Monetary Policy vs

Fiscal Policy

Monetary Policy

Definition: actions by the Federal Reserve (The

Fed) to expand or contract the money supply.
They

do this to affect the cost and availability of

credit.
Fed manipulates money supply and interest rates

Types of monetary policy

Expansionary
Contractionary

Learning Targets

Identify the differences between monetary and

fiscal policy by participating in our activity.

Expansionary Monetary Policy

Expansionary monetary policies are implemented

during times of recession.

The Fed implements them by:

Increasing

money supply (buying bonds)

Decreasing

interest rates (the cost of borrowing)

In theory it leads to:

People

spending more money

Maximum

sustainable employment

Contractionary Monetary Policy

Contractionary policies are used when the economy

is booming.

During these times, the Fed:

Decreases
Increases

money supply (selling bonds)

interest rates (the cost of borrowing)

In theory it leads to:

A

decrease in consumer spending/increase in saving

Stabilization

of inflation (Let me explain.)

Inflation: The reason we cant just print

money

Scenario: Economy is booming and all is well

There is more money in circulation meaning:

Demand
Prices

will rise

Inflation

is higher
goes up

If this is allowed to continue:

It

costs more to buy the same amount of something.

Money

loses value (Thats bad.)

Fiscal Policy
Definition:

Use of government spending and revenue

collection measures to influence the economy.

Two

types of fiscal policy

Expansionary
Contractionary
(Sound

Fiscal

familiar?)

policy originates from Keynesian Economics

Expansionary Fiscal Policy: What does it mean?

Expansionary fiscal policies are implemented during

times of recession.

The government does this by:

Lowering

taxes

Increasing

government spending (An example would be

constructing roads and bridges)

In theory it leads to:

Increased

employment

Stimulation

of the economy

Expansionary Fiscal Policy

P

AS = Aggregate Supply
AD = Aggregate Demand

Aggregate Demand shifts right.

GDP

Contractionary Fiscal Policy: What does it mean?

Contractionary policies are used when the economy

is booming.

During these times, the government:

Increases

taxes

Decreases

government spending

In theory it leads to:

A

decrease in consumer spending/increase in saving

Stabilization

of inflation (This again)

Contractionary Fiscal Policy

P

AS = Aggregate Supply
AD = Aggregate Demand

Aggregate Demand shifts left.

GDP

Recap

So far weve discussed

What

monetary policy is

What
How

What

types there are

it is used to regulate the economy

fiscal policy is

What
How

types there are

it is used to regulate the economy

Brain Break!!!

Stand up! (When I move, you move Ludacris)

(Hes

an old rapper.)(Its a song from like 2003.)

I will give you a number. Remember it.

Chill for just a minute.

Ask me any questions you have so far.

Aaaaaand its time for an activity.

Monetary vs Fiscal Policy Two-step

Find the people with the same number as you and

go to a station.

There are 10 stations (the 10 poster boards on the

walls.)

Each individual gets 5 sticky notes.

You will have 3 minutes per station.

Monetary vs Fiscal Policy Two-step

In those 3 minutes, look at the quote on the poster

and decide if it is talking about:
Fiscal

policy (F)

Monetary
Or

policy (M)

both

Then on the back (sticky side) of your sticky note

write either an F or M and a statement explaining why
you think it is Fiscal or Monetary.

I will let you know when to switch stations.

Class discussion

Lets talk about the activity.

Do you feel like this activity helped you?

If

so, how did it help you?

What can I do better to help make this topic

easier?

Think-pair-share

Pull out a sheet of paper

You have 3 minutes to write about 3 things you

remember from todays lesson.

Why do you think you remembered these three things?

You dont have to write a novel, but justify your

answer.

Briefly, (1 minute) talk with a partner and see if you

have the same 3 things.

Be prepared to share what you and your partner wrote.

The End

Thank

you!
Have a great day!