Monetary and Fiscal Policy

Monetary Policy

the use of controlling the money supply and interest rates to influence the path of the economy over time

Expansionary Monetary Policy

FED policy that increases the level of aggregate demand, either through increasing the money supply or decreasing interest rates (Increase Actual GDP)

Contractionary Monetary Policy

FED policy that decreases the level of aggregate demand, either through decreasing the money supply or increasing interest rates (Decreases Actual GDP)

Recognition Lag

the time it takes to determine that a recession has occurred

Implementation Lag (Monetary)

The time it takes for the people to make changes in spending and expectations

Fiscal Policy

Is the use of government spending and tax policy to influence the path of the economy over time

Expansionary Fiscal Policy

Fiscal policy that increases the level of actual expenditures, either through increases in government spending or cuts in taxes (Increases Actual GDP)

Contractionary Fiscal Policy

Fiscal policy that decreases the level of aggregate demand, either through cuts in government spending or increases in taxes (Decreases Actual GDP)

Legislative Lag

The time it takes to get a fiscal policy bill passed

Implementation Lag (Fiscal)

The time it takes for the funds relating to fiscal policy to be dispersed to the appropriate agencies to implement the programs