MacroeconomicsEssay Preview: MacroeconomicsReport this essaySince the failed attempt to control inflation by targeting the growth of monetary aggregates in the late 1970s and early 1980s, the Federal Reserve (the Fed) has explored the use of various policy guides, including price indices, gold prices, and indicators of future price levels (Wray 2004). Each was used, with varying success, to assist the Fed in carrying out its dual mandate: the promotion of price stability and maximum employment (Bell-Kelton 2006).
National income accounting is a measure of the economys overall performance. It does for the economy as a whole what private accounting does for the individual firm or for the individual household (McConnell, Brue 2004). The Bureau of Economic Analysis (BEA), compiles the National Income and Product Accounts NIPA), for the U.S. economy (McConnell, Brue 2004). Through this measure economists and policymakers are able to track production levels at regular intervals, create policies for maintaining and protecting a healthy economy, and review the economy for growth, consistency or decline. The primary measure of the economys performance is its annual total output of goods and services or its aggregate output (McConnell, Brue 2004).
The Budget
The main policy question discussed in the book is whether the Budget is justified in terms of the economic development program, and when and how it will be implemented. It was argued that, although the Budget has a certain fiscal stability, it has a great moral hazard as the Government can’t possibly meet the budget deficit. The question is then, how would the Budget be justified if government officials could simply run a normal budget without any budget deficits?
How should government be structured and spent in the future? The authors argue that any Budget must not serve a narrow, fixed purpose so as to be in the best interest of government to have an acceptable level of spending that is reasonable and sustainable. They then propose what may be a very broad, broadly- defined program for the development of the public sector. Such a program may be designed to provide, at a minimum, some public services including health care and education, a public safety net, and education financing, through a fixed amount of government borrowing (1). The program must include a mix of both public-private partnerships and private-sector contracts with private industry. They propose that the Budget provide for these two main, mutually beneficial, benefits.
The authors conclude by pointing out that the National Income Accounts project should be interpreted as a separate and comparative process for measuring the welfare of the public sector. This new methodology “cannot account for the real life consequences of poor government performance, or for the real costs incurred by the current budgetary environment”.
The Budget has a real-world consequence
The current report for the World Bank estimates the United States has about $25.1 trillion in budget deficits. Such a gap cannot be ignored. The report explains that if the United States becomes the first member of the Council of Economic Advisers (CEA) to implement a basic income for the rich and low income workers, it would be far more expensive to achieve true universal access to the public workforce than to develop and raise the retirement age to 67.
We all know current levels of official and private spending on education. This includes a substantial portion of Federal contributions from businesses and industries providing school educations. The authors explain that the government has long supported such a program. According to the New Foundation for the Advancement of Science, “There is an increase in the federal contribution to private schools from $7.6 billions of dollars in 1976 to $12.8 billion in 2008, but the number is falling faster than the national level.” According to the Congressional Budget Office (CBO) last fall, it is projected that the average government contribution to private educational and research assistance for 2008-2009 will be $547 billion and that “the share increases by $5 billion for every $100 the federal budget is increased by 50 . . . .” The CBO has projected that the Federal contribution to public education for this year will exceed $1.3 trillion after eliminating the
” The CBO has projected that the federal government will need to increase its own spending to pay for the increased spending to avert a financial crisis to avoid default. Some of the biggest budget cuts to teachers will be passed this year and proposed by President Obama. In the first six months of this year, $1.4 trillion has been raised to protect public schools from being closed down. During the second nine months by October, the Department of Education will be required to implement a $1.3 trillion reduction in a number of funding items since the beginning of 2016. This amount must not exceed the $7 billion required to fund any of the previous year’s changes.„The Department of Health and Human Services’ annual report on state and local programs for child outcomes has shown that the private sector and children’s health care providers have been significantly reducing the amount of private resources per child per year, with little or no change since the beginning of 2016, and in many cases the difference in per beneficiary funding was much small (4 to 5% during the first six months of 2016, vs. a higher level than during the same period in 2007).‟Since the beginning of last year, over $13 billion has been raised to provide private preschool, in-school lunch programs for children (especially children with special needs), and family and medical care services to some parents. Children’s educational and research assistance programs and other funding streams for family medical care services have also been significantly cut since the beginning of the year.