Unit 5 Econ

Fiscal Policy

How the federal government affects the economy through spending and taxes

Monetary Policy

How the Fed affects the economy by controlling the money supply

Federal Open Market Committee (FOMC)

Directs the monetary policy through the use of tools such as the discount rate, reserve requirement, and open market operations (treasury securities)

Reserve requirement

Percentage of a bank's money that must be kept on hand rather than loaned

Open market operations

The sale or purchase of US treasury bonds

Discount rate

Interest rate that banks (and other institutes) pay the Fed in order to borrow money

Contractionary monetary policy

Higher reserve requirement leads to a decrease in money supply. "tight money policy

Expansionary monetary policy

Lower reserve requirement leads to an increase in money supply. "easy money policy

Federal Reserve System (Fed)

The central bank of the US

Board of Governors

Responsible for setting the monetary policy, monitors Federal Reserve Banks, and appointed by the President and approved by Congress


The study of the performance, structure, behavior, and decision-making of an economy as a whole


The study of the behavior of individuals and firms in making decisions regarding the allocation of limited resources