Monetary Policy and Fiscal Policy
Primary regulator of the member banks of the Federal Reserve?
The Board of Governors
Reserve Requirements
The amount of $ banks must have in their vaults
Money Supply
The amount of money in circulation
What happen to interest rates when the money supply increases?
interest rates fall
Unemployed
part of the labor force not working but looking for a job
Inflation
reduces value of wages
Recession
slowdown in the business cycle
Federal Reserve system
supervises the Reserve Banks, maintains a stable banking system, sets monetary policy
Progressive tax
takes a larger percentage from a high income person than a low income person
Regressive tax
takes a larger percentage from low income groups .Sales Tax
Tools of fiscal policy
taxing and spending
Functions of regulating the money supply
the Fed buys and sells government securities on the open market, replaces old or worn out currency, increases money supply that banks can loan within their districts
Functions of a commercial bank
to lend money, accept checking and saving deposits, transfer money among businesses, other banks and individuals
Decrease taxes and increase government spending
used to increase employment and stimulates the economy. Expansionary policy . To encourage business growth
Board of Governors
Appointed by the President for a 14 year term
If the Fed wants to help reduce inflation, Congress would probably use this fiscal policy tool
Decrease government spending and increase taxes. The Fed, using monetary policy would sell treasury bonds, decrease the money supply and increase interest rates. This could cause a recession, increase unemployment, lower GDP
Discount Rate (DR)
Fed influences the interest rate that banks can charge their customers
Contractionary Fiscal Policy
If Congress increased taxes, they would be pursuing this policy
Expansionary Fiscal Policy
If Congress saw the economy in recession, they would use this policy
Decrease Spending
If Congress wanted to contract the economy and pay for fewer social programs, they would probably use this tool. Used to lower inflation
Lower Taxes
If Congress wanted to expand the economy and let people keep more of their money, they would use this tool. Used to decrease unemployment
Expansionary Phase
If the GDP is going down and unemployment is going up, the Fed would want us to be in this phase of the economic cycle.
Required Reserve Ratio
It is a percentage of member banks' total deposits that are reserved.
Open Market Operations
Primary tool of monetary policy.The buying and selling of government bonds
Discount Rate
The interest set by the Fed when they loan out $ to member banks
If the Fed wanted to contract or shrink the money supply
They would want to sell government bonds
GDP
What measures the total dollar value of all final output produced within a country's borders.
Fiscal policy
When Congress uses their tools (taxing and government spending) to stabilize the economy.
Monetary Policy
When the Fed uses their tools to influence the size of the money supply and interest rates.
Congress
Who makes Fiscal Policy?
The Fed
Who makes Monetary Policy?
Loss of sales, government supports unemployed, goods and services are lost that would be produced by employed
Why does unemployment hurt the economy?
Proportional tax
a flat rate tax like medicare
Income taxes
collected by the IRS(Internal Revenue Service), deducted from employees' paychecks, through a payroll withholding system
Federal Government debt (deficit)
due to over spending , not taking in enough revenue. Increasing taxes and decrease spending could help
