Post Lesson 31/Pre Lesson 32

Folks,

Today we specifically discussed the ways that government's raise and spend money. In particular we spent the bulk of the class discussing WHY the government might use fiscal policy. Much like an individual who tries to "smooth out" their standard of living, the government could potentially use fiscal policy in order to "smooth out" national business cycles. The problem is that increased spending during recessions is hardly ever met with the same level of decreased spending during expansions. This is due to the political realities faced by those in charge of spending. If you are still struggling with this please see the primer here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block C-National Economy

Second, we talked about taxes. How taxes can change incentives, who pays taxes, and whether companies can merely "pass taxes onto" consumers. How do taxes change your choices or others choice? Some questions you should be able to answer after today:

1. Comment: "To reduce the government's budget deficit, the government should raise taxes on the rich."
2. Comment: "It's better to levy taxes on businesses because they can more easily afford to pay the taxes than consumers."
3. What happens when a city tries to keep bus fares lower for low income workers?

Next time we will focus on the other tool of the government: Monetary Policy. You can read BE 386-408 or the supplement here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block C-National Economy but you must read one or the other and tell me:

1. How does our banking system "create money?"
2. How does the FED control the amount of money in currency? (what are the three policy tools)
3. During the Great Depression, both Hoover and FDR tried to keep the prices of goods and labor high. What was the rationale and what are the social and economic ramifications of such decisions?