1. Economic Policy

2. Fiscal Policy Fiscal policy = taxing and spending Fiscal policy affects the economy by making changes in the government’s methods of raising money and spending it

3. Fiscal Policy Keynesian Economics Government is responsible for stabilizing the economy through taxing and spending Originally developed during the Great Depression, meant for only special circumstances Since Kennedy’s presidency, policymakers have used Keynesian economics to “fine tune” economy (discretionary fiscal policy)

4. Fiscal Policy Where the Money Comes From Federal Income Taxes Social Insurance Taxes Borrowing Other taxes Where the Money Goes Entitlement programs National defense National debt

5. Monetary Policy Monetary policy is the government’s control of the money supply Too much money in system leads to inflation (devaluation of dollar) Too little money in circulation leads to deflation

6. Monetary Policy Federal Reserve System arm of government that controls the money supply Consists of 12 regional banks which supervise about 5000 banks across the U.S. Headed by the Federal Reserve Board (The Fed) Seven members appointed by president, approved by Senate for 14-year terms; may not be removed from office before term is up Ben Bernanke is current chair