Problem : List the major vehicles of monetary policy.
There are three major vehicles of monetary policy. They
are open market operations, changing the reserve
requirement, and manipulating the federal funds interest
Problem : Dene expansionary monet
Interest Rates and Fiscal Policy
Fiscal policy has a clear effect upon output. But there is
a secondary, less readily apparent scal policy effect on
the interest rate.
Basically, expansionary scal policy pushes interest
rates up, while contractionary scal
Money Supply and Monetary Policy
In the SparkNote on money and interest rates we learned about the money
supply. This is the starting point for understanding monetary policy.
Initially we dened the money supply as the total amount of currency held
Which of the following pairs best t with scal policy?
(A) Taxes and government spending
(B) Open market operations and reserve requirement
(C) Taxes and open market operations
(D) Open market operations and government spending
Who uses scal policy?
While expansionary and contractionary scal policy both directly affect the
national income, the ultimate change in output is not always equal to the
policy change. That is, there are factors that increase or decrease the
efcacy of scal policy. These facto
Contractionary Fiscal Policy - Policy enacted by the government that
reduces output. Examples include raising taxes and decreasing government
Contractionary Monetary Policy - Policy enacted by the Fed that reduces
the money supply and thus reduc
Taxes are an integral part of your life as an American.
Each April you spend countless hours pouring over
records and receipts, or paying an accountant to do this,
in preparation for income taxes. Similarly, in most states
whenever you purchase something,
Money Supply - The total amount of
money in an economy including both
demand deposits and currency.
Multipliers - Numbers that dictate
the overall effect of a policy change
on the output of an economy.
National Income - Output. (See the
denition of output
Taxes and Government Spending
Fiscal policy describes two governmental actions by the
government. The rst is taxation. By levying taxes the
government receives revenue from the populace. Taxes
come in many varieties and serve different specic
The Fed has two basic types of monetary policy.
Expansionary monetary policy increases the money
supply while contractionary monetary policy decreases
the money supply. Expansionary monetary policy
includes purchasing government bonds, decreasing the