Transcript Phinizy-Fiscal and Monetary Policy

Mr. B pays his mom the $1,000 he
borrowed 10 years ago.
2. A lottery winner receiving an annual
payment.
1.
3.
A widow living on a fixed income.
Warm-up: Who is helped and who
is hurt by inflation?
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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.
Unit 4 Macroeconomics
Fiscal Policy
Control of the money supply through government
policies
 Contractionary Fiscal Policy (Tight Money)
◦ Increase Taxes
◦ Decrease Spending
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Expansionary Fiscal Policy (Easy Money)
◦ Decrease Taxes
◦ Increases Spending
What is the second tool we can
use to influence the economy?
2. Monetary
Policy
Attempts to influence the
economy by changing the
supply of money in the
economy.
Monetary Policy
Why does the amount of money
matter?
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By controlling the
money supply, the Fed
can influence…
Unemployment and
Inflation
The money supply can also
influence inflation and interest
rates
more money = lower interest
rates
less money = higher interest
rates
Why does the amount of
money matter?
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
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Put more money
into the economy
Contractionary or
tight money policy
 Take
money out
of the economy
Reserve Requirements
2. Discount Rate
3. Open Market Operations
1.
The Fed’s 3 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
money
supply)
The(increases
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
Thethe
Fed’s
Tools
of Monetary
Policy
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
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?
1.
Review
1.
Choose one…
1.
2.
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.
Answer review questions on
pp. 82-83 of the EOCT text
Homework
What is fiscal policy and
what is it used for?
 Explain the two tools
(expansionary/contractiona
ry)?
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A look ahead…
What is the difference between a
deficit
and
the
national
debt?
Learnings
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