Warm Up

See Ms. Nall for handout

Fiscal & Monetary Policy

What is the purpose of Fiscal and Monetary Polices? To ensure economic expansions and

contractions are not too severe

NOT

Which economist is in favor of fiscal and monetary policy?

Purpose of Fiscal and Monetary Policy

Fiscal Policy

Congress tries to fix the problems of inflation and unemployment

Economic Problem: Unemployment

Occurs when the market slows down due to a lack of consumer spending.

So… the Goal is to INCREASE the amount of $ in the hands of consumers

Fiscal Policy(Congress)

Taxes

Gov’t Spending

Welfare (transfer) payments

Expansionary Fiscal Policy

Economic Problem: Inflation

Occurs when the market is flooded with too much money in the hands of

consumers

So… the Goal is to DECREASE the amount of $ in the hands of consumers

Fiscal Policy(Congress)

Taxes

Gov’t Spending

Welfare (transfer) payments

Contractionary Fiscal Policy

Monetary Policy

Federal Reserve tries to fix the problems of inflation and unemployment

The Federal Reserve System – (the bank’s bank)

Federal Reserve Vocab

Discount (Interest) Rates: The cost of borrowing money

Reserve Ratio: The % of your money banks cannot lend out

Bonds: Investments (stocks) in the Gov’t

Economic Problem: Inflation

Occurs when the market is flooded with too much money in the hands of

consumers

So… the Goal is to DECREASE the amount of $ in the hands of consumers

Monetary Policy(Federal Reserve)

Discount (Interest) Rates

Reserve Ratio

Sell Bonds

TIGHT Monetary Policy

Economic Problem: Unemployment

Occurs when the market slows down due to a lack of consumer spending.

So… the Goal is to INCREASE the amount of $ in the hands of consumers

Monetary Policy(Federal Reserve) Discount (Interest) Rates

Reserve Ratio

Buy Bonds

LOOSE Monetary Policy

Rust/Frost Belt- people are leaving this area

Sun Belt- people moving to this area for jobs

Silicon Valley- center of technology research

Research Triangle- research center with many colleges

Declining textile and furniture

Companies have out-sourced jobs to China and Mexico and downsized (shrunk).

Practice

Understanding Fiscal and Monetary Policy

Closure

How does the Federal Reserve use monetary policy to ensure balance and stability in the US economy?

What role does government spending play in maintaining a stable and solid economy?