Unit 6: Macroeconomic Systems & the U. S Unit 6: Macroeconomic Systems & the U.S. Economy Lesson 5: The Role of Government in a Mixed Economy WARM UP What does it mean to have a “mixed” economy? Brainstorm examples showing the role of the U.S. government plays in the economy. ESSENTIAL QUESTIONS (WRITE DOWN!): What role should governments play in the economy? Lesson Vocabulary: Federal Reserve Bank Economic Stimulus Discount rate Monetary Policy Reserve requirement Loose Fiscal Policy tight Federal Budget Revenue Money supply Deficit Surplus Inflation Lesson Skills: I can evaluate the effect of monetary policy on the U.S. economy

Class Website: DEADLINES & HOMEWORK: Lesson One: PT 6.1 – Due May 8 Unit 6: Macroeconomic Systems & the U.S. Economy Lesson 5: The Role of Government in a Mixed Economy Class Website: www.mrggcivivcs.weebly.com DEADLINES & HOMEWORK: Lesson One: PT 6.1 – Due May 8 Lesson Two: PT 6.2 Due May 11 Lesson Three: PT 6.3 Due May 13 Lesson Four: PT 6.4 Due May 15 Lesson Five: PT 6.5 due May 18 Review Packet: Due May 22nd UNIT TEST: Friday, May 22nd ALL Review Packets: May 28 FINAL EXAM: June 5 Lesson 6.5 Performance Task Students make recommendations to the Federal Reserve

Quick quiz – Match the definitions on the left to the terms on the right. Total value of all things produced and sold in an economy When the economy contracts 6 months in a row Series of economic expansions and contractions Measures inflation The reason the government can’t just print unlimited amounts of money Consumer Price Index Inflation Gross Domestic Product Business Cycle Recession

Monetary Policy & Fiscal Policy Monetary Policy – set by Federal Reserve Bank Money supply Interest rates Fiscal Policy – set by congress The Federal Budget What we are spending money on How we are raising money (TAXES!!!!)

Fiscal Policy Raise or lower taxes? Raise or lower spending? What type of tax? On whom? Raise or lower spending? On what? FISCAL POLICY – in 15 MINUTES: Read the “Money Matters” handout and use it to complete the note guide and activity provided. Done early / extra time? play the game “People’s Pie” on www.icivics.org; or NOT DONE? Make it Homework & bring it done tomorrow

Government and the Economy Read & Respond using Kahoot.it Section 1: THE FEDERAL RESERVE (#1-3) Section 2: THE FED & THE ECONOMY (#4-7)

Roles of the Government in the Economy Control Inflation Provide Public Goods and Services Deal with Externalities Regulate Market Activity (Ensure Product Safety, Proper Labels) Maintain Competition

Inflation Erodes the value of $$$$

Controlling Inflation

The Money Supply Money supply = the total amount of $$$$ in the economy The greater the money supply, the lower the value of each dollar

Read & Respond using Kahoot.it #8-9

Federal Reserve System (Fed) Controls the U.S. money supply (the total amount of cash $$$$ in circulation) The Fed acts as the Government’s bank Textbook p. 529

Monetary Policy Defined ~ government action to control the supply of money and the cost of borrowing money Fed tries to control inflation by increasing or decreasing the supply of money Textbook pp. 532-533

Monetary Policy Tight Money Policy Fed reduces money supply GOALS of Tight Money Policy: Control inflation Slow growth Loose money policy Fed INCREASES the money supply GOALS of loose money policy: Increase consumer spending Reduce unemployment End a recession Textbook pp. 532-533

How the Fed Controls the Money Supply Sets the Discount Rate interest rate that the FED charges banks for loans Sets the reserve requirement amount of money banks are required to keep in CASH; banks cannot invest, spend, or use this money to make loans Buys & sells government bonds Sort of like buying stock in the government

Monetary Policy Tools TIGHT MONEY POLICY LOOSE MONEY POLICY Raise the discount rate Higher interest = less borrowing Raise the reserve requirement More money held in cash = less available for banks to lend SELL government bonds Money removed from economy as consumers give it to the Fed in exchange for bonds LOOSE MONEY POLICY LOWER the discount rate Lower interest = more borrowing & spending LOWER the reserve requirement Less money held in cash = more available for banks to lend out BUY BACK government bonds Fed gives consumers cash they can spend in exchange for bonds Textbook pp. 532-533

STIMULATING THE ECONOMY The Federal Reserve can help STIMULATE the economy (puts more money in circulation gets consumers to spend more money helps businesses) HOW? Lower the discount rate Interest rates go down; this lowers the cost of borrowing and makes people more willing to spend money Lower the reserve requirement This lets banks put more money into the hands of consumers through loans RISK: INFLATION

CONTROLING INFLATION HOW?: The Federal Reserve limits and controls inflation helps maintain stable prices Maintains purchasing power & value of the dollar maintains consumer confidence HOW?: raise the discount rate Interest rates go UP; this raises the cost of borrowing and makes people less willing to borrow and spend money Raise the reserve requirement This requires banks to keep more money in cash, which means less is available for investments and consumer spending RISK: slows economic growth; can lead to recession

Monetary Policy Questions KAHOOT.it -- #10-15;

Monetary Policy Questions: PT 6.5 Why can rapid economic growth cause inflation? You are Federal Reserve Chairman Ben Bernanke and have to decide how to help keep the U.S. economy on track. What monetary policy should the federal reserve bank adopt in the following scenarios: Consumer spending is slow, unemployment has increased in six of the last seven months, and GDP has gone down in four of the last seven months. The stock market is at an all-time high. Unemployment is down to 3%, and many new businesses are opening. The consumer price index shows significant increases in prices over the last nine months. When done, continue by working on your Unit 6 review packets.

Work Time Review Packet (Due Jan. 5th; Bonus if done by 12/19): Complete unit 5 Complete unit 6 through what we have covered so far January 5th I will assign a grade for completion of EVERY review packet from the course: Units 1, 2, 3, and 4 have already been completed & will be shared electronically but NOT reprinted/copied If you never did them or lost them, you must do /redo them by Jan. 5 FIRST 17 PEOPLE TO show me a COMPLETE PACKET GET +10 BONUS POINTS ON IT

Division of Labor Every worker does one small part of the big job

Specialization Workers develop one specific skill, and do only that

What are the advantages of this for a company?

Advantages More efficient Pace of work can increase

How can companies make labor faster and cheaper?

Automation Replacing human beings with machines Less jobs Lower production costs

Outsourcing American factories shut down & jobs go overseas Other countries have cheaper labor and fewer regulations

How does this create a problem for the company?

purchasing power is reduced – People have less money to buy products