Fiscal Policy & Monetary Policy

NAFTA

An agreement for free trade between the United States and Canada and Mexico

Who's in charge of developing Fiscal Policy?

Congress and the President make Fiscal Policy through the federal budget.

Contractionary policy tries to decrease output of the economy -used during excessive inflation (during a period of expansion), the government can increase taxes or decrease spending.

Contractionary Fiscal Policy

RAISES the interest rate when the economy is booming. More expensive to borrow money → less investment and consumer consumption. Reduce economic activity. Reduces inflation but also reduces growth and employment

Contractionary monetary policy

the interest rate that the Fed Reserve charges commercial banks for loans.

Discount Rate

monetary policy to increase money supply

Easy Money Policy

a tax added to the price of items such as alcohol, tobacco, gasoline, air transportation, fishing equipment, or indoor tanning; aka "sin tax

Excise Tax

The total level of government spending can be changed to help increase or decrease the output of the economy. They can decrease taxes which leads to more money to spend, more demand, more production, more jobs, etc. They can increase spending creating more demand, more production, more jobs, etc.

Expansionary

tries to increase the output of the economy- used during a period of contraction or recession, the government can do either decrease taxes or increase spending.

Expansionary Fiscal Policy-

policy expands money supply and boost economic activity, mainly by keeping encourage borrowing by companies, individuals and banks.

Expansionary monetary

the interest rate that banks charge one another for loans.

Federal Funds Rate

FOMC-

Federal Open Market Committee

involves government decisions on spending and taxation that are intended to improve or maintain the economy.

Fiscal Policy

How does Free Trade help, or hurt, a nation's economy?

Free trade lowers or eliminates protective tariffs and other trade barriers between nations. Supporters say that it is the best way to pursue the comparative advantage, raise the standards of living and further the cooperative relationships among nations. This happens through enhanced competition, lower prices for foreign goods, efficiency, and reduced risk of trade wars.

Explain the main ways in which Monetary Policy makers affect the economy

Monetary Policy makers either raise the economy is booming to fight inflation or keep interest rates low to encourage borrowing for companies, individuals, banks.

consists of the actions that the Federal Reserve System takes to influence the level of Real GDP (Gross Domestic Product) and the rate of inflation in the economy

Monetary policy

the amount of reserves that banks are required to keep on hand.

Reserve Requirements

Why are taxes deducted from our paychecks?

Taxes such as Income tax, Social Security tax and Medicare tax are deducted to provide revenue for the functioning of the government as well as to provide retirement programs and health care programs for the elderly and disabled

Who's in charge of developing Monetary Policy?

The Federal Reserve System

monetary policy to decrease money supply

Tight Money Policy

How do Trade Barriers help, or hurt, a nation's economy?

Trade barriers protect jobs from going to other countries, protect domestic industries from competition, protect industries essential to national security, and limit the political power of multinationals in host nations. BUTL Trade Barriers can create tense relationships between importing and exporting countries, cause higher prices for foreign goods and lead to trade wars.

Import quota.

a limit on the number of products in certain categories that a nation can import

sanctions

a threatened penalty for disobeying a law or rule

Embargo

an official ban on trade or other commercial activity with a particular country.

the ability to produce a good at a lower opportunity cost than another producer

comparative advantage

The measure of how much one currency is worth in relation to another.

exchange rate

international trade free of government interference

free trade

The difference between the monetary value of exports and imports of output in an economy over a certain period. In other words, it is the relationship between any nation's exported products

trade imbalance?

They can increase taxes, creating less money to spend, which creates less demand, and lower inflation. They can decrease spending, leading to less money in the economy, less demand and lower inflation.

ways in which Fiscal Policy makers affect the economy with CONTRACTIONARY