Business, banking, and money. The Business Cycle ~ the ups and downs of the economy and the money that people have to spend is called The Business Cycle . The Business Cycle has four basic phases:. 1.
The Business Cycle ~ the ups and downs of the economy and the money that people have to spend is called The Business Cycle.
In the second phase, economic activity has peaked—businesses are working at maximum capacity and stores are selling in record amounts;
The longest depression that the United States ever had was The Great Depression, from 1929-1939. But eventually the business cycle usually will swing up and start all over again.
Fiscal policy~ refers to the way a government taxes citizens and spends money. The government can use different fiscal policies to affect the business cycle.
At certain points in the business cycle, inflation can become a problem.
Inflation is the general rise in the price of goods and services.
When the business
cycle is expanding,
people have more
money to spend,
which also means they demand more goods and services.
Higher demand leads to higher prices and inflation.
Monetary policy~ refers to the way the government regulates to amount of money in circulation.
In the United States, money is regulated by an organization called the Federal Reserve. It is part of the Executive Branch.
The Federal Reserve (sometimes called just “The Fed”) also sets the prime interest rate that all other banks use to loan money.
The interest rate that the Fed charges to other banks to borrow its money is called the Discount rate.
The actions of the Federal Reserve can have a great impact on the economy of the United States.
For instance, if the Fed wanted to slow down the economy and help control inflation, it could:
Raise the discount rate (this would make it harder for banks to borrow from the Fed, so there would be less money for individual banks to loan to consumers.)
If the Fed wanted to stimulate the economy and get it going again, it could:
The government also tries to protect people’s money, especially money that is deposited in banks and credit unions. A credit union is a like a bank that is owned by its members. Usually they are formed by people or businesses that work together, like a teacher’s union or one of the armed services.
To protect people from losing money that they have in banks and credit unions, like so many people did during the Great Depression, the government created the:
Money that is put into banks or credit unions that are members of either of these two organizations is insured by the government, and will be replaced if the bank of credit union fails.