1. Monetary and Fiscal Policy

2. Federal Reserve Bank Central Bank for U.S 12 district banks
Regulates the banking
industry
Tracks and manages
the national monetary
supply
Issues paper currency
Clears personal checks

3. Characteristics of money
Durability = withstand
wear and tear
Portability
Divisibility
Uniformity = count and
measure accurately
Limited Supply
Acceptability

4. Money Creation Banks earn a profit on money deposited
Bank lends part of
deposited money and
charges interest

5. Fiscal Policy U.S. has an operating budget of about $1.7 – 2 Trillion
Federal Budget
Document indicating the amount
govt. expects to receive and
spend in a year
Fiscal year = Oct. 1 to Sept. 30
Office of Management and Budget (OMB) = prepares the federal budget

6. Expansionary Fiscal Policy
Increase Output
Tax Cuts
Encourage economy
to expand
Individuals have
more money to spend
Businesses keep more
profits
Increase demand,
prices and output

7. Contraction Fiscal Policy
Purpose is to decrease output
Raise taxes
Individuals have less money
Firms keep less of profit
Decrease in spending, labor and capital
Slows GDP

8. Let’s not forget about OPEC
Organization of
Petroleum Exporting
Countries
1970’s embargo on oil
shipped to U.S.
Oil prices increased
Americans looked for ways to conserve energy

9. Monetary Policy
Monetary Policy : How much it restricts or releases the flow of money into the economy
Interest Rate : a % that determines how much money one must pay a lender in exchange for a loan (Good credit = better interest rates)‏

10. Federal Deposit Insurance Commission
Also know as FDIC
Came after the Great Depression when many
banks had to close after masses withdrew
their money
FDIC helps prevent mass withdrawals by
assuring depositors that their money is insured
by the government up to a certain amount
They have to keep a certain amount of money on
hand in their bank. This is called the reserve
requirement.

13. Credit Debit card : card that looks like a credit
card, but serves the same function as
writing a check, convenient way to access $
Credit card : loans, paying interest on
purchases at a later date (usually 30 days)‏
Time deposits/Certificates of Deposits :
putting money in an account for a certain
amount of time and cannot withdraw it for
that amount of time, while getting interest
off of it while bank holds onto it.

14. Policies Loose Money Policy : Low reserve
requirement, increases $ supply,
because more people can borrow
and spend $.
Tight Money Policy : High reserve
requirement, limits the money supply