IV Fiscal and Monetary Policy Objectives Describe the overall goals of the Federal Governments actions in the economy Explain the features and purposes of fiscal policy Explain the features and purposes of monetary policy ID: 472477
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American Government Unit Chapter 16: Financing Government
IV. Fiscal and Monetary PolicySlide2
Objectives
Describe the overall goals of the Federal Government’s actions in the economy.
Explain the features and purposes of fiscal policy.
Explain the features and purposes of monetary policy.Slide3
Overall Economic Goals
Gross domestic product (GDP): the total value of all final goods and services produced in the country each year.
Goals of the Federal Government in the economy – full employment, price stability, and economic growth
Full employment – enough jobs for people who want them
Price stability – stable long-term growth of the economy – small inflation or deflation
Inflation – general increase in all prices
Deflation – general decrease in all prices (can’t pay off loans)
Recession – absence of growth and shrinking of the economySlide4
Fiscal Policy
Fiscal Policy – the governments powers to tax and spend to influence the economy.
To grow economy – you need to put more money into the economy – deficit spend or lower taxes
To dampen economy (Why?) – balance budgets and raise taxes
Free enterprise says government shouldn’t do anything – Great Depression
Keynesianism – says government deficit spend to stimulate economy – Bush (2008) and
Obama
(2009)Not real fast movingSlide5
Monetary Policy
Monetary Policy – policy the FED can influence the economy by adjusting the amount of currency or money supply in the economy by the use of credit
Federal Reserve System (1913) – the Fed – 7 members picked by president for 14 years works independently of Congress is the nations central bank.
Created to stop Panics – when depositors lose confidence in banks and take out all money (bank run)
Fed is a source of emergency funding for banks
3 toolsSlide6
3 tools of the Fed
Open market operations – the buying and selling of government bonds to banks
If the Fed sells bonds – lessen or dampen the money supply, if they buy bonds back – economy grows
Reserve Requirements – amount of money banks must have on hand (10%).
If the Fed raises RR – economy is dampened, if Fed lowers RR – economy grows
Discount Rate – interest rate banks must pay if they borrow money from the Fed.
If DR is raised – economy is dampened (more expensive). If DR is lowered – economy grows (cheaper)
Excel example?Slide7
Review
What are the principal economic goals of the Federal Government?
What methods are used by the government to meet these goals?
Should the government be involved in the economy? Why or Why not?
What are some tools of Monetary policy?