ex 911 press release The federal reserve system is open and operating The

Ex 911 press release the federal reserve system is

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ex: 9/11 press release: “The federal reserve system is open and operating. The discount window is available to meet liquidity needs.” Central Banks are typically fairly independent of their governments Congress gives them their dual mandate: stable prices and low unemployment Part E: Fiscal Policy 35
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Q: Which is larger? The federal federal deficit or the federal debt? A: Fiscal deficit describes a government with expenditures that are greater than its revenues during a fiscal year. The federal debt is the total amount of money that the U.S. federal government owes to its creditors. Deficit = $506 billion (2.9% of GDP) = (G + Trans. Payments) - T = $3,512 billion - $3,006 billion Total federal Debt $17.2 trillion Debt owed to the public $12.8 trillion (74% of GDP) Deficit- amount borrowed per year Debt : total owed (accumulated deficits) 1. The federal government should balance its budget every year (i.e. spending taxes; no borrowing) 2. When a recession occurs fiscal policy should be used to fight the recession Statements 1 and 2 are in conflict Most economists argue for balancing the budget over the business cycle. This is “counter-cyclical fiscal policy” Two ways to do this: Automatic stabilizers - ex. unemployment insurance doesn’t take a new law or an act of congress.. already in the system 36
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acts pretty quickly Discretionary fiscal policy takes an act of congress and the presidents signature ex. recovery act of 2009 - nearly $1 trillion of tax decreased and spending up 6% of GDP takes more time Since the great recession, fiscal policy has slowed growth Result of the move toward a balanced budget F. Limits to fiscal and monetary policy Fiscal policy: When the economy is at full employment, fiscal policy “crowds out” private spending ex. more money spent of schools.. fewer malls being built G increases, C, I decreases, so Y is unchanged Increased public spending leads to decrease in private investment Monetary policy: low interest rates might not encourage much borrowing in a recession ex. buy a new car when unemployed? 37
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