EPF Unit 9

Fiscal policy

Government’s policy of taxing and spending to influence the direction of the economy

3 things the gov tries to achieve through fiscal policy

Price stability, fully employment (prevents cyclical unemployment), economic growth (improves people’s lives)

Price stability

Value of the dollar, how much we can purchase with our money

Who is fiscal policy managed by

Congress and the president through the department of treasury

What the gov does during contractionary fiscal policy

Raises taxes and reduces spending

Purpose of contractionary fiscal policy

Decrease money supply and slow inflation

What can contractionary fiscal policy can lead to

Rising unemployment

What the gov does during expansionary fiscal policy

Increases spending and lowers taxes

Purpose of expansionary fiscal policy

Stimulate the economy by increasing money supply and credit

What expansionary fiscal policy can lead to

Inflation

Examples of government spending

Public works (roads and bridges), subsidies, stimulus checks

Subsidies

Payment from the gov to businesses to promote an economic goal

Monetary policy

Determines the supply of money and interest rates (how much money is available and how much it is worth)

Federal reserve system (fed)

Establishes monetary policy

2 mandates set by congress on the fed

Full employment (eliminate cyclical unemployment), price stability

4 monetary policy tools

Reserve requirement, discount rate, open market operations (bonds), interest on reserves

federal funds rate

Interest rate that banks can charge other banks for loans or reserves

Prime rate

Lowest rate that banks will charge business customers

Excess reserves

More reserves than required

where the federal reserve system is located

Washington DC

Amount of federal reserve districts

12

Roles the federal reserve banks play

Store money, process payments

Amount of members on the board of governors for the federal

7 members

People who appoint and approve the members of the board of governors for the fed

President, congress

Length of the term for the board of governors for the fed

14 years, can’t be reappointed

Chairman of the board of governors (who appoints and term length)

Appointed by president, 4 years

Only way a member of the board can be approved

Criminal or unethical behavior

Purpose of the Federal Open Market Committee (FOMC)

Oversee the fed’s open market operations

How members of the FOMC are determined and how many

7 from board of governors, president of federal reserve bank of NY, 4 other presidents of reserve banks that are chosen from groups of reserve banks, 12 total

how often the FOMC meets and if the public can attend

8 timers per year, public can’t attend

Regulatory agency

Government agency that can set standard and enforce them

2 purposes of the Federal Insurance Deposit Corporation (FDIC)

Ensures money deposited in banks, monitors banks to make sure they follow regulations

How much the FDIC insure accounts for

Up to $250,000

Purpose of the National Credit Unions Administration (NCUA)

Regulate credit unions and ensure money of depositors

Securities and exchange commission (SEC)

Regulates and enforces laws about investors and investments in securities (stocks and bonds) that are sold on the stock market

Commodities futures trading commission (CFTC)

Regulates commodity exchanges in the US

Food and drug administration (FDA)

Makes sure that food, drugs, and other products are safe and effective for human or veterinary use