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

Tax and Spend Liberals?

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)

Who controls the economy?

• Government– Fiscal Policy– Print Money– Taxes– Investment

• Includes tax incentives for businesses

• FED– Monetary Policy– Interest Rates– Reserve Requirement

Rustbelt

Sunbelt

Silicon Valley

Research Triangle Park