fiscal vs. monetary. fiscal policy 1) taxes and spending -raise taxes, cut spending -cut taxes and...
TRANSCRIPT
Fiscal Vs. Monetary
Fiscal Policy
• 1) Taxes and Spending-raise taxes, cut spending-cut taxes and raise spending
Video: In Plain English
• How does the fed work?
• http://www.stlouisfed.org/education_resources/in-plain-english-video/
12 Reserve Banks
Monetary Policy
• 1) Reserve Ratio• 2) Discount Rate• 3) Open Market Operations (BONDS)
The role of the Fed—to take away the “punch bowl” as the party gets going
Reserve Ratio
1) Example-in class-change in fractional reserveVideo http://www.criticalcommons.org/Members/AdrianFohr/clips/beavis-and-butthead-teach-monetary-velocity/view
The Discount Rate• The Discount Rate is the interest rate that the
FED charges commercial banks.• Example:
• If Banks of America needs $10 million, they borrow it from the U.S. Treasury (which the FED controls) but they must pay it bank with 3% interest.
• To increase the Money supply, the FED should ____decrease__ the Discount Rate (Easy Money Policy).
• To decrease the Money supply, the FED should ___increase__ the Discount Rate (Tight Money Policy).
Monetary Operations
• Open Market Operations is when the FED buys or sells government bonds (securities).
• This is the most important and widely used monetary policy
• To increase the Money supply, the FED should __BUY_______ government securities.
• To decrease the Money supply, the FED should ___SELL______ government securities.