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Bell Ringer 4/7/14

Bell Ringer 4/7/14. Brainstorm ways in which the government controls aspects of the economy. Agenda- Bell Ringer, Go over Unit 1 Test, Government and the Economy Lecture OBJECTIVE: I can describe the influence and control that the government has on the economy. Review. Laissez-faire:

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Bell Ringer 4/7/14

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  1. Bell Ringer 4/7/14 • Brainstorm ways in which the government controls aspects of the economy. • Agenda- Bell Ringer, Go over Unit 1 Test, Government and the Economy Lecture • OBJECTIVE: I can describe the influence and control that the government has on the economy.

  2. Review • Laissez-faire: • Monopoly: • Oligopoly:

  3. What is Fiscal Policy? • The tremendous flow of cash into and out of the economy due to government spending and taxing has a large impact on the economy. • Fiscal policy decisions, such as how much to spend and how much to tax, are among the most important decisions the federal government makes. • Fiscal policy is the federal government’s use of taxing and spending to keep the economy stable.

  4. Fiscal Policy and the Economy • The total level of government spending can be changed to help increase or decrease the output of the economy. • Fiscal policies that try to increase output are known as expansionary policies. • Fiscal policies intended to decrease output are called contractionary policies.

  5. Expansionary Fiscal Policies Increasing Government Spending • If the federal government increases its spending or buys more goods and services, it triggers a chain of events that raise output and creates jobs. Cutting Taxes • When the government cuts taxes, consumers and businesses have more money to spend or invest. This increases demand and output.

  6. Contractionary Fiscal Policies Decreasing Government Spending • If the federal government spends less, or buys fewer goods and services, it triggers a chain of events that may lead to slower GDP growth. Raising Taxes • If the federal government increases taxes, consumers and businesses have fewer dollars to spend or save. This also slows growth of GDP.

  7. Fiscal Policy and the Federal Budget • The federal budget is a written document indicating the amount of money the government expects to receive for a certain year and authorizing the amount the government can spend that year. • The federal government prepares a new budget for each fiscal year. A fiscal year is a twelve-month period that is not necessarily the same as the January – December calendar year.

  8. Bell Ringer 4/8/14 • Predict what the national debt is right now… DO NOT LOOK IT UP! I MEAN IT! • Agenda- Bell Ringer, Lecture, Handout • OBJECTIVE: I can learn about the federal budget and the national debt of the United States.

  9. Balancing the Budget Budget Surpluses • A budget surplus occurs when revenues exceed expenditures. Budget Deficits • A budget deficit occurs when expenditures exceed revenue. • Revenue: • Expenditure:

  10. Responding to Budget Deficits 1. Creating Money • The government can pay for budget deficits by creating money. Creating money, however, increases demand for goods and services and can lead to inflation.

  11. Responding to Budget Deficits 2. Borrowing Money • The government can also pay for budget deficits by borrowing money. • The government borrows money by selling bonds, such as United States Savings Bonds, Treasury bonds, Treasury bills, or Treasury notes. The government then pays the bondholders back at a later date.

  12. Assignment • DUE TOMORROW IF YOU DO NOT FINISH IN CLASS TODAY!

  13. Bell Ringer 4/9/14 • Reflect on the national debt numbers that we looked at yesterday. What are your thoughts on the amount of debt that the United States has accumulated? • Agenda- Bell Ringer, trade and grade handout from yesterday, Debt Lecture • BRING TECHNOLOGY TOMORROW!! • OBJECTIVE: I can discuss the implications for our growing national debt.

  14. Budget Deficits and the National Debt • http://www.econedlink.org/interactives/index.php?iid=273

  15. Debt in the 19th century • The U.S. has had debt since its inception. Records show that debts incurred during the American Revolutionary War amounted to $75,463,476.52 by January 1, 1791. http://www.publicdebt.treas.gov/history/history.htm • The National Debt in 1816 was $127 million • Andrew Jackson reduced the National Debt to zero (or virtually zero) in 1835 • The National Debt in 1839 was $10 million • The National Debt in 1851 was $68 million • The National Debt in 1866 was $2.77 billion • By 1891 the National Debt had fallen to $1.546 billion (the lowest it was from the Civil War to World War I)

  16. Debt in the 20th century • The National Debt in 1919 was $27.4 billion • The National Debt in 1930 was only $16.2 billion • By 1946, the National Debt was $269.4 billion • 1957 was the last year the National Debt fell. It was $270.5 billion that year. • 1963: $305.9 billion • 1972: $427.3 billion • 1975: $533.2 billion • 1982: $1.14 trillion • 1986: $2.13 trillion • 1992: $4.06 trillion • 2000: $5.67 trillion

