Fiscal Policy

To where does the money ripple?

John Maynard Keynes, father of ‘deficit spending’

You are Congress. Your job is to analyze part of Obama’s stimulus

proposal. Your group will be given a list of stimulus spending. Groups are to evaluate the effectiveness of the

items, choosing three that are effective and three that are not. Use the economic ripple effect to evaluate

it: Does the item create a far-reaching, effective economic ripple effect, or is it a waste of money?

The Federal Reserve Bank

Former Fed Chairman Ben Bernanke

New Chairman Janet Yellen

The Fed monitors the economy in each of these areas, then acts to regulate the

nation’s economy as a whole.

The Fed determines the amount of money in circulation, and also shreds

nasty old money

The Fed clears all checks

Most importantly, the Fed loans money to banks, and therefore sets the national

interest rate.

Great! Credit cards are swiping again. But what problem could arise now that people are shopping and buying more?

Paul Volcker, recession of 1982

What will the Fed do to interest rates in each of the

following situations?

1. For the 6th straight month, the unemployment rate increases, now standing at 10.5%.

2. The CPI is showing an inflation rate of 7% annually.

3. For the 3rd quarter in a row, GDP growth is at 0%.

4. We are at full employment, and businesses are having a hard time finding workers.

5. New home construction has shown its 6th straight month of decline.

6. GDP growth is at a record pace, averaging 8% for the past nine months.

7. Consumer spending shows 7th straight month of increase.

Franklin Roosevelt’s New Deal (1933-1938)

Name the President who created the first massive government sponsored stimulus package, give me the name of his overall

program, and give me the decade in which it took place.