1. Role of Government and Federal Reserve Bank in our economy
Bolanos

2. Opener: What are some things the government can do to stimulate the economy? -Strategies/actions to increase GDP or AD.

3. Biz Cycle Recap

4. Question Think of the answers from opener today.
1) What can the government do to get the economy out of a recession?
2) What can they do to slow the economy down?
3) Why would they want to slow the economy down?

5. Stabilization

7. Who is the most powerful woman in the world?

10. The Federal Reserve & Monetary Policy

11. The Federal Reserve Act of 1913
Created the Federal Reserve System…
Usually referred to as “the Fed”.
It is composed of 12 regional banks…
Overseen by a board of governors…
That lend money to private banks— “The Lender of Last Resort”.
All private national banks are required to join the Federal Reserve System.

12. The Role of the Fed The Fed is the bank of the United States…
It processes all government payments (social security, IRS refunds, etc.)…
It also makes interest payments on government bonds…
And is responsible for issuing currency.

13. Monetary Policy
The actions the Federal Reserve (Central Bank) takes to influence the level of GDP and the rate of inflation in the economy.

14. How Do They Do It? Tools of the FED Open Market Operations
Discount Rate (Fed to Banks)
Federal Funds Rate (bank to bank)
Reserve Requirements
Open Market Operations Simulation

15. Cool off or Heat up
If the Fed wants to cool of the economy, it wants to slow down growth (control inflation). It would start a “tight money” policy. Lessen the supply of money
Sell bonds, increase interest rates, increase RRR
If it wants to heat up the economy, it wants to stimulate growth. It will have a “loose money” policy. Increase supply of money.
Buy bonds, lower interest rates, lower RRR

16. Fiscal and Monetary Policy Tools
Fiscal policy tools
Monetary policy tools
1. increasing government spending
2. cutting taxes
Expansionary tools
1. open market operations: bond purchases
2. decreasing the discount rate
3. decreasing reserve requirements
Contractionary tools
1. decreasing government spending
2. raising taxes
1. open market operations: bond sales
2. increasing the discount rate
3. increasing reserve requirements

17. Policies to Influence the U.S. Economy
Monetary Policy
Actions of the Federal Reserve
Raise or Lower the Discount Rate
Raise to Decrease Aggregate Demand and Fight Inflation
Lower to Increase Aggregate Demand and Fight Recession
Raise or Lower the Reserve Requirement
Open Market Operations – Buy and Sell Govt. Bonds
Sell Bonds to decrease $ supply to decrease Aggregate Demand
Buy Bonds to increase $ supply to increase Aggregate Demand
Fiscal Policy
Actions of the Federal Government
Raise or Lower Taxes
Increase or Decrease Government Spending
Increase to Increase Aggregate Demand and Fight Recession
Decrease to Decrease Aggregate Demand and Fight Inflation

18. Monetary Policy Actions of the Federal Reserve
Raise or Lower the Discount Rate
Raise to Decrease Aggregate Demand and Fight Inflation
Lower to Increase Aggregate Demand and Fight Recession
Raise or Lower the Reserve Requirement
Open Market Operations – Buy and Sell Govt. Bonds
Sell Bonds to decrease $ supply to decrease Aggregate Demand
Buy Bonds to increase $ supply to increase Aggregate Demand

19. Fiscal Policy Actions of the Federal Government
Raise or Lower Taxes
Raise to Decrease Aggregate Demand and Fight Inflation
Lower to Increase Aggregate Demand and Fight Recession
Increase or Decrease Government Spending
Increase to Increase Aggregate Demand and Fight Recession
Decrease to Decrease Aggregate Demand and Fight Inflation

20. How/When/Why
If the economy needs a “boost” the Federal Reserve might: _______________ bonds. _______________ interest rates. _______________ reserve requirements.

21. How/When/Why
If the economy needs to be “cooled off” the Federal Reserve might: _______________ bonds. _______________ interest rates. _______________ reserve requirements.

22. Fiscal Policy
Actions taken by the Federal Government to influence the economy (business cycles).

23. How do they do it? Taxation (revenue) Spending (expenditures)
-transfer payments
Regulation

24. How/When/Why
If the economy needs a “boost” the Federal Government might:
_______________ taxes.
______________ spending.

25. How/When/Why
If the economy needs to be “cooled off” the Federal Government might:
_______________ taxes.
_______________ spending.
Demo Lesson - How Can Changes in the Federal Government’s Budget Stabilize the economy?

26. Understanding Fiscal Policy
Fiscal policies are used to achieve economic growth, full employment, and price stability.
Federal Budget- a plan for the federal government’s revenues and spending for the coming year
Lists expected income
Shows how much money will be spent

27. Fiscal Policy and the Economy
Contractionary Policies- fiscal policies, like lower spending and higher taxes, that reduce economic growth
Used when demand exceeds supply to slow the growth of the economy (GDP)
Used to slow or prevent inflation
Leads to a decrease in aggregate demand which leads to lower prices
Opposite is Expansionary Policy

28. Question
Under which situation would you think that more economic growth would occur?
Massive tax breaks for the wealthy. They will take the money they save from taxes and spend like no tomorrow. They will also start businesses and invest more.
Strong working class and middle class, have plenty of money from strong wage growth. They have stability in their jobs as well.

29. Case Studies – Fiscal Policy

30. Which one would look to expand the role of
Government to benefit the citizens of the United States?

32. FDR – New Deal Expand Government Role in Economy

38. Hayek
Keynes

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45. Broken Window Fallacy