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Chapter 15 (Prime and Discount Rate (Prime Rate - the index that is used…
Chapter 15
Prime and Discount Rate
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Discount Rate - used when the Federal Reserve makes a loan to a private bank or when commercial banks lend to each other (Google)
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Fact-The discount rate also refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.
Fiscal Policy
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The means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy (Google)
Fact - The usual goals of both fiscal and monetary policy are to achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages
Fact- Fiscal policy began to assume a leading role in economic thinking, economic controversy, and economic policy only in the 1930s (Encyclopedia)
Fact- Unfortunately, the effects of any fiscal policy are not the same for everyone. Depending on the political orientations and goals of the policymakers, a tax cut could affect only the middle class, which is typically the largest economic group. In times of economic decline and rising taxation, it is this same group that may have to pay more taxes than the wealthier upper class
Monetary Policy
The process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency (Google)
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Fact- The role played by monetary policy in promoting selected economic objectives depends greatly on the nature of the economic system and on attitudes toward the use of other methods of regulation.
Fact- The terms “monetary policy” and “credit policy” are often used interchangeably or with only slightly different shades of meaning.
Federal Reserve System
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Fact - Responsible for setting monetary policy and tasked with monitoring unemployment and other economic markers, has been around for over 100 years.
Fact- The Federal Reserve Bank of Minneapolis distributes, receives and processes $95 million per day and destroys about $5 million of unfit currency.
