Monetary and Fiscal Policy

Reserve Ratio

How much money banks have to have in their vaults

Discount rate

The interest rate banks have to pay to get a loan from the federal government

Fiscal policy

How the government raises and spends money

Monetary policy

How the government regulates the economy

Demand side economics

Giving more money to the people. They then have more money to spend, cycling more money back into the economy. This creates jobs, and so on and so forth in a cycle.

Supply side economics

Giving more money to businesses. This means they can pay their employees more and make more jobs. People will then have more money and will spend more, cycling more money back in to the economy, and so on and so forth in a cycle.

Expansionary Monetary Policy

Increases money in a slow economy. Buying securities, reducing the reserve ratio, lowering the discount rate. Results in lower interest rates, higher investments, and higher GDP.

Contractionary Monetary Policy

reduces money in a fast growing economy. Selling securities, increasing the reserve ratio, and raising the discount rate. Results in higher interest rates, lower investments, and lower GDP.

Expansionary Fiscal Policy

Government spends more money when there is a recession, high unemployment, or slow GDP. They set taxes lower, which means that people make more money. The people then have more money to cycle back into the economy, creating more jobs, and creating a cycle. The disadvantage is that it creates a deficit for the government.

Contractionary Fiscal Policy

The government collects more money when there is a fast growing economy or high inflation. Money then becomes rare, making its value increase. This slows down the economy and creates a surplus for the government.