget (OMB) • Secretary of the Treasury

  3. Council of Economic Advisers (CEA) • Part of Executive Office since 1946 • Group of professional economists sympathetic to president’s view of economics • Kennedy: Keynesian; Reagan: Supply/Monetarists • Prepares economic report for Prez to send to Congress each year • Forecast economic trends, analyzes economic issues • Favor reliance on the market

  4. Office of Management and Budget (OMB) • Part of Executive Office since 1939 (originally Bureau of the Budget) • Chief function to estimate amount to be spent by federal agencies, negotiates dept. budgets, and that these match with prez’s program • Part expert, non-partisan agency; part activist, partisan organization to implement prez’s wishes for bureaucracy

  5. Secretary of the Treasury • Member of Cabinet • Drawn from or part of world of business/finance • Chief job to argue point of view of financial community • Provides estimates of gov’t’s revenue, changes from tax laws • Represents nation with domestic bankers and the US to other nations

  6. Congress • The most important part of the economic machinery • Approves all taxes and almost all expenditures of the federal gov’t—fiscal policy • Fiscal year: Oct. 1—Sept. 30 • Consents to wage, price controls • Can alter policy of “independent” Fed Board through legislation to reduce powers • Committees also involved in setting economic policy (fragmentation) • House/Senate Budget committees • House/Senate Appropriations committees • House Ways and Means • Senate Finance Committee • Each part of the system influenced by different economic theories and interest group involvement

  7. The Federal Reserve’s role • Executive/Legislative involvement in appointment and confirmation process of members • Most important function is to regulate, as much as it can, supply of money (circulation and reserve rates) and the “price” of money (interest rates)

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