The Federal Reserve and Fiscal Policy Monetary Policy

The Federal Reserve and Fiscal Policy Monetary Policy

The Federal Reserve and Fiscal Policy Monetary Policy Defined: The actions that the Federal Reserve take to influence the money supply to achieve their stated macroeconomic goals of price stability and full employment. Ways the FED Influences the Money Supply: Increase / Decrease the Reserve Requirement Increase / Decrease the Discount Rate Buy or Sell U.S. securities (Treasury notes, bills, bonds) The Money Supply

Is a measure of the total amount of money in an economy The FED influences the money supply to achieve macroeconomic goals of: Price stability Full employment Economic growth The Money Supply and Money Supply and Interest Rates Interest Rates The FED influences the amount of lending and borrowing by using its tools to influence the money supply By influencing the money supply, the FED indirectly influences the interest rate Think of the interest rate being equivalent to the price of a good or service

Low interest rates= more borrowing (like low price= more buying) High interest rates= less borrowing (like high price= less buying) Interest rates reflect the interaction of lenders (who supply the funds) and borrowers (who demand the funds) Easy Money Monetary Policy Used when the FED wants to stimulate growth due to a contracting economy Effects/Consequences Increases the money supply, Which leads to lower interest rates Encouraging investment , spending,

and employment Tight Money Monetary Policy Used when the FED wants to slow growth due to a rapid expansion that may cause inflation Effects/Consequences Decreases the money supply, Which leads to higher interest rates Discouraging investment and spending Which can lead to lower employment How does the tax rate effect taxpayers? Proportional Regressive

Progressive Proportional Taxes Takes the same percentage or amount from both high and low income tax payers Examples: Michigan income tax - all are taxed on their income at the same percentage (4.35%) Social Security Taxes (up to the limit): Everyone (employer and employee each) pays 6.2% up to $106,800 Regressive Taxes Takes a larger share of income from low income taxpayers than from high income taxpayers Examples (consumption taxes): Sales tax- if an individual buys a new appliance

and pays $40 in sales tax, this $40 tax affect someone with a lower income more than one with a higher income (6.00%) Gasoline tax everyone pays the same percentage but it ends up taking a greater percentage of ones income from the lower income earners than higher income earners Progressive Taxes Takes a larger share of the income of highincome taxpayers than of low-income taxpayers. Higher income levels are taxed at higher rates Examples: Federal individual income tax - the higher the income, the higher the tax rate Brackets include 10% up to $8,375; 15% up to $34,000; 25% up to $82,400; 28% up to $171,850; 33% up to

$373,650, 35% beyond $373,650 (single rates) Corporate income tax rates Type of Tax Effect on $20,000 income Effect on $50,000 income Effect on $100,000 income

Proportional Tax: 4.35% Michigan Income Tax $870.00 paid in taxes $2,175.00 $4,350.00 paid in paid in taxes taxes Regressive Tax: 6% Michigan Sales Tax

You buy new furniture and have to pay $500 in tax. This takes 2.5% of your total Taxed 15% income You buy new furniture and have to pay $500 in tax. This takes 1% of your total Taxed

25% income You buy new furniture and have to pay $500 in tax. This takes 0.5% of your Taxed 28% total income $3,000 paid in taxes $12,500 paid in

taxes $28,000 paid in taxes Progressive Tax: Federal Income Tax

Recently Viewed Presentations

  • Anatomy and Physiology Identify the structure of the

    Anatomy and Physiology Identify the structure of the

    Anatomy and Physiology. Identify the structure of the skeletal system. Explain. the function of the skeletal system
  • Thermochemistry Heat and Chemical Change

    Thermochemistry Heat and Chemical Change

    matter that has definite volume and definite shape. Liquid . matter that has definite volume but indefinite shape. Gas . matter that has indefinite volume and indefinite shape ...
  • JAVA METHODS and CONSTRUCTORS JAVA Classes  The class

    JAVA METHODS and CONSTRUCTORS JAVA Classes The class

    UMBC CMSC 331 Java. JAVAMETHODS and CONSTRUCTORS. JAVA Classes. The . class. is the fundamental concept in JAVA (and other OOPLs) A class describes some data object(s), and the operations (or methods) that can be applied to those objects.
  • Briefing TTL & ElDA - WordPress.com

    Briefing TTL & ElDA - WordPress.com

    Modul Elda. Modul 1 Briefing. Modul 2 Diodadaya. Modul 3 Dioda rectifier. Modul 4 Thyrystor. Modul 5 penyearahterkontrol. Modul 6 Inverter. Modul 7 DC-DC converter (buck boost) Modul 8 DC-DC converter (buck-boost & cuk) Modul 9 post test
  • Chapter 21: Metamorphism - Stellenbosch University

    Chapter 21: Metamorphism - Stellenbosch University

    Pelites in Southern Africa Barberton Granite-Greenstone Belt, Mpumalanga Damara Orogen, Namibia Contact metamorphism associated with Bushveld Complex, Limpopo Province Metamorphism of Pelites IN THIS LECTURE Types of Protoliths Examples of Metamorphism Orogenic Metamorphism of the Scottish ...
  • Measuring Information Architecture

    Measuring Information Architecture

    Designing Information Architecture for Search Tutorial: SIGIR 2001 Marti Hearst ... Participants found more answers using categories Participants took same amount of time with all three interfaces Cha-Cha (intranet search) Cha-Cha (intranet search) How People Search The Standard Model ...
  • Freeman 1e: How we got there - PC\|MAC

    Freeman 1e: How we got there - PC\|MAC

    Childhood cancers are probably caused by exposure in the womb to environmental and industrial pollutants that have been inhaled by the mother. In all organisms, the instructions for specifying the characteristics of the organism are carried in DNA, a nucleic...
  • Edgar Allan Poe - PBworks

    Edgar Allan Poe - PBworks

    Edgar Allan Poe 1809-1849 Edgar Allan Poe Born in Boston on January 19, 1809 Mother, Elizabeth Arnold Poe, was a successful actress Father, David Poe, Jr., was a less successful actor due to alcoholism Edgar Allan Poe Poe's father abandoned...