Economic policy Flashcards
What is the CHIPS and Science Act?
A bipartisan law which focuses on federal aid to encourage the construction of microprocessor manufacturing facilities in the United States. The objective is to reduce U.S. reliance on overseas chip supply chains, and increased authorizations to boost the nation’s science and technology base.
Why is the Chips act good?
Ever since the Trump administration’s call for a “whole-of-government” approach to address the United States’ strategic competition with the People’s Republic of China, ensuring U.S. economic competitiveness and dominance in critical technologies has been at the top of the legislative agenda. Specifically, policymakers want to make certain that the United States maintains a robust manufacturing base in strategic industries, protecting high-priority supply chains in the event of international conflict or unforeseen crises like the COVID-19 pandemic.
What is wrong with price controls?
The negative effects of price controls are many. By creating shortages, they often cause people to wait in line, they often cause the quality of products whose prices are controlled to fall, and they can lead to favoritism by suppliers. All those effects remain until the price controls are ended.
Explain the distinction between taxes on factors of mobility and immobility.
Taxes on the most mobile factors in the economy, such as capital, cause the most distortions and have the most negative impact. Taxes on factors that can’t easily be moved, such as land, are the most stable and least distortive.
Full Expensing
In essence, the government is financing a portion of the capital expenditure’s cost by allowing its full expense to be deducted in the year of purchase, which reduces the business’s taxes. A statute allowing a business to expense the entire value of its capital investments signifies that Oklahoma is investing in its businesses in a way no other state currently is.
Depreciation Deductions
You generally can’t deduct in one year the entire cost of property you acquired, produced, or improved and placed in service for use either in your trade or business or income-producing activity if the property is a capital expenditure. Instead, you generally must depreciate such property. Depreciation is the recovery of the cost of the property over a number of years. You deduct a part of the cost every year until you fully recover its cost.
How does deficit spending adversely influence the economy?
The clear, initial impact of government borrowing is that it reduces the pool of available funds to be lent to or invested in other businesses. This is necessarily true: an individual who lends $5,000 to the government cannot use that same $5,000 to purchase the stocks or bonds of a private company.
Additionally, the sale of government securities as a way to finance the deficit has a direct impact on interest rates. Government bonds are considered to be extremely safe investments, so the interest rate paid on loans to the government represent risk-free investments against which nearly all other financial instruments must compete.
If the government bonds are paying 2% interest, other types of financial assets must pay a high enough rate to entice buyers away from government bonds. This function is used by the Federal Reserve when it engages in open market operations to adjust interest rates within the confines of monetary policy.
