Chapter 14 Fiscal and Monetary Policy
What are the three (3) Monetary Policy tools?
Bonds Reserve Requirement Discount Rate
Monetary Policy
Central bank policy aimed at regulating the amount of money in circulation.
What tool are used to implement Fiscal policy?
Changes in Gov. Spending Changes in Tax Policy
What is Fiscal Policy used for/by?
Congress and the President to affect the economy.
Divisability of money...
Easy to divide into smaller amounts ($1, $5, $10, coins)
Expansionary Fiscal Policy
Increasing government spending/ and or cut taxes
Durability of money...
It must be able to last, not wear out.
Portability of money...
It needs to be easy to carry around
Bonds
The Federal Reserve will buy or sell government securities to banks to regulate the amount cash that banks have. They pay them back with interest.
Contractionary Fiscal Policy
The goal of this policy is to improve the economy by decreasing government spending, increasing taxes, or both.
Reserve Requirement
The regulation/Requirement that banks must keep a certain percentage of deposits "on hand" to repay depositors—banks cannot loan out all the money they take in.
What are the three basic (3) functions of money?
1. A medium of exchange-Legal money used to carry out trade 2. Standard of value- Measuring device to compare prices or values. 3. Store of value- must hold value over time
What are the six (6) Characteristics of money?
Acceptability Scarcity Portability Durability Divisability Uniformity
The Monetary Policy is controlled by?
Federal Reserve
Uniformity of money...
Money must all be the same
Acceptability of money...
Sellers must be willing to take your money as payment
Federal Reserve
The Central Bank system of the United States
Scarcity of money...
There can't be too much money or else it would have no value
Discount Rate
This is the rate that banks charge other financial institutions for short term loans
What is the main goal of the Federal Reserve?
To achieve and maintain price stability, full employment and economic growth.
Fiscal Policy
policy regarding government taxing and spending.
