Monetary Policy and Fiscal Policy

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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


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