1. FISCAL AND MONETARY POLICY

2. ECONOMIC GOALS Full Employment Enough jobs to employ all able and willing to work Unemployment/Employment Data Bureau of Labor Statistics – Part of Department of Labor Price Stability Eliminate the UPS (Inflation) and DOWNS (Deflation) of prices Consumer Price Index (CPI) Tracks movement of prices in Consumer Goods Bureau of Labor Statistics Economic Growth Gross Domestic Product (GDP) continually rises Total value of goods and services produced by a nation in a year Shrinking signals a RECESSION

3. FISCAL POLICY Governments power to tax and spend to influence the economy Federal Spending = 20% of GDP Government spending can effect EMPLOYMENT, PRICES, AND GROWTH More Spending = Economic Growth Less Spending = Economy Shrinks More Taxes = Economy Shrinks Less Taxes = Economic Growth Note: Government can use taxes to control Inflation and Deflation Problems: Timing How much tax cuts/increases

4. MONETARY POLICY The amount of currency in circulation and availability of credit Most often used tool in controlling nation’s economy Federal Reserve Board (1913) (The Fed) 7 members nominated by President then ??? Serve staggered 14 year terms Intended to stop panics Customers rush to take money out of banks due to no economic confidence Does so using 3 different tools: Reserve Requirement Discount Rate Open Market Operations

5. RESERVE REQUIREMENT Amount of money the Board “ REQUIRES” to be kept in “RESERVE” in their vaults or on deposit with one of the 12 Fed Reserve Banks Cannot be used to make loans Must be kept out of circulation By Raising??? Less money in circulation (more kept in the banks) By Lowering??? More money available for loans (more in circulation)

6. DISCOUNT RATE Rate of interest banks must pay when they borrow money from the Federal Reserve If Fed RAISES the discount rate Banks must pay more Customers must pay more = Less people take out loans If Fed LOWERS the discount rate Banks pay less to borrow from Fed Customers encouraged to take out loans = People buy more big ticket items (houses, cars, etc.)

7. OPEN MARKET OPERATIONS Mechanism used by the Fed to buy or sell government securities (T-bills, T-notes, T-bonds) When the Fed BUYS BACK FROM BANKS Money going from Fed to banks = More money in circulation When the Fed SELLS TO BANKS Money going from Consumer Banks to Fed = Less money in circulation