 Money supply  Velocity of money  Laissez faire  Keynesianism  Discount rate  “Supply side economics”  Inflation  Recession and Depression  The Federal Reserve Board

 Money is a human invention ◦ Used for facilitating exchange in society  Governments both make the money, and write the rules for its use in society ◦ Maintaining value ◦ Paying bills ◦ Controlling the money supply  Regulating the total amount of their currency which is circulating ◦ Typically, the focus of government is to control inflation and spur economic growth

 How much money is available and how frequently money changes hands ◦ Related to consumer confidence ◦ More isn’t always better  High velocity means high consumer confidence, which leads to an increase of prices across the board

 Inflation: the general increase in price levels for goods and services in a society ◦ As prices go up, your money buys less and less ◦ As the value of assets erodes, consumer confidence shrinks and spending stops  This can lead to a recession or depression ◦ Characterized by lower consumer confidence and little spending  Free markets themselves are dynamic, but not necessarily stable ◦ Governments attempt to provide stability by controlling the money supply  Not doing so would lead to either inflation or recession  The goal is steady and sustainable growth over time

Laissez FaireKeynesianism  “Leave it alone”  In its pure form, no government involvement in the economy  Rejected by most economists because no one would moderate fluctuations in the business cycle  Government control of monetary supply through budgeting ◦ Deficit spending to increase confidence when needed ◦ Running a surplus to pull money out of the economy when inflation threatens  But this assumes politicians can fight public pressure to spend

Monetarism  Use money supply in the short run to stimulate jobs and spending  In the long run, money is neutral, it cannot lead to more output  In the short run, increasing money supply can help  Milton Friedman

Supply Side EconomicsDemand Side Economics  Try to grow by increasing supply, lowering prices  Usually done by lowering taxes on businesses / the wealthy and decreasing regulations on business  Objection: Does it make the rich richer? Does it help in the short run?  Try to grow my stimulating spending through consumption and investment  Usually done through low interest rates and more government spending  Objection: What about national debt? Won’t this cause inflation?

 7 member Board of Governors ◦ Appointed for 14 year terms, (Pres. And Senate) ◦ Act largely independently after appointment ◦ Can’t be recalled or fired by government ◦ Typically economists with extensive academic, banking, or government credentials  Manipulating the money supply ◦ Reserve requirement: the amount banks must keep on hand, can’t lend ◦ Selling bonds ◦ Discount rate: the rate at which banks borrow money from the Fed

 What does it mean for our democracy to have officials with so much power not accountable to the people? ◦ The Fed Chair is typically considered the second most powerful person in the country ◦ Can’t be recalled or removed, doesn’t face election  Is the Fed a neutral player? ◦ Critics argue that since most governors come from banking and investment, they preference that industry by keeping inflation low (lower money supply) ◦ This hurts smaller businesses and the middle class since it means it is harder for them to hire additional workers, expand their businesses ◦ It also means higher unemployment, which gives corporations a ready pool of workers and allows them to hire at lower wages