1. Contractionary Fiscal Policy Contractionary Monetary Policy
Expansionary Monetary PolicyExpansionary Fiscal Policy
Monetary Policy ToolsFiscal Policy Tools
Monetary PolicyFiscal Policy
The spending and taxing policies used by
Congress and the president
Changes in government spending
Tools used to stimulate the economy
during a recession: Lowering taxes or
increasing government spending.
Tools used to stimulate the economy during
a recession: Buying government securities.
Lowering the reserve requirement. Lowering the
discount rate. Lowering interest paid on
required and excess reserves.
Tools used to stabilize the economy in times of
inflation: Selling government securities. Increasing
reserve requirements. Increasing the discount
rate. Increasing the interest paid on required
and excess reserves.
Tools used to stabilize the economy in times of
inflation: Increasing taxes or
lowering spending.
The tools used by the
Federal Open Market Committee to influence
the availability of credit and the money supply
WHO?WHO?
Federal Open Market Committee
4–Rotating votes–district presidents
1–New York Fed President
7–Board of Governors
7–Nonvoting members
Tax policy: Changes in tax rates and rules
Congress
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Aggregate demand
to right (increases)Shifts
Results
Consumer
spending
Business
investment
Tools
Taxes
Government spending
Effects
Real GDP
Price level
Employment
Aggregate demand
to right (increases)Shifts
Results Tools
BUY Government securities
Reserve requirements
Interest on reserves
Discount rate
Effects
Real GDP
Price level
Employment
Consumer
spending
Business
investment
Aggregate demand
to left (decreases) ShiftsEffects
Real GDP
Price level
Employment
ResultsTools
SELL govenment securities
Reserve requirements
Interest on reserves
Discount rate
Consumer
spending
Business
investment
Aggregate demand
to left (decreases) Shifts
ResultsTools
Taxes
Government spending
Effects
RGDP
Price level
Employment
Consumer
spending
Business
investment
President
Fiscal & Monetary Policy
THE FEDERAL RESERVE BANK OF ATLANTA
How do policymakers stabilize the economy?
MACROECONOMICS
Open market operations Reserve requirement
$
$
3% or 10% of
demand deposits
Interest on required
and excess reserves
Discount rate
$
Reserves
LoansInterest
Interest
FED
Buy or sell
BOND
Influence and stabilize the economy. Promote price stability.
Promote maximum sustainable employment.
Fiscal and Monetary Policy Goals
Recessionary gap Inflationary gap
Potential Real GDP
Contractionary
policy
Expansionary
policy
LRASPrice Level
Real GDP
SRAS
IAD
IPL
IYRY
RAD
RPL
PL
AD
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