9 the fed

A couple notes

• Missing assignments!

• Last day to turn those in for any creditis the day of the test.

• Up until then I will give you half-creditfor anything you are missing.

• Your grades online are up-to date(excluding what you turned in today).

A country has acomparativeadvantage if it has alower opportunity costin producingsomething. 90050Wheat

700500Chocolate

United StatesSwitzerland

Who has the absolute advantage in making chocolate?

Who has the absolute advantage in growing wheat?

Who has the comparative advantage in producing chocolate?

Who has the comparative advantage in producing wheat?

United States

What is the opportunity cost ofproducing one unit of chocolate?

What is the opportunity cost ofproducing one unit of wheat?

Switzerland

What is the opportunity cost ofproducing one unit of chocolate?

What is the opportunity cost ofproducing one unit of wheat?

World Trade Organization (WTO)

North American Free TradeAgreement

• Canada, United States, & Mexico

• Reduces tariffs and other barriers of tradebetween these countries.

• Controversial

• Why?

Money and The FederalReserve System

What it is, what it does,and why you should care.

Objective for today

• Understand the different ways that thegovernment tries to stimulate or constrictthe economy

Vocab. To Know: GDP & Interest

• Gross Domestic Product- the total marketvalue of all final goods and services theeconomy produces in a single year.

• The primary way the health of aneconomy is measured

• Interest- payment for using someoneelse’s money.

• The “price” of a loan

Fiscal policy

• The use of the federal government’s powerto tax and spend to regulate economicactivity.

• Lower taxes

• Increase government spending

• Both

• Ex: FDR’s the New Deal

Criticisms of fiscal policy

• Why do we pay taxes? What happens togovernment revenues if taxes arereduced? What happens to the nationaldebt?

• To offset a tax reduction, the governmentwould have to borrow money --> could“crowd out” private investors

• Printing more money leads to inflation

• Politically unfeasible

The Fed and the money supply

• The central bank of the United States

• In charge of creating money

• Loans money to other banks

• “Fractional reserve” banking

• Only have to keep small % of deposits

• The rest can be loaned out

Monetary policy

• The use of the Federal Reserve’s power tocontrol the supply of money and credit toincrease economic activity as a whole,particularly to control inflation andstimulate economic growth.

• Adjust the discount rate

• Adjust reserve ratios

If nothing else, rememberthis…

• The Federal Reserve is the central bank ofthe United States.

• It tries to regulate the economy to keep itgrowing steadily (not too fast, though)

• It can print money, adjust interest rates,and adjust how much money banks haveto keep in reserve.