fiscal and monetary policy

Supply side fiscal policy:

Belief that economic growth and full employment are best created through high supply of products

-aka: “reganomics” and “trickle-down economics”

Main ideas:

• cut taxes for businesses and individuals

• people will spend money (creating jobs and economic growth, thus generating increase federal revenue)

Cut fed. Spending and cut government regulations = reduce size of government and increase incentives for business to spend money (and government)

Privatize and or deregulate industry

Problems with supply-side fiscal policy:

Tax cuts do not increase government revenue

Increase national deficit and national debt

• national deficit: when government spends more than it takes in each year it runs a deficit

• Borrows money to pay for yearly deficit

National debt: total amount borrowed to pay for yearly deficits

• entitlements/mandatory spending vs. discretionary

• (Medicare/Medicaid/interest) (defense edu. Agriculture)

Monetary policies:

money supply: quantity of money available in economy

Made up of:

Currency: paper bills and coins in (non-bank) public

Demand deposits: balances in bank account that people can access in demand

Central bank: institution that overseas banking system and regulates the money supply

The federal reserve “the fed”: central bank of the us

Monetary policy: set of tools available to center bank to promote sustainable economic growth by controlling overall money supply available to the nations banks, consumers and businesses