 Dogs can get jealous if they see their owner displaying affection towards something or someone else  If you leave your dog a piece of clothing that smells like you, the scent will comfort them and it can help curb their separation anxiety.  A service dog named Kirsch received an honorary master’s degree in mental health counseling for attending all of his owner’s classes.  A dog named Duke is the mayor of Cormorant, Minnesota.

Unit V: Macroeconomics Lesson 5

 Fiscal Policy is the government’s use of spending and taxes to influence the economy Makes the economy grow faster or slower-reversing the business cycle Determines how much money the government is going to spend and how much the government is going to tax

 When the economy is overheating (peak) or underperforming (trough) the economy is considered to be at unhealthy levels  This is when fiscal policy is enacted and used by the government

 Expansionary Fiscal Policy: when the government uses policies to encourage economic growth and speed up the economy Increased government spending and tax cuts  Contractionary Fiscal Policy: when the government uses policies to stunt economic growth and slow down the economy Decreased government spending and higher taxes

 Government spending: Purchase of goods and services by the government  Taxes: Money taken in by the government from its citizens  Transfer Payments: Social security, Welfare, and unemployment compensation

 Classical economics- the idea that free markets will regulate themselves-was proved wrong by the Great Depression  John Maynard Keynes came up the idea that a lagging economy needs a boost

 Demand-side: Economic thought that demand for goods and services drives an economy (increase government spending)  Supply-Side: Economic thought that supply for goods and services drives the economy (decrease government control)

 Fiscal policy that does not occur automatically is considered discretionary When the government uses its resources to improve the business cycle Difficulty due to the time lags associated

 Automatic Stabilizers go into effect automatically to increase or decrease taxes and spending according to the needs of the economy Unemployment insurance, welfare programs, progressive income tax

 Multiplier Effect: idea that every one dollar change in fiscal policy creates a change greater than one dollar for the national income Can be increasing or decreasing Example: The government spends an extra $10 billion on goods and services, but the real GDP goes up more than $10 billion

 Expansionary policy is politically popular, while contractionary is not  Cutting programs that benefit people is VERY unpopular  A lot of government spending is mandatory spending and cannot be changed  Changes take time  If a change is enacted too late it can cause a bigger problem than the original

 The largest air force in the world is the US Air Force, the second largest air force in the world is the US Navy  The population of Ireland is still 2 million people less than it was before the potato famine  If you keep going north you will eventually head south, if you keep going east, you will never head west

 The Federal Reserve has a seven- member Board of Governors and one person who is the chair  It also has 12 Federal Reserve Banks and 2,600 member banks across the country

 It provides banking and fiscal services to the US government, supervises lending practices, acts as a lender of last resort, regulates the banking system, and regulates the money supply.  It does not serve the public, only banks from its system  “A bank for banks”

 All nationally chartered banks are required to join the Federal Reserve System.  State-chartered banks join voluntarily. All banks have equal access to Fed services whether or not they are Fed members.  Each of the 2,600 member banks contributes a small amount of money to join the system

 Monetary Policy is the decisions that the Fed makes about money and banking  These actions influence the level of real GDP and the rate of inflation in the economy

 Fiscal- Budget The health of the Economy is fixed through adjustments to the government budget  Monetary- Money The health of the economy is adjusted through the amount of money available

 The Federal Open Market Committee (FOMC) makes key monetary policy decisions about interest rates and the growth of the US money supply  They meet at least eight times a year and decide whether or not to speed up or slow down the economy

 FOMC members include: All 7 members of the Board of Governors 5 of the 12 district bank presidents President of the New York Federal Reserve Bank The six other district bank presidents who serve one-year terms on a rotating basis

 The Federal Reserve controls the amount of money in use in various ways Open market operations Discount Rate Reserve Requirement

 Open Market Operations: the buying and selling of government securities (bonds) in order to alter the money supply Will deposit money in banks to speed up the economy (puts money in) Will sell securities to investment companies to slow down the economy (pulls money out) OMO is the most often used tool by the FED

 The discount rate is the rate the Fed charges banks for loans to banks Lowering the rate will allow banks to borrow more and loan out more- pushes money in Raising the rate will make banks borrow less and loan out less- pulls money out

 The Reserve Requirement or Required Reserve Ration (RRR) is the percentage of deposits banks are required to keep in reserve Decreases in the RRR mean banks can loan more, increasing the money supply Increases in the RRR mean banks cannot loan more, decreasing the money supply

 The cost of money is the interest rate If the supply is higher, the price—the interest rate—is lower If the supply is lower, the price—the interest rate—is higher

 Lower interest rates encourage greater investment and spending by businesses  Higher interest rates discourage investment and spending  To increase the money supply the Fed will lower interest rates and to decrease the money supply the Fed will raise interest rates

 Policies with good timing achieve economic stability  Policies that have bad timing could end up making a current economic problem worse Aimed to make peaks a little lower and troughs not so deep- smooth out the business cycle

 If the Economy needs to grow and the Fed wishes to increase the money supply. It can: Purchase securities on the open market Lower the Federal Discount rate Lower Reserve Requirements  Reduction in interest rates, higher levels of investment, increase in loans, increases in consumer and business spending

 If Inflation is too high and the economy needs to shrink, the Fed wishes to decrease the money supply. It can: Sell Securities on the open market Raise the Federal Discount Rates Raise Reserve Requirements  Increase in interest rates, lower levels of investment, decrease in loans, and decreases in consumer and business spending