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 unemployment)

• How does the government manage the economy?– Monetary and fiscal policy

Monetary Policy: Controlling the Money Supply

• Government can attempt to influence the Federal Reserve, but it is independent from the government

• 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 money

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

circulation)

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