econ ch 14 and 15

Monetary Policy

Plan to expand or contract the money supply in order to influence the cost and availability of credit

what two policys are the monetary policy split into

Easy money policy and tight money policy

does easy money policy increase or decrease money supply

increase

does tight money policy increase or decrease money supply

decrease

open market operations

main tool fed within monetary policy

open market operations

buys and sells govt. securities

Buy

expands money supply

buy

gives money to govt. and public

sell

contracts money supply

sell

takes money from govt. and public

discount rate

the interest rate that the Fed charges its members

lower discount rate

expands money supply

lower discount rate

increases the amount banks will borrow

raise discount rate

contracts money supply

raise discount rate

contracts money supply

raise discount rate

lowers the amount banks will borrow

reserve requirement

the money that banks must hold at all time

lower (reserve requirement)

expands money supply

lower (reserve requirement)

banks can give more money out

raise (reserve requirement)

contracts money supply

raise (reserve requirement)

banks have to keep more money

credit regulation

the fed used to be able to require higher down payments

3 different payment methods

-shorter/larger payments
-longer/smaller payments
-this component was revoked in 1952

moral suasion

unofficial influence

moral suasion

simply sending letters, memos or speeches

moral suasion

sends waves through feds member banks causing them to use money differently

policy limitations

difficulties faced by the fed

policy limitations(5)

-economic forecasting
-time lags
-priorities and trade-offs
-lack of coordination
-conflicting opinions

fiscal policy

spending,taxing, and borrowing policies by the govt.

3 taxes

proportional, progressive, regressive

proportional

flat tax (has gained strength over the years)

progressive

increase in % as income increases (what we use currently)

regressive

dcrease in % as income increases (many forms of sales tax)

individual income taxes
corporate income taxes
social security taxes
property taxes
sales taxes

5 main sources of tax revenue

individual income taxes

state and federal

corporate income taxes

lowered rate than indiv.

social securtiy taxes

FICA - or $$ tax on paystub

property taxes

does not take income into account - pays for schools

sales taxes

often regressive - generally apply to basic goods

excise tax (sin tax)

tax on particular goods

estate tax

tax on a dead persons assets - have to meet a certain income to be taxes

gift tax

any gift over $10,000 must be taxded

customs duty (tariff)

tax on imported goods

supply side

tax cuts and decrease in govt. regulation and can cause inflation - too much spending - demand pull inflation

demand side

achieving economic growth through govts. influence - J.M. Keynes

Demand side

led to the massive spending we see today in govt.

tools of fiscal policy (5)

tax rates, tax incentives, govt. spending, public transfer payments, progressive income taxes

Budget creation

- president - main
*OMB- office of management and budget
*Council of Economic Advisors
*US treasury
-Must go through congress and signed

national debt

created by the trend of deficit spending and balances federal budget