ricktheruler's Blog

Economics

The government intervention may move us closer to our economic goals. The resulting mix of market signals and government directives would be on improvement over a purely market driven economy. Government failure occurs when the government intervention fails to improve market outcomes or actually makes them worse.

The study of Economics is typically divided into two parts: macroeconomics and microeconomics. Macroeconomics (macro) focuses on the behavior of an entire economy; the big picture where we worry about national goals as full employment, control of inflation and the economic growth, without worrying about the well bring or behavior of specific individuals or groups. Macro is the understanding and improving the performances of the economy as a whole (i.e. determining how much money in total consumers will spend on goods and services). Microeconomics (micro) is studying details of the big picture. Micro focuses on individuals, firms and government agencies that compose the large economy. The behavior of individual economic actors with the questions: What are their goals? How much can they achieve their goals with limited resources? How can they respond to various incentives and opportunities? Micro is the focus paid to purchases of specific goods and services instead of aggregated totals.

Fiscal Policy refers to the use of government’s tax and spending powers to achieve desired macro outcomes. The tools of fiscal stimulus include increasing government purchases, reducing taxes and raising income transfers.

Fiscal Policy enhances the use of various budget levels to influence macroeconomic outcomes from a macro prospective. The federal budget is a tool that can shift aggregated demand and thereby alter macroeconomic outcomes.

Fiscal Stimulus privileges tax cuts or spending hikes intended to increase (shift) aggregated demand. The simplest way to shift aggregated demand is to increase government spending. If the government were to step up it’s purchases of tanks, highway, schools and other goods, the increased spending would add directly to aggregated demands. This will shift the aggregated demand (A.D.) rightward moving up to full employment, increased government spending is a form of fiscal stimulus.

Federal Reserve System

At the top of the Federal Reserve System’s hierarchy chart is the Board of Governors, responsible for setting monetary policy. Located in Washington D.C. the board consists of seven members who serve as governors appointed by the President of the United States and confirmed by the U.S. Senate. Each member is appointed for 14 years and can’t be reappointed. This will give the Fed governors political independence and they are not beholden to any elected official and will hold office longer than any president. This intent is to keep control of the nation’s money beyond the reach of any politicians (e.g. members of Congress elected for 2-year terms). The president elects one of the governors to serve as chairman for 4 years. The board has a key arm called Federal Open Market Committees  (f.O.M.C.)  Which responds for the Feds actively daily in financial markets. The members of F.O.M.C. include all the 7 governors and 5 of the 12 regional reserve bank presidents. The F.O.M.C. meets every 4 or 5 weeks throughout the year to reviews the economy’s performances.