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					FEDERAL RESERVE
FALL 2007 PLVS

FISCAL POLICY
DEFINED: The federal government’s use of taxing and spending policies to help stabilize the economy

Carried out by the President and Congress

FISCAL POLICY
DRAWBACKS: --Complex and takes time to take effect --Conflicting goals --Elected officials reluctant to raise taxes or cut spending

MONETARY POLICY
DEFINED: Effort to stabilize the economy by regulating the money supply

Carried out by the Federal Reserve System

FEDERAL RESERVE SYSTEM
• Central Bank of the United States • Called “The Fed” • Provides financial services to the nation’s banks • Regulates banks so that they follow the laws • Sets monetary policy

THE FED
BOARD OF GOVERNORS 7 Members + 5 presidents of the district Federal Reserve Banks FOMC • Federal Open Market Committee • Monitors health of economy • Decides when to change monetary policy

OPEN MARKET OPERATIONS
• Selling/buying government securities • Securities = stocks, bonds, other assets • Decrease $ supply = Federal Reserve Bank of NY to sell some securities • Increase $ supply = Federal Reserve Bank of NY to buy some securities • Federal Funds Rate = rate at which banks lend $ to one another overnight

DISCOUNT RATE
• Interest rate that the banks pay to the Federal Reserve • Interest rate change usually indicates change in the monetary policy

RESERVE REQUIREMENT
• Percentage of a bank’s deposits that it must keep on hand • Holding money takes it out of circulation • This tool is rarely used.

IMPACT ON CONSUMERS
• What you pay for goods and services • Your ability to get credit/interest rates you pay • What you earn in interest • Your job stability/wages you earn

QUESTIONS
• Page 172 Answer the following questions: 5 6 11 12

VOCABULARY
Using Frayer model, add the following terms: monetary policy fiscal policy Federal Reserve System reserve requirement discount rate


				
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