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04.06 Concept Map Worksheet
Transcript of 04.06 Concept Map Worksheet
The Government and the Economy
The tools of fiscal policy are taxation and spending.
Our government creates a deficit by spending more than the total tax revenue and debt is the total amount government owes. Government can create a surplus by collecting more in taxes than is spent on programs.
Increased taxes = slow economic growth
decreased taxes = increase in economic growth
Increased spending = increase in economic growth
Decreased spending = decrease in economic growth
There are four phases of the business cycle
Expansion like the upward climb of the roller coaster. During the expansion phase, Gross Domestic Product, or GDP, is increasing. Usually, this also means that the rate of inflation is increasing while the unemployment rate is decreasing
Peak is where production reaches the highest current level. This is a time when the inflation rate is at it’s highest and unemployment is at the lowest.
Contraction A period of decreasing economic activity, similar to the downhill part of a roller-coaster ride.During a contraction, unemployment rises while inflation falls.
Trough The lowest point of the roller coaster ride and of the business cycle. The trough is the transition from a contraction to an expansion phase and thus the worst point in a period of
The Federal Reserve Organization
Board of Governors Analyzes economic data, supervises Federal Reserve Banks. Administers financial regulations Participates in Federal Open Market Committee Communicates with leaders in other parts of government
Federal Open Market Committee (FOMC) Discusses economic outlook and potential adjustments to the money supply. Consists of Board of Governors, President of the New York Reserve Bank, and four other Reserve Bank Presidents on a rotating basis.
Federal Reserve Banks Provides service to banks and the U.S. Treasury—“the bankers’ bank”. Supervises bank operations within their region Handles check collection, electronic funds transfer, distribution of currency and coin to banks. Comprised of 12 Federal Reserve Banks, each serving its own region of the United States.
Member Banks Receive services from regional Federal Reserve Bank
Other Not technically not part of the Federal Reserve System, Depository Institutions yet subject to regulations Receive services from regional Federal Reserve Bank Includes credit unions, savings and loan associations, commercial banks, and savings banks
Expansionary monetary policy includes actions of the Fed that expand, or increase the money supply. Economists associate increasing the money supply with quickening the pace of economic growth and fighting recession.
Contractionary monetary policy includes actions of the Fed that contract, or decrease the money supply. Economists associate decreasing the money supply with slowing down economic growth and fighting inflation.
The Federal Reserve has three tools of monetary policy to affect the money supply:
1. Discount Rate—the interest rate the Federal Reserve charges banks to borrow currency.
2. Reserve Requirement—the percentage of a bank’s deposits that must be kept as currency and coin in the bank.
3. Open Market Operations—the Federal Reserve’s frequent buying and selling of government securities (bonds), considered the most significant of the three tools.