With high inflation, taxes are increased so people have less to spend, thus reducing demand and inflation. During a recession with high unemployment, taxes are lowered to give more people money to spend and thus increasing demand for goods and services, and the economy begins to revive. A change in government spending has a stronger effect on the economy than a change in tax rates. When the government decides to fight a recession it can spend a large amount of money on goods and services, all of which is released into the economy. Despite the effectiveness of the Fiscal policy, it does have drawbacks. The major problems are timing and politics. It is hard to predict inflation and recession, and it can be a long period of time before the situation is even recognized. Because a tax cut can take a year to really take effect, the economy could revive from the recession and the new unnecessary tax cut could cause inflation. Politics are another problem. Unlike the monetary policy run by the Fed, fiscal policy is carried out by the government, and so politics play a key role in the policy. When the concerns of the government are viewed, it becomes obvious that a balanced budget is not the primary objective. The fiscal policy can also be used as a campaign tactic. If tax cuts are initiated and government spending is increased, then the president is more likely to be re-elected, but has first to deal with the inflation his tactic caused. So while the government's fiscal policy is one of the two methods of keeping the economy stable, it is not without many drawbacks (Melton 140-144). .
The Federal Reserve, which carries out monetary policy, is free of direct political influence. But it is not totally without influence because the president appoints, pending the approval of the Senate, the 7 Board of Governors as their terms expire. Congress structured the Fed to be independent within the government.
Through the use of reserve requirement, discount rate, and open market operations, the Fed have the opportunity to dictate the monetary policy. ... During the four business cycles, the Fed dictates the levels of each in order to pull out of a depression or balance a peak. ... Along with the FDIC, the FED make sure banks can not go under during a depression or loose too much in a peak through its policies....
The Fed is keeping the short-term interest Rate at 1%. ... Some economist warned that the Fed is waiting too long. ... The main question that economists have is how the Fed will signal a shift in policy. ... The Fed was hopeful for the first time this year and said that "the labor market appears to be stabilizing." The growing difference between low short-term rates and higher long-term rates reflects a growing apprehension between what the Fed is doing and what investors think the Fed will do. ...
This basic mission has not changed for the more than 80 years that the Fed has been in existence. Although the purposes and functions of the Fed have not changed over its history, the economic, financial and social environment in which the Fed operates has changed. ... Today, the Fed is a market-driven and customer-driven entity. ... This is one of the effects that the Fed hopes to achieve when it raises interest rates. ... Because of this, the Fed considers many factors before it decides to move interest rates. ...
The Federal Reserve Bank The Federal Reserve Bank (FED) is a system of 12 regional Reserve Banks along with a Board of Governors, in Washington D.C. ... The FED is the bank for our Government and all US banks. ... To combat this the FED has used another one of its tools to control the economy. ... The FED has dropped their reserve rate to an unimaginable level. ... The FED would rather have the economy have a steady, slow growth. ...
Type of expenditure @ Fed. ... =pension & income security(39%)-State-sales & excise tax (48%),education(36%),Local-education(43%),property tax(74%)-National income statistics useful-contribution of land,labor,capital,entrepreneurial talent-Economy output also income-what we spend in our economy goes towards stimulating it to be stronger & provide for us-circulate $-The $ Supply in the US-backed by the gov'ts ability to maintain a stable value-b.value of $ is determined by supply & demand-demand rises, value rises-c.value of $ related to price level-price of goods rises, money is worth les...
With tame inflation, the Fed is free to cut interest rates in an effort to stimulate the economy. ... This scenario appears unlikely, as the Fed has only created stimulus when they deemed absolutely necessary. With the Fed making the "soft landing" they have wanted, it does not seem practical that they would blow it with a "bumpy takeoff." ... Likewise, the Fed's stimulus is going to have to work the same way to recover profit margins. ... It is highly unlikely they will allow the Fed Fund Rate to drop below 3.0%. ...
When the Fed increases the money supply, the policy is called expansionary. When the Fed decreases the money supply, the policy is called contractionary. ... Let's investigate how the Fed affects the money supply. There are three basic ways that the Fed can affect the money supply. ... When the Fed purchases government bonds, the Fed exchanges ...
A. Regulation T sets the minimum percentage of the payment you must make when you buy stock on margin. The FED has a higher margin rate through Regulation T which means that it can control over speculation in stocks and stock market credit. It prevents another stock market crash. It will rise if ...
