Warm Up See Ms. Nall for handout. Fiscal & Monetary Policy.

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Presentation transcript:

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?