fed fiscal monetary policy

Bellringer1. What would you say about a 10% inflation rate?

2. Why are banks important to our economy?

3. What is a recession?

4. If the US GDP grew by 1.7% last year, were we in a recession?

5. What part of our government prints our money?

Great Depression

1929-1933

27% drop in GDP

25% Unemployment

36% drop in World trade

43 straight months of declining spending !!!!

““Great Great Recession”Recession”

Housing CrisisHousing Crisis2007-20092007-2009

5 % drop in GDP5 % drop in GDP

10% Unemployment10% Unemployment

20% drop in World trade20% drop in World trade

18 straight months of 18 straight months of declining spendingdeclining spending

Source Yoram Bauman, World BankSource Yoram Bauman, World Bank

What if the bank goes out of business?

• $250,000 per US account

Who sets the reserve rate?

• “The Fed”

• 1913

How does “the Fed” work?

Federal Reserve System

Monetary PolicyFed’s Tools

Open market operationsReserve Rate (%)Discount Rate (%)

Lender of last resort

Why is the Chairman of the Fed sometimes thought of as the “second most powerful

man in the US”?

• Cause: increases interest rates

• Effect: ????

• Cause: lowers interest rate

• Effect: ???

What about other countries?

What should The Fed do with interest rates in 1955?

What should The Fed do with interest rates in 1921?

US CPI 1914-1920

What should The Fed do with interest rates in 1982?

What should The Fed do with interest rates in 1982?

What should The Fed do with interest rates in 1991?

What should The Fed do with interest rates in 2010?

What should The Fed do with interest rates in 2010?

What should The Fed do with interest rates in 2013?

Fed Chairman game

Book 398-407

• Write a 1 page letter to Fed Chairman Ben Bernanke

• Explain whether you support a expansionary or contractionary monetary policy in 2013

• Mention what your policy might do to US unemployment now at 7.5%

• Mention what your policy might do to US inflation now at 2.0%

• Fed Funds rate now at 0.5 % (50 cents/$100)

After Inflation & Unempl sheets finished

Write a 1 page letter to Congressman Raul Grijalva

2 fiscal policy changes you agree with, be sure to include the effects of those changes