Basic Economics

Question 1

Fiscal Policy

Answer 1

• Federal taxation and spending designed to level out business cycle and achieve full employment, price stability, and growth in economy (government)

Question 2

Monetary Policy

Answer 2

• Federal Reserve has power to influence “supply” of credit in the US economy
• Tighten or loosen credit!
• Set reserve requirements for banks (ie 10%, so they can lend 90%)
• Discount Rate: rate charges member banks to borrow to meet reserve requirements
• Open market operations
• Margin rates