Presentation Transcript

1. Monetary and Fiscal Policy

2. Federal Reserve Bank Central Bank for U.S 12 district banks Regulates the banking industry Tracks and manages the national monetary supply Issues paper currency Clears personal checks
3. Characteristics of money Durability = withstand wear and tear Portability Divisibility Uniformity = count and measure accurately Limited Supply Acceptability
4. Money Creation Banks earn a profit on money deposited Bank lends part of deposited money and charges interest
5. Fiscal Policy U.S. has an operating budget of about $1.7 – 2 Trillion Federal Budget Document indicating the amount govt. expects to receive and spend in a year Fiscal year = Oct. 1 to Sept. 30 Office of Management and Budget (OMB) = prepares the federal budget
6. Expansionary Fiscal Policy Increase Output Tax Cuts Encourage economy to expand Individuals have more money to spend Businesses keep more profits Increase demand, prices and output
7. Contraction Fiscal Policy Purpose is to decrease output Raise taxes Individuals have less money Firms keep less of profit Decrease in spending, labor and capital Slows GDP
8. Let’s not forget about OPEC Organization of Petroleum Exporting Countries 1970’s embargo on oil shipped to U.S. Oil prices increased Americans looked for ways to conserve energy
9. Monetary Policy Monetary Policy : How much it restricts or releases the flow of money into the economy Interest Rate : a % that determines how much money one must pay a lender in exchange for a loan (Good credit = better interest rates)‏
10. Federal Deposit Insurance Commission Also know as FDIC Came after the Great Depression when many banks had to close after masses withdrew their money FDIC helps prevent mass withdrawals by assuring depositors that their money is insured by the government up to a certain amount They have to keep a certain amount of money on hand in their bank. This is called the reserve requirement.
11. Credit Debit card : card that looks like a credit card, but serves the same function as writing a check, convenient way to access $ Credit card : loans, paying interest on purchases at a later date (usually 30 days)‏ Time deposits/Certificates of Deposits : putting money in an account for a certain amount of time and cannot withdraw it for that amount of time, while getting interest off of it while bank holds onto it.
12. Policies Loose Money Policy : Low reserve requirement, increases $ supply, because more people can borrow and spend $. Tight Money Policy : High reserve requirement, limits the money supply