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Contractionary Fiscal Policy
Contractionary Monetary Policy
Expansionary Monetary Policy
Expansionary Fiscal Policy
Monetary Policy Actions
Fiscal Policy Actions
Monetary Policy
Fiscal Policy
The spending and taxing policies used by
Congress and the president
Changes in government spending
Actions used to stimulate the economy
during a recession: lower taxes or
increase government spending.
Actions used to stimulate the economy
during a recession:
decrease the target range for
the federal funds rate.
Actions used to stabilize the economy
in times of inflation:
increase the target range
for the federal funds rate.
Actions used to stabilize the economy
in times of inflation: increase taxes
or lower spending.
The actions taken by the Federal Open Market
Committee to influence the availability of
credit and the money supply
WHO?
Federal Open Market Committee
4–Rotating votes–district presidents
1–New York Fed President
7–Board of Governors
7–Nonvoting members
Tax policy: Changes in tax rates and rules
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Aggregate demand
to right (increases)
Shifts
Results
Consumer
spending
Business
investment
Actions
Taxes
Government spending
Effects
Real GDP
Price level
Employment
Aggregate demand
to left (decreases)
Shifts
Results
Actions
Taxes
Government spending
Effects
Real GDP
Price level
Employment
Consumer
spending
Business
investment
WHO?
Congress
President
Influence and stabilize the economy. Promote price stability.
Promote maximum sustainable employment.
Fiscal and Monetary Policy Goals
Recessionary gap Inflationary gap
Potential Real GDP
Contractionary
policy
Expansionary
policy
LRAS
Price Level
Real GDP
SRAS
I
AD
I
PL
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Y
R
Y
R
AD
R
PL
PL
AD
FED
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Fiscal & Monetary Policy
THE FEDERAL RESERVE BANK OF ATLANTA
How do policymakers stabilize the economy?
MACROECONOMICS
Federal Open Market Committee (FOMC)
Issues FOMC statement after each
FOMC meeting—eight times/year—and
announces changes to the target range
for the federal funds rate
FOMC
announces
federal
funds
rate target
Short-
term
interest
rates
Long-term
interest
rates
and other
financial
conditions
Consumers
and
investors
Employment
and
prices
FOMC
Aggregate demand
to right (increases)
Shifts
Results
Actions
Effects
Real GDP
Price level
Employment
Consumer
spending
Business
investment
Decrease
interest
rates
Decrease target
range for the federal
funds rate
Aggregate demand
to left (decreases)
Shifts
Effects
Real GDP
Price level
Employment
Results
Actions
Increase target range
for the federal funds rate
Business
investment
Increase
interest
rates
Consumer
spending