  17. Debt in the past decade • 2001: $5.8 trillion • 2002: $6.2 trillion • 2003: $6.8 trillion • 2004: $7.4 trillion • 2005: $7.9 trillion • 2006: $8.5 trillion • 2007: $9.0 trillion • 2008: $10.0 trillion • 2009: $11.9 trillion • 2010: $13.6 trillion

  18. What Causes the national debt to rise? • Debt occurs when government revenue (primarily from taxes) is less than government spending. • Therefore debt will rise whenever.. • revenue falls: this happens when the economy goes into recession and when we decide to cut taxes • spending increases: this can happen when we go to war

  19. Recent tax history • Effective tax rates from 1979 to 2007 • http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456 • Marginal tax rates from 1913 to 2011 • http://www.taxfoundation.org/publications/show/151.html • In recent years taxes in the United States have declined.

  20. What does the federal government spend money on? • http://www.whitehouse.gov/taxreceipt • National Defense: 26.3% • Health Care: 24.3% • Job and Family Security: 21.9% • Everything Else is less than 30% • everything else includes education, veterans benefits, national resources, foreign aid, NASA, Immigration, response to natural disasters, and interest on the debt. The biggest expenditures of the federal government are Social Security, Medicare and Medicaid, and National Defense.

  21. Military spending around the worldhttp://www.sipri.org/research/armaments/milex/factsheet2010

  22. The Public Debt • Who holds the national debt? • Private American citizens hold a little less than half • Foreigners hold almost one-third • The rest is held by banks, other business firms, and U.S. government agencies

  23. Who do we owe? • Public Debt is government debt held by individual and institutions outside the government. • Big part of the Government debt is owned by the Government! • It owes money to itself?

  24. Debt Burden • Is the national debt a burden that will have to borne by future generations? • As long as we owe it to ourselves, the answer is no • If we did owe it mainly to foreigners, and if they wanted it paid off, it could be a great burden

  25. The Public Debt • When do we have to pay off the debt? • We don’t. All we have to do is roll it over, or refinance it, as it falls due • Each year several hundred billion dollars worth of federal securities fall due • By selling new ones, the Treasury keeps us going • In the future, even if we never pay back one penny of the debt, our children and our grandchildren will have to pay hundreds of billions of dollars in interest • At least to that degree, the public debt will be a burden to future generations

  26. The Public Debt • Why not go ahead and just pay off the debt? • Economists predict that following this course would have catastrophic consequences • If we tried to pay off the debt too quickly, it might even send us into a deepdepression • If we keep running large surpluses and pay down the national debt, this will cause a problem for both the Social Security Trust Fund and the Federal Reserve • As the national debt goes down, eventually there would be no securities for them to buy • Still, it is a whole lot better to have problems like these than those caused by running huge budget deficits every year

  27. You are not a Government!(Why the national debt may not be as important as people claim…) • Because you plan to stop working at some point, you must eventually consume less than you earn. In other words, individuals have to save. • Governments do not retire. So they do not have to save. • Government debt is ongoing, but individual debt must eventually be repaid. • Government, but not individuals, can print money to pay off debt. • Most of the government’s debt is internal debt, or debt owed to its agencies or to its citizens. • Paying interest on internal debt redistributes income, but does not cause a net reduction in income of the average citizen.

  28. U.S. Debt Compared to Foreign Countries’ Debtfrom david colander The U.S. debt does not appear so large when compared to the debts of some other countries in the early 2000s 17-29

  29. how much does china have? • Debt held by China: • US debt holdings: $895.6 billion • The largest foreign holder of US Treasury securities, China currently holds $895.6 billion in American debt, although it is down from all time highs of $929 billion one year earlier in November 2009. • http://www.cnbc.com/id/29880401/The_Biggest_Holders_of_US_Government_Debt?slide=14 • $900 billion is less than 7% of the total.

  30. Bell Ringer 4/10/14 • Why does the nation have $17 trillion dollars in debt? What caused this and why can’t we fix it right now? • YOU NEED TECHNOLOGY TODAY AND TOMORROW! • Agenda- Bell Ringer, The Fed Internet Scavenger Hunt • OBJECTIVE: I can research the Federal Reserve and learn about its purpose.

