9 The Fed
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9 The Fed

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9 The Fed 9 The Fed Presentation Transcript

  • A couple notes • Missing assignments! • Last day to turn those in for any credit is the day of the test. • Up until then I will give you half-credit for anything you are missing. • Your grades online are up-to date (excluding what you turned in today).
  • A country has a Switzerland United States comparative advantage if it has a lower opportunity cost Chocolate 500 700 in producing Wheat 50 900 something. Who has the absolute advantage in making chocolate? Who has the absolute advantage in growing wheat? Who has the comparative advantage in producing chocolate? Who has the comparative advantage in producing wheat? United States Switzerland What is the opportunity cost of What is the opportunity cost of producing one unit of chocolate? producing one unit of chocolate? What is the opportunity cost of What is the opportunity cost of producing one unit of wheat? producing one unit of wheat?
  • World Trade Organization (WTO)
  • North American Free Trade Agreement • Canada, United States, & Mexico • Reduces tariffs and other barriers of trade between these countries. • Controversial • Why?
  • Money and The Federal Reserve System What it is, what it does, and why you should care.
  • Objective for today • Understand the different ways that the government tries to stimulate or constrict the economy
  • Vocab. To Know: GDP & Interest • Gross Domestic Product- the total market value of all final goods and services the economy produces in a single year. • The primary way the health of an economy is measured • Interest- payment for using someone else’s money. • The “price” of a loan
  • Fiscal policy • The use of the federal government’s power to tax and spend to regulate economic activity. • Lower taxes • Increase government spending • Both • Ex: FDR’s the New Deal
  • Criticisms of fiscal policy • Why do we pay taxes? What happens to government revenues if taxes are reduced? What happens to the national debt? • To offset a tax reduction, the government would have to borrow money --> could “crowd out” private investors • Printing more money leads to inflation • Politically unfeasible
  • The Fed and the money supply • The central bank of the United States • In charge of creating money • Loans money to other banks • “Fractional reserve” banking • Only have to keep small % of deposits • The rest can be loaned out
  • Monetary policy • The use of the Federal Reserve’s power to control the supply of money and credit to increase economic activity as a whole, particularly to control inflation and stimulate economic growth. • Adjust the discount rate • Adjust reserve ratios
  • If nothing else, remember this… • The Federal Reserve is the central bank of the United States. • It tries to regulate the economy to keep it growing steadily (not too fast, though) • It can print money, adjust interest rates, and adjust how much money banks have to keep in reserve.