‴According to the Bureau of Labor Statistics (BLS), the average weekly amount spent in the private sector on educational services was $7.5. The average weekly amount spent in the public sector was $6.4 in 2016 and is expected to fall to $5 by the end of the year. And the average number of hours of private preschool time available to public and private preschool students declined to $3.4 in 2016 from $3.1 in 2007, with an average decline of 2.3 minutes. The decrease in the number of private hours available for children for private school students from four to six hours per day in 2007 was a result of lower funding to state, local, and Tribal funding.‵The most striking difference between how different teachers and students are getting grades was not the impact of the federal role but the effect of the individual teachers who receive their funding for private education. In 2007, the number of teachers receiving funds for private schooling increased by 18 percent, increasing enrollment by 50 percent (up 50 percent from 2004-05) and creating more than 4,100 more qualified teachers. The number of teachers getting vouchers for private or government-provided school districts increased to 1,876 in 2008 while the total amount of private school vouchers available for public and private schools and teachers decreased by about 5 percent.‶According to state and local authorities like the White House and education officials, it has been determined that the federal government will not exceed $14.9 billion of total private sector financial aid in 2009 from an increase of 151 percent to $14.8 billion to $21.0 billion. That would mean that private sector spending would be $15.9 trillion in 2008 alone. In the current budget, that figure is $15.8 billion.‷The following table shows data from fiscal year 2011 on the total amount of federal and state-allied assistance to public and private schools and their families during any given year. The annual amounts are for all states and all federal agencies.The following table shows data for the most recent fiscal year of 2000. State and local government spending increased over time in each of the years from 2001 (except for the fiscal year 2000):The figure at the bottom shows the percentage change (in percent) between 2001 and current, the numbers are
Aggregate output is labeled gross domestic product (GDP), the total market value of all final goods and services produced in a year (McConnell, Brue 2004). The BEA determines the GDP as well. Monetary policies can affect the GDP. The way banks lend money, how people obtain credit or spend money and the distribution of goods and services domestically and globally are affected as well. The Federal Reserve implements monetary policy and the federal government implements fiscal policy in the U.S.
The Fed can use three tools to set their monetary policy. The tools work by changing the amount of excess reserves in the banking system (McConnell, Brue 2004). Conducting open-market operations (the buying and selling of government bonds to the public and banks), changing the reserve ratio (percentage of commercial bank deposit liabilities required as reserves) and changing of the discount rate (McConnell, Brue 2004). The Fed utilizes the open-market operations and changing of the discount rate the most.
GDP can be expressed in two general ways: as the value of output by summing all expenditures on that output (Expenditure Approach) or by (Income Approach) adding up all the components of income arising from the production of that output (McConnell, Brue 2004). The expenditure method takes into account:
personal consumption expenditure (C)gross private domestic investment (Ig)government purchases (G)net exports (Xn)GDP= C+Ig+G+XnThe income method to GDP sums:compensation to employeesrentinterestproprietors incomecorporate profitsTo that amount is added indirect business taxes, consumption of fixed capital and net foreign factor income to measure GDP (McConnell, Brue 2004).The GDP accounting is a highly useful and accurate measure of the economys performance,but it has several limitations in its measurement. GDP does not account for the services of homemakers and carpenters who repair their own homes (McConnell, Brue 2004). This impacts as an understating of the nations total output. Leisure activity within the labor force is not accounted for as well. The average workweek hours has decline significantly since the 1900s. This value in leisure services cannot be accounted for. Lastly, the underground economy of people not reporting any or all of their wages. People paid in cash or using barter as a method of payment account for roughly 8 percent of the recorded GDP in the United States (McConnell, Brue 2004).
Unemployment and inflation are twin problems that rise from the business cycle(McConnell, Brue 2004). The unemployment rate is measured by identifying those who are eligible and available to work (McConnell, Brue 2004). The population is divided into three sectors. People 16 years of age and younger, institutionalized (correctional or mental), adults who can work, but choose not to and the labor force of the population
(McConnell, Brue 2004). Those unemployed but actively seeking employment are a part of the labor force group. This last group comprises about 50% of the total population.
The rate of unemployment rate is the percentage of the labor force unemployed:Unemployment rate = unemployed/labor force X 100The Bureau of Labor Statistics (BLS) conducts the statistical analysis on a monthly basis for the employed and unemployed. The gap between those who can work and the lack of jobs for work creates a loss of output. The production of goods and services cease to exist
(McConnell, Brue 2004).Unemployment rates can be examined through several factors of origin. Occupation, age, race and ethnicity, gender, education and duration all have an effect on the outcome of the rate. Lower skilled workers have a higher unemployment rate than skilled. Teenagers have a higher rate than adults. Their affinity to a particular job is more erratic than an adult. Lack of education, lower quality skills and discrimination factor into a high rate of unemployment