LESSON 3LESSON 3

Economics and Economics and PoliticsPolitics

Mr. sofian alieconomics

Changing Nature of Economic Changing Nature of Economic PolicyPolicy

Decline of Discretionary Fiscal Policy:Decline of Discretionary Fiscal Policy:First; First;  the legislative lag, and the implementation lag—that occur  the legislative lag, and the implementation lag—that occur between the recognition of a problem and actually doing something between the recognition of a problem and actually doing something about it.about it.

The second The second reason is the gridlock that occurs when the political reason is the gridlock that occurs when the political parties in Congress/parilimant oppose each otherparties in Congress/parilimant oppose each other’’s budget viewss budget views

ThirdThird is the is the ideologyideology Some politicians seemed so sure that their Some politicians seemed so sure that their policies were the only correct ones that compromise with different policies were the only correct ones that compromise with different points of view seemed almost impossiblepoints of view seemed almost impossible

Rise of Monetary PolicyRise of Monetary Policy As you learned earlier, monetary As you learned earlier, monetary

policy involves changing the amount policy involves changing the amount and availability of credit to influence and availability of credit to influence interest rates—the price you pay for interest rates—the price you pay for borrowed money.borrowed money.

Monetary policy was believed to be Monetary policy was believed to be less political and could be less political and could be implemented with minimum delays.implemented with minimum delays.

Popularity of Supply-Side Popularity of Supply-Side PoliciesPolicies Pros:Pros:

supply-side supporters argued that you supply-side supporters argued that you could put the economy on a faster growth could put the economy on a faster growth path by shrinking government, lowering path by shrinking government, lowering tax rates and reducing government tax rates and reducing government regulations.regulations.

supply-side policies popularity due to supply-side policies popularity due to peoplepeople’’s dislike for taxes, so lower taxes s dislike for taxes, so lower taxes seemed appealingseemed appealing

Cons:Cons:Supply-side policies were not designed to Supply-side policies were not designed to deal with the short-term fluctuations of the deal with the short-term fluctuations of the business cyclebusiness cycle

Economic PoliticsEconomic Politics In recent years, economics In recent years, economics

and politics have merged and politics have merged again. This time, however, again. This time, however, politicians are concerned politicians are concerned largely with the economic largely with the economic consequences of what they consequences of what they do. do.

Most of the major debates in Most of the major debates in the parliament are over the parliament are over spending, taxes, and other spending, taxes, and other budgetary measures.budgetary measures.

Council of Economic AdvisersCouncil of Economic AdvisersGenerally, economists and politicians Generally, economists and politicians work together fairly closely. To help work together fairly closely. To help keep track of the economykeep track of the economy

the president has a:Council of Economic Advisers, a group that reports on economic developments and proposes strategies