General Principles of Financial Planning

Question 1

Monetary Policy (Fed) Tools

Answer 1

• Open Market Operations - Fed buys or sells Govt. Bonds to increase or decrease the money supply.
• Adjust Interest Rates - Fed lowers or raises interest rates on debt to increase or decrease economic activity.
• Set Reserve Requirements - Fed lowers or raises reserve requirements to increase or decrease how much banks can lend.

Question 2

Fiscal Policy (Govt.) Tools

Answer 2

• Govt. Spending - Congress reduces or increases spending to reduce or increase economic activity.
• Adjusting Taxes - Congress can reduce or increase taxes to increase or reduce economic activity.