Monetary and Fiscal Policies

What this video covers

• Which entity controls monetary policy versus fiscal policy, and why the Federal Reserve has absolutely nothing to do with taxes or government spending
• The Federal Reserve's four DORM tools: discount rate, open market operations (OMOs), reserve requirements, and Regulation T margin
• Why open market operations are the most frequently used Fed tool, and how buying securities injects cash while selling securities drains it
• The critical distinction between the discount rate (directly set by the Fed) and the federal funds rate (market-determined overnight rate that the Fed merely steers toward a target range)
• How expansionary monetary policy (lower rates, buy securities) stimulates growth during recession versus contractionary monetary policy (raise rates, sell securities) that fights inflation
• How expansionary fiscal policy (increase spending, cut taxes) creates budget deficits versus contractionary fiscal policy (decrease spending, raise taxes) that creates surpluses
• Why a deficit is expansionary and a surplus is contractionary, and how government borrowing can trigger the crowding out effect by driving up interest rates for private borrowers like businesses and consumers