Economic Policy

When the bell rings, you will go to the
commons area for a brief meeting with Mrs.
Ariemma to discuss the AP review dates and
AP Exams.
When you return, you will have a handout on
your desk. I want you to take 2-3 minutes to
complete the chart using the information
learned from yesterday’s teaching exercise.
Do the best you can!!
Economic Policy
Chapter 16
What concepts do you think about
when you think of economic policy?
How has economic regulation
changed throughout US History?
Prior to Civil War?
Post Civil War?
The Progressive Era?
The Great Depression?
From Economic regulation to Social regulation
to Deregulation
Stabilizing the Economy
• This role was taken on after the government
used deficit spending during WWII (economy
expanded, production rose, and
• How does the government manage the
– Monetary and fiscal policy
Monetary Policy: Controlling the
Money Supply
• Government can attempt to influence the Federal
Reserve, but it is independent from the
• The Federal Reserve system controls how much
money is in circulation
• Organization
Board of Governors (The “Fed”)
The Federal Open Market Committee (FOMC)
12 Federal Reserve Banks
Member Banks
Monetary Policy: Controlling the
Money Supply
Increases Money Supply
Decreases Money Supply
Reserve Requirement:
How much money banks
must retain in the bank
Lowers the Reserve
Requirement (banks can
loan out more money)
Raises the Reserve
Requirement (banks have
less money to loan out)
Discount Rate:
The interest rate charged
by the Federal Reserve to
member banks to borrow
Lowers the Discount Rate
(makes it easier for banks
to borrow money; they can
loan it out at a lower
interest rate)
Raises the Discount Rate
(makes it more expensive
to borrow money)
Open Market Operations:
FRB buys and sells
government securities in
the open market
Buy securities from
member banks (puts more
money in circulation)
Sells securities to member
banks (takes money out of
Fiscal Policy: Taxing and Spending
• Government’s use of taxing and spending to
influence the overall operation of the
economy and maintain economic stability
• What is the partisan division?
The Budget Process
• Originates with the President (Budget and
Accounting Act of 1921), then submitted to
Congress for approval
• The Office of Management and Budget (OMB)
was created to assist the president and handle
the details of budget preparation; the
Congressional Budget Office (CBO) assists the
congressional budget committee
• Runs for a fiscal year (October 1 – September 30)
The Budget Process
• Proposal is sent to Congress in January and
February (work usually begins in the executive
branch 9 or 10 months earlier)
• Committees hold hearings and set targets for
overall revenue and spending categories
• Legislation can be passed to ensure that
targets are met