Monetary and Fiscal Policy Economics

Monetary Policy Monetary Policy Federal Reserve The expansion or contraction of the money supply in order to influence the cost and the availability of credit Federal Reserve Privately owned, publicly run, central bank of the United States of America

Policy Matters The Federal Reserve takes place in Monetary Policy They do this by either expanding or contracting credit markets This is done by the raising or lowering of their interest rates

Government Spending Deficit Spending This is the annual government spending in excess of taxes and other revenues The continued use of Deficit spending in the United States is why our national deficit has now exceeded 13 trillion dollars

Fiscal Policy Fiscal Policy Keynesian Economics This is the use of government spending and revenue collection measure to influence the economy Keynesian Economics These are a set of actions designed to lower unemployment by stimulating aggregate demand

More Keynesian Keynes uses the following formula to determine what is wrong with GDP This formula is GDP= C+I+G+F After study, Keynes argued that lack of investment is what kills economic growth

The Effect Keynes said that the lack of investment snowballed into lack of spending in other sectors This is known as the multiplier effect Further damage is done through the accelerator concept This states that since there is less spending in the economy, investment slows even further, therefore causing the multiplier affect all over again.

The Role of Keynes Through Keynes theory, the Government is supposed to be a counterbalance to changes in investment This means that as private investing goes up, government investment goes down. This is also true in reverse. This however has caused issues such as deficit spending as government agencies have issues cutting their own budgets

Supply Side Supply-side economics These are policies designed to stimulate output and lower unemployment by increasing production rather than demand. This policy can be enacted in a couple ways Smaller Government This includes deregulation of industry to allow them to more directly control their means of production Lower Federal Taxes This concept argues that if taxes are lower, more people will want to work, therefore increasing production and employment.

Price Controls These are government controls on prices throughout the economy Price Ceiling- These are the highest prices that can legally be charged for a type of good Price Floor- These are the lowest prices that can legally be charged for a type of good