  31. The Fed Internet Scavenger Hunt Using your devices: • Complete the questions (front and back) by looking up the answers online. • You may work with a partner EXCEPT FOR THE QUIZZES SECTION. Everyone must complete this section individually. • This is due by the end of the period TOMORROW so you need to be working productively.

  32. Bell Ringer 4/11/14 • Organize your binders for the binder check! • Agenda- Bell Ringer, Finish Scavenger Hunt Activity, BINDER CHECK! • OBJECTIVE: I can research the Federal Reserve and learn about its purpose.

  33. Bell Ringer 4/12/14 • Write down 2 things that you learned about the Federal Reserve. • Agenda- Bell Ringer, Lecture, Handout • OBJECTIVE: I can learn about the purpose and functions of the federal reserve.

  34. The Fed Today • https://www.youtube.com/watch?v=XxrYtuiz4Fc

  35. U.S. Bank History • First Bank of United States • Est. after birth of U.S. (1791) • Second Bank of U.S. (Est. 1816) • Charters of both not renewed by President Jackson (1836) • De-centralized banking from 1836-1863 • 1,400 bank institutions, up to 1,600 note types • Inefficient, subject to counterfeiting

  36. Move Toward Centralization • Civil War: National Currency Act (1863) • Reserves maintained / notes redeemed at principal locations (main cites) • Allowed for chartering of national banks • Panic of 1907 • 2nd and 3rd largest banks in country closed • Depositors withdrew funds (run on banks) • JP Morgan et al., backed remaining banks to restore depositor faith

  37. Reform • Bankers realized reform needed. Washington not easily convinced • Aldrich-Vreeland Act • Est. commission to study banking systems and adapt changes if applicable. • Aldrich Plan • Contained several ideas of Federal Reserve • Lack of central authority • Uniform discount rate

  38. Federal Reserve Established • Created by Federal Reserve Act, 1913 • Purposes: • To provide the country with an elastic currency • Centralize bank reserves • Provide multi-regional check / currency clearing system, to reflect country’s regions and growth • Provide banking facilities for the federal government

  39. Organization of the “Fed” • Main components of the Federal Reserve • Federal Reserve Board of Governors • Federal Reserve Banks • Federal Open Market Committee (FOMC)

  40. Board of Governors • Seven member Federal Reserve Board • 14-year terms • One new term begins every two years (on 2/1, even-numbered years) • Member who serves a full-term cannot be appointed again • A member finishing out another’s term may be reappointed. • Nominated by President, confirmed by Senate • Federal Reserve Board has a Chairman and Vice-Chairman • Both nominated by President, confirmed by Senate. • Serve 4-year terms

  41. Federal Reserve Banks • 12 regional reserve banks • Each bank with own 9-member board of directors • One person from each bank’s board selected for the Federal Advisory Board, meeting in Washington 4 times a year. • Responsibilities • Distribution of currency (paper and coin) • Supervise Banks • Dept. of Treasury functions

  42. Federal Reserve Bank Districts

  43. Policies • The Federal Reserve has three main tools to execute its monetary policy • Open market operations – the purchase and sale of government securities • Reserve requirements – the required cash reserve a financial institution must keep at the Fed • The discount rate – rate at which the Fed lends funds to banks

  44. 4/15/14 • How does the concept of “centralization” compare to the concept of laissez-faire? • Agenda- Bell Ringer, Lecture • OBJECTIVE: I can discuss other roles of the Fed and other roles of government in the US economy.

  45. Other Fed roles • Fight inflation • Discipline monetary growth and credit growth • Through interest rates • Monitor Gross National Product (GNP) and • Unemployment • Debt • Check Congressional spending/income • Trade deficits • Strength of dollar • Fed is more flexible than Congress

  46. Other Fed roles • Check GNP growth • If falling below 1% • Ease reserve constraints • Lower interest rates • Counter rising unemployment • If rising above 5% • Strengthen reserve constraints • Raise interest rates • Monitor inflation • Ideal: around 3% • Fed policies remain the same

  47. Fed & Foreign Currency • Aim – intervene in foreign currency markets when conditions not ideal • Intervention through NY foreign exchange markets. • If dollar falling – Fed purchases dollar (sells other currencies) • If dollar rising – Sale of dollar (for other currencies)

  48. Swap Network • Reciprocal short-term credit management between Fed and other foreign central banks • Fed can borrow currencies from foreign country for intervention operations • Works both ways

  49. Role of Government Ways the government promotes marketplace competition • Enforcing antitrust legislation to discourage the development of monopolies • Engaging in global trade • Supporting business start-ups • Antitrust legislation: laws to promote competition and benefit the consumers

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