Transcript Fiscal and Monetary Policy

Warm-up: Who is helped and who is
hurt by inflation?
1. Mr. P pays his mom the $1,000 he
borrowed 10 years ago.
2. A lottery winner receiving an annual
payment.
3. A widow living on a fixed income.
Unit 4 Macroeconomics
• SSEMA2
• The student will explain the role and functions of the Federal
Reserve System
•
SSEMA2.a
• Describe the organization of the Federal Reserve System.
•
SSEMA2.b
• Define Monetary policy.
• SSEMA2.c
• Describe how the Federal Reserve uses the tools of monetary
policy to promote price stability, full employment and economic
growth.
Fiscal Policy
Control of the money supply through government
policies
• Contractionary Fiscal Policy (Tight Money)
– Increase Taxes
– Decrease Spending
• Expansionary Fiscal Policy (Easy Money)
– Decrease Taxes
– Increases Spending
What is the second tool we
can use to influence the
economy?
2. Monetary Policy
Monetary Policy
Attempts to influence the
economy by changing the
supply of money in the
economy.
Why does the amount of
money matter?
• By controlling the money
supply, the Fed can
influence…
Unemployment and
Inflation
Why does the amount of money
matter?
The money supply can also influence
inflation and interest rates
more money = lower interest rates
less money = higher interest rates
• How does the money
supply influence
interest rates?
The Federal Reserve System
(The Fed)
• central banking
system created by
Congress in 1913
The Federal Reserve System
(The Fed)
Roles
• Controls monetary
policy (money
supply)
• Helps control
inflation and
interest rates
Monetary Policy
Expansionary or easy
money policy
Contractionary or tight
money policy
• Put more money
into the economy
• Take money out of
the economy
The Fed’s 3 Tools of Monetary
Policy
1. Reserve Requirements
2. Discount Rate
3. Open Market Operations
The Fed’s Tools of Monetary
Policy
1. Reserve Requirements
– Mandatory percentage of deposits
that banks must hold on to and
cannot lend
– Increasing the reserve requirement
(lowers money supply)
– Decreasing the reserve requirement
(increases money supply)
The Fed’s Tools of Monetary
Policy
2. Discount Rate
– The rate the Fed charges other banks
to borrow money
– The higher the discount rate, the less
banks will wish to borrow and this will
contract (decrease) the money supply
– A lower discount rate will increase the
money supply as banks borrow more
The Fed’s Tools of Monetary
Policy
3. Open Market
Operations
– The Fed buys and sells
Treasury Bonds
– When the Fed buys
bonds, it increases the
money supply
– When it sells bonds, it
contracts the money
supply
Review
1. What is the Fed?
2. What roles does the Fed play in
the economy?
3. What type of policy would you
recommend for the Fed right
now?
Homework
1. Choose one…
1.
2.
Write a summary of how the Fed uses
monetary policy to influence the money
supply and interest rates.
Or draw a picture to do the same.
2. Answer review questions on pp.
82-83 of the EOCT text
Learnings
• What is fiscal policy and what
is it used for?
• Explain the two tools
(expansionary/contractionary)?
A look ahead…
• What is the difference between a deficit
and the national debt?