Transcript the fed, fiscal, monetary policy, keynes

5/8 Warm-Up
Pass up p. 267-268.
1. What makes stockholders responsible
for only a portion of the debts of a
corporation?
2. How do banks make money?
3. Give 3 characteristics of “good”
money?
Bonus ?
The mechanics of US Airways seeking
representation from which major union?
Federal Reserve p. 269
Federal Reserve System (Fed)
 Our nation’s first central bank
 Created in 1913 by the Federal Reserve
Act
 System is created of 12 regional Federal
Reserve Banks throughout the country. NC
is part of the Richmond Federal Reserve
District
 Federal Reserve Board – supervises the
banks, members appointed by the
president
Main Tasks of the Fed
 Supervise and Regulate Banks
 Implement Monetary Policy
 Ex. During times of recession and
depression the Fed decreases interest
rates. (this encourages lending and
discourages savings)
 During times of inflation, the Fed
increase interest rates. (this encourages
savings and discourages lending)
Main Tasks of the FED
 Control the amount of currency that is
made and destroyed on a daily basis
 Set required reserve ratio for demand
deposits
 Change the discount rate – interest
that commercial banks pay the Federal
Reserve
Federal Reserve Video
 Answer questions to “Inside the Fed”
on p. 265 (on right side of paper)
The Fed Today
 The Fed Today
Keynesian Economics
Objective: to differentiate between
expansionary and contractionary
fiscal policy through class notes.
p. 261
Keynesian Economics
 A form of demand-side economics
that encourages government action
to increase and decrease demand and
output
 Demand-side economics- the idea
that government spending and tax
cuts help an economy by raising
demand
John Maynard Keynes
 Developed his theory after the Great
Depression. His ultimate goal was to
tell economists and politicians how to
get out of and avoid economic crisis
Keynes believed that two things needed to
happen to end the Great Depression
 Consumers need to
spend more money
 Keynes thought that
the spender should
be the government.
According to his
theory, the
government should
buy goods and
services. This would
encourage production
and increase
employment
 Businesses need to
increase output
Keynesian Economics
According to Keynes, the
government should
stimulate demand
through spending EVEN
IF it resulted in a deficit.
As a result of this theory, people go
back to work and then spend the
money they make on goods and
services- this increases production.
Fiscal Policy- the use of
government spending to
influence the economy
Circular Flow Diagram of a Mixed Economy
monetary flow
physical flow
Households
expenditures Government expenditures
physical flow
monetary flow
Firms
Fiscal policy can be used to
fight two macroeconomic
problems, according to Keynes.
Expansionary Policy
Contractionary Policy
Fiscal Policy
Expansionary Policy
 Recession (decline in
economic prosperity) /
Depression (Long recession)
 government should increase
spending OR
 Government should
decrease taxes
Contractionary Policy
Inflation (general increase
in prices)
 Government should
decrease spending OR
 Government should
increase taxes
The US Economy on a Micro
Scale
If you shrink down the US economy to a
“household” level…
Income= $24,000
Spending- $38,000
Yearly Credit Card Debt= $14,000
Balance on Credit Card= $164,000
Supply-Side Economics
 Supply-side
economics- a
school of economics
that believes that
tax cuts can help an
economy by raising
supply
 Those that agree
with supply-side
economics believe
that taxes have
strong negative
influences on
economic output
Trickle Down Economics
 Investing money in
companies and
giving them tax
breaks will benefit
the economy.
Eventually
individuals
(consumers) will
experience the
effects, thus, they
trickle down to the
households.
Opposition to Keynes
 Many economists disagree with Keynes, most
notably Friedrich August Hayek.
 Hayek said booms and busts were a regular
economic cycle and should NOT be regulated
by the government.
 Booms are a result of overspending (through
credit) and the bust is the natural way the
economy corrects itself.
 Keynes v. Hayek rap
 Keynes v. Hayek rap pt. 2
THE FEDERAL RESERVE AND
GOVERNMENT ECONOMIC POLICY,
p. 282
 Monetary Policy: The Fed’s power
over interest rates and the amount of
$ in reserve
 Fiscal Policy: The Gov’t’s (Congress
- President) power over taxes, &
spending
CONTRACTIONARY POLICY
(TIGHT $$)
- USED DURING INFLATION!!!
 Increase interest rates
 Increase reserve requirements ($$
banks must have in reserve)
 Increase taxes
 Decrease gov’t spending
EXPANASIONARY POLICY (EASY
or LOOSE $$)
USED DURING RECESSION
/DEPRESSION
 decrease interest rate (easy to buy)
 decrease taxes
 decrease reserve requirements
(banks have more $$ to loan)
 increase government spending
Classwork/Homework
Finish Review Sheet Goal 8B, p. 273-274
STUDY for TEST Thursday
Reading Guide Quiz
22.1,22.2,23.1 pp. 259, 260, 266
 1. What are the three main types of
businesses?
 2. Who owns a corporation?
 3. What is limited liability?
 4. What is a labor union?
 5. What are right to work laws? Does NC have
them?
 6. What is an injunction?
 7. What are private goods? Give an example.
 8. What are public goods? Give an example.
 9. What are anti-trust laws?
 10. What is a merger?
Warm-Up Questions (to be turned in)
 Listen to the following story on NPR and answer the
following questions (4 min.):
 1.Where is this money located?
 2. Describe the money.
 3. Why did the society decide they needed the stones?
 4. Analyze the money discussed using the 6
characteristics of money as a framework: Durability,
Portability, Divisibility, Uniformity, Limited Supply and
Acceptability. How does it compare to the dollar?
 5. What was the main difference between the
philosophies of Adam Smith and John Meynard Keynes?
 **Did anyone check the stocks this morning?