Here are some factors that can impact the growth rate of the economy:

  • Fiscal policy - this refers to government actions (approved by Congress) that may influence economic activity. These would include changing tax rates, increasing Social Security payments, and increasing or decreasing government spending.

Learn how governments adjust taxes and government spending to moderate the economy within the article What is Fiscal Policy?

  • Monetary policy - this refers to actions taken by the Federal Reserve to either increase or decrease the money supply in the economy. The Fed uses the following strategies to expand or contract funds in the banking system:
    • Buying or selling government securities in the open market. Buying government securities increases the money supply by injecting cash into the economy and helps lead to lower interest rates; selling securities decreases the money supply by removing cash from the economy and helps to raise interest rates.

    • Increasing or decreasing member bank reserve requirements. Higher reserve requirements tighten the money supply; lower reserve requirements loosen the money supply.

    • Increasing or decreasing the discount rate to member banks who borrow reserves from the Fed. A higher discount rate tightens money supply; a lower discount rate loosens money supply.

    • Changing the percentage of credit required to buy securities on margin.


Look Out!
The Fed can expand the money supply so that credit is easier to obtain and interest rates are lowered, which increases spending. When it tightens the money supply, the reverse occurs.


Learn about the tools the Fed uses to influence interest rates and general economic conditions within the article Formulating Monetary Policy.



The Effect of the Business Cycle on Stock Markets

Related Articles
  1. Trading

    A Look At Fiscal And Monetary Policy

    Fiscal and monetary policies provide our government and the Federal Reserve with two powerful tools to regulate the economy.
  2. Insights

    What is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  3. Insights

    How The Federal Reserve Manages Money Supply

    Find out how the Fed manages bank reserves and this contributes to a stable economy.
  4. Trading

    How The Federal Reserve Manages Money Supply

    The Fed's three main tools are manipulating reserve requirements, changing the discount rate, and open-market operations.
  5. Insights

    How Much Influence Does The Fed Have?

    Find out how current financial policies may affect your portfolio's future returns.
  6. Personal Finance

    How the Federal Reserve Affects Your Mortgage

    The Federal Reserve can impact the cost of funds for banks and consequently for mortgage borrowers when maintaining economic stability.
  7. Investing

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  8. Trading

    Explaining the Federal Reserve System

    The Federal Reserve System is the central bank of the United States. It regulates monetary policy and supervises the nation’s banking system.
  9. Insights

    4 Factors That Shape Market Trends

    Market trends are shaped by larger economic factors, such as government influence, internal transactions, speculation and supply and demand.
Frequently Asked Questions
  1. Can I fund a Traditional IRA, a 403(b) or a Roth IRA using pension money?

    Can pension money be used to fund other retirement accounts?
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ...
  3. How does a company move from an OTC market to a major exchange?

    The over-the-counter market is not an actual exchange like the NYSE or Nasdaq. Instead, it is a network of companies that ...
  4. Can I roll a traditional IRA into a 529 college account for my grandchild?

    The short answer: Not without paying taxes. But as with much of the tax code, there are various nuisances and exemptions ...
Trading Center