-Maintaining inflation and employment target

-conducted by the Feds

faith and trust back it 

-if people lose faith in the US economy the system will break down Backs the money supply in the US

inflation: increases real price of good in market

tax: once pay them have less purchasing power than you did before

-protect and control value of the US currency

-control money supply

can only create it when the reserve requirement is <100%

-can't release any loans becasue holding everyones $

events that keep the amount of money created from being as much as possible

-banks refuse to loan money because increased credit risks

no new loans would be made

-money supply wouldn't be able to grow (no money $ created within the system)

-discount rate

-required reserves

-open market operations (most important)

purchase bonds:

-increase in $ supply

-Buying= Bigger

Selling bonds:

-decrease in $ supply

-Selling= Smaller

feds aim to reduce inflation 

-increaseing the rate tells banks they need to be more careful

went from 10% to 20%= be more careful with loans

feds are focusing on battling unemployment

-banks borrow cheaper rate

went from 20% to 10%= create loans fro fight unemployment

-federal reserve rate (decrease)

-required reserves (decrease)

-open market operations (purchase bonds)

-banks don't lend

-people don't borrow money

-federal reserce rate (increase)

-required reserves (increase)
-Open market operations (sell bonds)

government spending and taxation to achieve macroeconomic goal (full employment without inflation)

stops recessions

1. change in government spending

2. change in amount of taxes

done by congress

-increase government spending

or

-decrease taxes

-increases GDP

- AD (RT)

required government to take an action

(like passing or spending a bill)

benefits that automatically kick in under conditions

(like unemployment benefits)

3 legs:

1. recognize (takes too long to notice problem)

2. decision (takes a while to figure out decision)

3. execution (takes too long for effect)

don't recognize any change and don't run into time logs

1. recognize

2. decision

3. execution

-increase in government spending (pop. for votes)

-lower taxes

reduce taxes will increase production

-work harder, longer, save and invest

tax less than amount spent for a year

-government had to issue treasury bills to finance the deficit

Yes & No

financed internationally (within US) aren't too bad

financed externally (with foreigners) yes because we have to pay it back

1. hard for individuals to borrow money

2. value of currency falls

3. investors stop buying bonds

-interest rate rises, inflation rises

-increase demand for US products abroad

-decrease inflation in US

-increase world tension

-US has lower interest rate than other countries

-increased inflation in US

-decreased world tensions

-purchase foreign goods cheaper

-inflation low

-easy to travel to foreign countries

-exports suffer on foreign martkets

-US firms suffer (cheaper foreign goods)

-foreign tourism falls

exports prosper on foreign markets

-foreign tourism rises

-US firms prosper due to more foreign goods

-US can't get foreign goods as cheap

-allows for inflation

-expensive to travel to foreign countries

GDP= C+I+G+(X-M)

c= consumption

I= investment

G= government

(X-M)= exports-imports

average change in price over time of consumer good/ service

-tracks inflation

=buying patterns change

-doesn't count technology changes

people who owe $

-value of debt has gone down

people who are lending $

-repaid purchases for less

nominal interest rate- inflation rate

-provides interest rate in real terms

(labor force)/ (working age pop.)

working age: 16 and up who don't want jobs

unemployment from technological change 

-eliminated old jobs

*think production lines

M- import spending

T- rate of taxation

s- rate of savings

i- interest rate

C- consumption

I- investment

G- government

X- exports

-productivity level

-supply available

-major increase in cost conditions

-change in expected rate of inflation by workers

AD RIGHT 

-effect CPI & GDP

CPI (up)

GDP (up)

AD LEFT

-effect CPI and GDP

CPI (down)

GDP (down)

AS RIGHT

-effect CPI and GDP

CPI (down)

GDP (up)

AS LEFT 

-effect CPI and GDP

CPI (up)

GDP (down)

when increasing cost shifts AS left

-increase overall price

when increasing demand out paces supply

-prices rise

1. Medium of exchange

-eliminated problems of barter wider range of goods

2. measure of value

-compare different goods

3. Store of wealth

-people save money for future purchases