Policies to Influence the U.S. Economy Monetary Policy Actions of the Federal Reserve Raise or Lower the Discount Rate Raise to Decrease Demand and Fight Inflation Lower to Increase Demand and Fight Recession Raise or Lower the Reserve Requirement Raise to Decrease Demand and Fight Inflation Fiscal Policy Actions of the Federal Government Raise or Lower Taxes Lower to Increase Demand and Fight Recession Increase or Decrease Government Spending Increase to Increase Demand and Fight Recession Decrease to Decrease Demand and Fight Inflation

Fiscal Policy Actions of the Federal Government Raise or Lower Taxes Raise to Decrease Demand for goods and services and Fight Inflation Lower to Increase Demand for goods and services and Fight Recession Increase or Decrease Government Spending Increase to Increase Demand for goods and services and Fight Recession Decrease to Decrease Demand for goods and services and Fight Inflation

Fiscal Policy Actions of the Federal Government Raise or Lower Taxes Raise to Decrease Demand for goods and services and Fight Inflation Lower to Increase Demand for goods and services and Fight Recession Increase or Decrease Government Spending Increase to Increase Demand for goods and services and Fight Recession (Unemployment) Decrease to Decrease Demand for goods and services and Fight Inflation (Unemployment)

Topic for the Day Federal Reserve

Questions… If Mrs. Collins wants to buy a RV, where can she go to get a loan? If Mrs. Collins wants to start a business selling cat sweaters, where can she go to get a loan? If Bank of the West needs a loan where can they go to?

The Federal Reserve

Who is this person? Why is she important? © EMC Publishing, LLC

Three facts about the Federal Reserve The Federal Reserve is a private institution. It is owned by the 12 regional Federal Reserve banks. Each Federal Reserve Bank has a Governor in charge of the bank. The Federal Open Market Committee (FOMC) is the policy making body of the Federal Reserve System. It has 5 Governors from the Regional Banks and 7 Governors that are appointed by the President and approved by Congress. Total of 12 members.

The Branches of the Federal Reserve

FYI: The Constitution gives Congress the power to coin money and set its value. Congress delegated this power to the Federal Reserve in the 1913 Federal Reserve Act, but still maintains oversight authority. Under the Humphrey-Hawkins Act of 1978, the Federal Reserve must submit reports on the economy to Congress each year. Main Idea for notes= The Federal Reserve decides what amount of money to coin (make) and sets it’s value. They have to report to Congress annually. © EMC Publishing, LLC

Where is your money from?

Boston-A1 New York-B2 Philadelphia-C3 Cleveland D4 Richmond-E5 Atlanta-F6 Chicago-G7 St. Louis-H8 Minneapolis-I9 Kansas City-J10 Dallas-K11 San Francisco-L12

Key idea… The Federal Government uses Fiscal Policy to influence the economy The Federal Reserve uses Monetary Policy to influence the economy The Federal Government and the Federal reserve can both influence the business cycle and the economy © EMC Publishing, LLC

Remember. . . The Federal Open Market Committee (FOMC) is the policy making body of the Federal Reserve System. The FOMC can effect monetary policy through the use of two tools: Altering reserve requirements--the amount of funds that commercial banks must hold in reserve against deposits. Adjusting the discount rate--the interest rate charged to commercial banks.

Discount Rate The discount rate is the interest rate the Fed charges a bank for a loan. How it works: When the bank gives a loan it will base the interest rate on the rate they paid to borrow, and additional interest so the bank can turn a profit © EMC Publishing, LLC

Discount Rate is a part of Monetary Policy When the discount rate is decreased, the money supply rises. When the discount rate is increased, the money supply falls. © EMC Publishing, LLC

Who decides to raise or lower the discount rate? © EMC Publishing, LLC

Reserve Requirement Required reserves are the minimum amount of reserves a bank must hold against its deposits as mandated by the Fed. The Reserve Requirement is a percentage of the bank’s customers deposits, it is the amount of cash the bank has to have available at all times For example, if the Fed requires a bank to hold 20 percent of its deposits in reserve, and the bank has $50 million in deposits, the required reserves are $10 million. © EMC Publishing, LLC

Reserve Requirement is a part of Monetary Policy The Fed can increase or decrease the money supply by changing the reserve requirement. Lower reserve requirement → Increase in money supply. Higher reserve requirement → Decrease in money supply. © EMC Publishing, LLC

Who is this person? Why is she important? © EMC Publishing, LLC

Monetary Policy Actions of the Federal Reserve Raise or Lower the Discount Rate Raise to Decrease Demand and Fight Inflation Lower to Increase Demand and Fight Recession Raise or Lower the Reserve Requirement Raise to Decrease Demand and Fight Inflation

Monetary Policy Actions of the Federal Reserve Raise or Lower the Discount Rate Raise to Decrease Demand and Fight Inflation Lower to Increase Demand and Fight Recession Raise or Lower the Reserve Requirement Raise to Decrease Demand and Fight Inflation

Unemployment or Inflation? Your group will choose a problem in the economy, unemployment or inflation Your group will define the problem and give three reasons how it negatively effects consumers, firms, or the government Then create a solution to the problem using step by step instructions Your group’s solution should include the use of one fiscal policy and one monetary policy– don’t forget, they can happen at the same time You are essentially writing procedures like you would in a lab write- up for science class. Due by the end of class Level 4: problem is defined with enough information to be understood, and has three reasons fiscal policy used is easily identified and the steps are explained correctly monetary policy used is easily identified and the steps are explained correctly Step-by-step instructions are easy to understand, include who or what agency has the power to enact the policy, and gives enough detail to be understood