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Download US Economic Policy - Solon City Schools
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U.S. Economic Policy Goals • Promote Maximum Employment • Promote Maximum Production • Fight Inflation Instruments to achieve goals • Provide Goods • Military/defense, police, firefighters, public parks, bridges • Redistribution of Income • Graduated tax – wealthy pay more • Regulate Economic activities • Prohibit monopolies, consumer protection (EPA, FDA) Fiscal Policy • Government Taxing and Spending Policies • 2 types of Economic Policies • Expansionary policies – using taxing and spending to stimulate the economy and create growth • Recession/Depression • Businesses closing • Unemployment rising • Contractionary policies – using taxing and spending to slow growth • Inflation • Production and sales are strong • Consumers have too much money to spend Contracting Economy v. Expanding Economy Expanding • spend more $ • decrease taxes • Objective: Increase consumer demand Contracting • Spend less $ • Increase Taxes • Objective: Reduce consumer demand Gov should spend less than it receives in taxes Gov should spend more than it receives in taxes Consumer demand creates more production jobs In a Depression More people are employed; new workers buy more goods Gov hires more workers, buys more goods Reduced consumer demand leads to lower prices During an Inflationary Period Businesses will spend and borrow les Consumers will spend less money Monetary Policy • Controlling the money supply • 2 types of Economic Policies • Expansionary policies – using the discount rate, reserve requirement and Open Market Operations to stimulate the economy and create growth • Recession/Depression • Businesses closing • Unemployment rising • Contractionary policies – using the discount rate, reserve requirement and Open Market Operations to slow growth • Inflation • Production and sales are strong • Consumers have too much money to spend Monetary Policy Tools • Adjusting the Reserve Requirement • Money that banks keep out of circulation-- a portion of their deposits • Adjusting the Discount Rate • Rate of interest that Federal Reserve charges banks on loans • Open Market Operations • Buying or selling of government bonds Federal Reserve • Federal Reserve - 12 regional banks that serve as “bankers bank” • Independent Agency • Established by Wilson • President appoints chairman • Controls the money supply Contracting and Expanding the Economy Contracting • Increasing Reserve Requirement • Increase the Discount Rate • Sell government Bonds Expanding • Decrease Reserve Requirement • Decrease the Discount Rate • Buy Government Bonds Federal Reserve puts more money into circulation Federal Reserve reduces the money supply Economic growth is slowed to avoid inflation During an Inflationary Period Businesses borrow less Interest rates rise Consumers borrow more to spend more on cars, homes, etc. In a Depression Businesses borrow more; stimulating production Interest rates go down Fiscal – federal government tax and spend policies Taxes Spending Monetary – federal reserve regulating the amount of money in circulation Expand Economy Increase demand Contract Economy Decrease demand Decrease Increase Expand Economy Increase Decrease Contract Economy Interest Rate Reserve Requirement Gov’t Bonds Decrease Decrease Increase Increase Buy Sell
