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-this component was revoked in 1952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