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The National Economy. Federal Reserve System. I. Economic Indicators. Show health of the economy Gross Domestic Product (GDP) Value of all goods and services produced in a country Per Capita GDP = GDP per person Standard of Living – Cost to live somewhere comfortably
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The National Economy Federal Reserve System
I. Economic Indicators • Show health of the economy • Gross Domestic Product (GDP) • Value of all goods and services produced in a country • Per Capita GDP = GDP per person • Standard of Living – Cost to live somewhere comfortably • Consumer Price Index- Change in price over time • Employment Rate • National Debt
II. Federal Reserve System • Created in 1913 to regulate economy through Money Supply • Privately owned by members • Fed Chairman (appointed for 4 year term) • Ben Bernanke
III. Levers of Control-Monetary Policy • Sets Reserve Requirement • Low Reserve – Increase money supply (loose) • High Reserve—Decrease money supply (tight) • Sets Interest Rates • Some rates encourage people to save (tight) • Some rates encourage people to spend (loose)
IV. Meaning? • The Fed can hit the brake or the gas on the economy • More money in circulation drives the economy • More spending = More profits, more production, more jobs! • Less money slows the economy • Less spending=less profits, less production
V. Why would the fed EVER slow the economy??? • Supply and Demand!!! • The more money people have, the less it’s worth • Loose Monetary Policy usually leads to inflation (rising prices) • Inflation leads to higher Standard of Living • **Think about a resort town: are prices for everyday goods higher there? YES! People can afford it • The Fed’s job is to keep the economy stable-avoid major slowdowns (This means it has to avoid rapid expansion, too)
Government Fiscal Policy Print Money Taxes Investment Includes tax incentives for businesses FED Monetary Policy Interest Rates Reserve Requirement Who controls the economy?
