March 18 - The Fed and the Government

Yesterday we looked at how the Federal Reserve (The Fed) is using Monetary Policy to control the economy. 

In the notes we saw that their main two tools were:
 - raising and lowering various rates; and
 - buying and selling bonds, bills and treasuries

This is being done to control the amount of money in the economy, a.k.a. the money supply.

If there is too much inflation, we need to take money out of the economy.  We need to contract the money supply.  The Fed does this by raising rates and selling bonds.

If unemployment is high and GDP is low, we need to add money to the economy.  We need to expand the money supply.  The Fed does this by lowering rates and buying bonds.

Today, we move on to seeing how the government is doing the same thing.  We call what the government does, fiscal policy.  Despite the name change, their goal is the same as the Fed.  They are trying to expand or contract the money supply in response to changes in the economy.  But we are going to see that they are doing it with a different set of tools.

Power Points:
Fiscal Policy
Taxes
Debt and Deficit
Federal Spending and State Taxes

Worksheets:
Fiscal Policy