Monetary Policy LETS FINISH THIS UP Monetary Policy

Monetary Policy LETS FINISH THIS UP!

Monetary Policy : � Domain of the Federal Reserve � Known as the Fed � Regulate the amount of money in circulation � Provides a system for transferring checks from one bank to another � It holds reserves deposited by most of the nation’s bank, savings and loan associations, savings bank, and credit unions

Monetary Policy: � Organization of the Federal Reserve System � Board of governors manages the Fed � Appointed by the President � 12 Federal Reserve Districts � Most important unit in the Fed is the Federal Open Market Committee � � This is the body that actually determines the future growth of the money supply and other important economy-wide financial variables Board of governors are independent and can do what they please

Monetary Policy: � Loose and Tight Monetary Policies � Too tight � This means that the Federal Reserve has increased the interest rate that it charges banks � Makes it more expensive to borrow money � Too loose � The Fed has lowered the interest rate in hopes of stimulating borrowing by businesses and individuals � Hopefully, businesses invest in new equipment and create jobs

What does the Federal Open Market Committee do?

Determines the future growth of the money supply and other important economy-wide financial variables

Monetary Policy: � Time Lags for Monetary Policy � Accurate information about the economy is not available for months � While there is a lag, the lag for monetary policy is not too long since the Federal Open Market Committee meets eight times per year � A change in money supply may not have an affect for several months

Monetary Policy: � Monetary versus Fiscal Policy � Tight monetary policy is effective as a way of taming inflation � Under normal conditions, a loose monetary policy will spur economic growth � If people do not want to borrow, though, monetary policy is ineffective

Gramm-Rudman-Hollings Act: � U. S. budget deficit reduction measure � The law provided for automatic spending cuts to take effect if the president and Congress failed to reach established targets � The U. S. comptroller general was given the right to order spending cuts � Because the automatic cuts were declared unconstitutional, a revised version of the act was passed in 1987 � It failed to result in reduced deficits � A 1990 revision of the act changed its focus from deficit reduction to spending control.

What type of policy is effective for taming inflation?

Tight Monetary Policy

NAFTA: � The best known free trade zone consists of Canada, the United States, and Mexico � This is called the North American Free Trade Agreement (NAFTA)

Who Makes Foreign Policy: � “Invitation to struggle” between the president and Congress for control over the foreign policy process � Constitutional Powers of the President � “preserve, protect, and defend the Constitution of the United States” � � Article II War Powers � Commander in Chief of the Army and Navy of the United States � The United States has been involved in 125 undeclared wars conducted under presidential authority

Who Makes Foreign Policy: � Constitutional Powers of the President � War Powers � Includes the ability to approve covert operations by the military or intelligence agencies and the use of surveillance outside of the U. S. � Drone strikes increased under President Obama � SEAL Team Six’s raid to kill bin Laden had to be approved by the President

Who Makes Foreign Policy: � Constitutional Powers of the President � Treaties and Executive Agreements � Article II gives the President the power to make treaties � 2/3 of the Senate have to approve � President can also make executive agreements � You do not need Senate approval

Who Makes Foreign Policy: � Constitutional Powers of the President � Other Constitutional Powers � Right to appoint ambassadors, other public ministers, and consuls � President is given the power to recognize foreign governments by receiving their ambassadors

Under the war powers of the presidency, what is the president?

The Commander in Chief of the Army and Navy of the United States