Fiscal and Monetary Policy

Expansionary policies

involve increasing government spending and/or lowering taxes in order to “expand” the amount of $ in the economy

Contractionary policies

involve decreasing government spending and/or increasing taxes in order to “contract”/shrink the amount of $ in the economy.

Fiscal policy

 use of tax policy and spending policy in order to impact the economy. Government spending and taxes influence inflation, employment, business success and much more. 

Monetary policy

Managed by the Federal Reserve and controls the economy through banks. Discount rate, reserve requirements, and the selling of security.

Progressive tax

higher earners pay higher taxes. People with an income higher than a certain number, have to pay more taxes. This money goes to those who make under that certain number because the taxes they have to pay is less.

Regressive tax

higher earners pay lower taxes. The taxes the lower income class has to be is evidently bigger which takes money away from them.

Flat tax

same tax rates to all

Inflation

 an increase in the money supply, and as a result a decrease in the value of money.

 Sell securities

A person in the government gives someone an IOU. This person then gives their money to the government to take money from the economy. However after some time, the government person has to give your money back, plus an added interest.

 set discount rate

The interest rate that the government charges when the banks asks for money from the government. When the bank goes to the government and asks for money the government charges interest.

Reserve Requirement

The required amount of money that is in the banks.