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

    Understanding the Federal Open Market Committee

    The Federal Open Market Committee is the branch of the Federal Reserve Board that determines monetary policy.
  2. 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.
  3. Insights

    A Look At Fiscal And Monetary Policy

    There's a debate over which policy is better for the economy. Find out which side of the fence you're on.
  4. Trading

    How Does Money Supply Affect Interest Rates?

    A larger money supply lowers market interest rates, while a smaller supply tends to raise them.
  5. 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.
  6. Taxes

    The Link Between The Fed, Money, Debt And Taxes

    Assets on the Fed's balance sheet, money supply level, national debt level and economic production should be maintained in equilibrium.
  7. Insights

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  8. Trading

    Monetary Policy

    Monetary policy is a central bank’s actions that influence the country’s money supply and the overall economy.
  9. Personal Finance

    Explaining the Federal Discount Rate

    The federal discount rate is the rate at which eligible banks or other depository institutions can borrow funds from a Federal Reserve bank.
Frequently Asked Questions
  1. Why is social responsibility important to a business?

    Take social responsibility seriously, and your business could benefit from happier, more productive staff members while helping ...
  2. Which socially responsible retailers appeal most to ethical investors?

    Learn why ethical investors have many options in the retail sector, and discover which retail companies are most popular ...
  3. What are Some Examples of Free Market Economies?

    Learn which of the world's economies best resemble free market economies, marked by free trade, low government involvement, ...
  4. Who Decides When to Print money in India?

    Find out the role of the Reserve Bank of India, or RBI, and the amount of authority given to the government. Learn who is ...
Trading Center