2. Economic Policy Fiscal and Monetary

3. Policy What is policy? –Actions decided upon by government agencies/branches and usually involving choices among competing alternatives.

4. Making Policy Presidents/Congress make economic policy President and bureaucrats make/enforce economic policy

5. President Influences fiscal policy by proposing a budget, Signing or vetoing legislation related to taxing, spending or borrowing money. OMB recommends the budget

6. Congress Passes the Federal budget—usually makes adjustments to President’s budget! Acts on taxes or spending legislation CBO-Congressional budget office– advises Congress on economic policy

7. Economic Policy Government chooses an economic course of action in 2 arenas: –Fiscal policy –Monetary policy

8. Fiscal Policy Government regulation of the economy through its control over rates of taxation government spending

9. Monetary Policy Government regulation of the economy through its control over supply of money Credit cost/availability

10. Fiscal Policy Tools The budget –Surplus, balance, deficit –Spending/borrowing –GAO/Comptroller General/CBO/OMB –Taxes/IRS

11. Monetary Policy Tools Federal Reserve System a)Open market operations b)Discount rate c)Size of reserves d)Margin requirements

12. (a) Open market operations Buying and selling on the open market –Savings bonds –Treasury notes –Treasury bills

13. (b) Discount rate 12 Reserve Banks 25 Reserve Branch Banks Additional member banks (U.S./Federal) Charge member banks ever- changing rates of interest for loans from the Federal Reserve

14. (c) Raise/lower reserve rates To speed up the economy, the Fed lowers the reserve require- ments to put more money into circulation To slow down the economy, the Fed raises the reserve requirement to take money out of circulation

15. (d) Raise/lower margin Margin requirement defines how much money people can borrow to purchase government securities (bonds, T-notes, T-bills) Raising the margin requirement limits purchases –Lowering the margin requirement increases purchases.

16. Summary Economic Policy Fiscal Policy Monetary Policy Fiscal Policy Tools Monetary Policy Tools

17. Thanks to Jennifer Copley for these slides!