1. Fiscal and Monetary Policy
Unit 6

2. Fiscal Policy
Fiscal Policy: changes in federal __________ and ___________ designed to affect the level of aggregate demand in the economy
Aggregate demand is the _________ amount of spending on ______ goods and services in an economy
The _______________ and ______________ affect fiscal policy

3. Fiscal Policy
Fiscal Policy: changes in federal taxes and spending designed to affect the level of aggregate demand in the economy
Aggregate demand is the total amount of spending on all goods and services in an economy
The President and Congress affect fiscal policy

4. Expansionary Fiscal Policy
When the government is concerned about a ____________, it should follow an expansionary policy
Government can increase AD by:
Spending _____
Cutting _____
These policies will increase the budget _____, but should increase AD
Effect on Economy:
Price Level ____________
Real GDP _____________
Unemployment _____________

5. Expansionary Fiscal Policy
When the government is concerned about a recession, it should follow an expansionary policy
Government can increase AD by:
Spending more
Cutting taxes
These policies will increase the budget deficit, but should increase AD
Effect on Economy:
Price Level increases
Real GDP increases
Unemployment falls

6. Contractionary Fiscal Policy
When the government is concerned about a ____________, it should follow an contractionary policy
Government can decrease AD by:
Spending _____
Raising _____
These policies will decrease the budget _____
Effect on Economy:
Price Level ____________
Real GDP _____________
Unemployment _____________

7. Contractionary Fiscal Policy
When the government is concerned about a inflation, it should follow an contractionary policy
Government can decrease AD by:
Spending less
Raising taxes
These policies will decrease the budget deficit
Effect on Economy:
Price Level decreases
Real GDP decreases
Unemployment increases

8. Monetary Policy
Federal Reserve Banks

9. The Federal Reserve Bank
Created in 1913 to bring order and centralization to the U.S. banking system following the Panic of 1907
There are ______ branches of the Federal Reserve Bank

10. The Federal Reserve Bank
Created in 1913 to bring order and centralization to the U.S. banking system following the Panic of 1907
There are 12 branches of the Federal Reserve Bank

11. Federal Reserve Banks Map

12. Structure of the Fed

13. Chairmen Alan Greenspan 1987-2005 Ben Bernanke – Jan. 2006-2014
Janet Yellen
Alan Greenspan, served on the Federal Reserve since Ford, Chairman from
Janey Yellen’s Appointment comes up next year, will Trump renominate her?

14. Functions of the Federal Reserve
______ of the United States
Government Securities Auction – selling & buying government bonds
Issuing ________

15. Functions of the Federal Reserve
Bank of the United States
Government Securities Auction – selling & buying government bonds
Issuing currency

16. Serving Banks Check Clearing & _________ ________ __________
Supervising Lending Practices – inspecting ___________
assets (loans) + available cash = deposits
Lender of Last resort – banks may borrow money from Fed when short of funds

17. Serving Banks Check Clearing & Electronic Funds Transfer
Supervising Lending Practices – inspecting Banks
assets (loans) + available cash = deposits
Lender of Last resort – banks may borrow money from Fed when short of funds

18. Tools of Monetary Policy
Reserve Requirement – the Fed sets this for banks, the percentage of deposits that banks _____ loan out.
Open Market Operations – buying and selling government securities or ______.
Discount Rate – This is the ______________ the Fed charges to lend money to banks.

19. Tools of Monetary Policy
Reserve Requirement – the Fed sets this for banks, the percentage of deposits that banks cannot loan out.
Open Market Operations – buying and selling government securities or bonds
Discount Rate – This is the interest rate the Fed charges to lend money to banks.

20. Expansionary Monetary Policy
When concerned about a recession, the Fed will ______________ the money supply
Actions:
____________ Reserve Requirement – banks can loan out more $$
_________ Government Securities(open market) – The Fed purchases gov. bonds from banks
___________ Discount Rate – encourage borrowing, more $$ in money supply
Effect on the Economy:
Price levels will ________________
Real GDP will __________________
Unemployment _______________

21. Expansionary Monetary Policy
When concerned about a recession, the Fed will increase the money supply
Actions:
Lower Reserve Requirement – banks can loan out more $$
Buys Government Securities (open market) – The Fed purchases gov. bonds from banks
Lower Discount Rate – encourage borrowing, more $$ in money supply
Effect on the Economy:
Price levels will Rise
Real GDP will Increase
Unemployment Decrease

22. Contractionary Monetary Policy
When concerned about inflation, the Fed will ______________ the money supply
Actions:
____________ Reserve Requirement – banks will loan out less $$
_________ Government Securities(open market) – The Fed sell gov. bonds to banks
___________ Discount Rate – discourage borrowing
Effect on the Economy:
Price levels will ________________
Real GDP will __________________
Unemployment _______________

23. Contractionary Monetary Policy
When concerned about inflation, the Fed will decrease the money supply
Actions:
Raise Reserve Requirement – banks will loan out less $$
Sell Government Securities(open market) – The Fed sell gov. bonds to banks
Raise Discount Rate – discourage borrowing
Effect on the Economy:
Price levels will decrease
Real GDP will decrease
Unemployment increase
Why is contractionary economic policy rarely used?
Look at the effects, who wants to cause that? Also, inflation has not been a problem in the U.S. economy for close to 40 years

24. Monetary Policy
Fiscal Policy
ACTIONS:
Money Creation, Interest Rates
Taxing & Spending
CONTROLLED BY:
Federal Reserve
President & Congress
GOALS:
Improve GDP, fight inflation
Improve GDP, decrease unemployment