Tools of Macroeconomic Policy (USA)
The principal tools of macroeconomic policy are monetary policy and fiscal policy. Monetary policy in the United States is under the control of the Board of Governors of the Federal Reserve System. The Federal Reservecontrols the supply of money and credit in a number of ways. The most important Federal Reserve instrumentstems from its authority to purchase and sell government securities in the so-called open market. Credit tightening, for example, may be accomplished by an open-market sale. The purchasers of the government securitiestransmit money balances to the Federal Reserve, thereby reducing the nation's money supply. This, in turn, reduces bank lending power and drives up the cost of borrowing. The hoped-for outcome is less borrowing and spending by the private sector of the economy. The Federal Reserve is also empowered to lend funds to its member banks. It may raise or lower the interest rate (the rediscount rate) at which it lends the funds, thereby discouraging or encouraging bank borrowing.
The other principal tool of macroeconomic policy is fiscal policy. This means the use of the federal budget to add or subtract purchasing power from the economy. To stimulate the economy, government expenditures may he raised directly or taxes may be reduced, thereby enabling individuals and firms to increase their spending. The oppositeset of policies could be employed if aggregate demand is excessive, because higher taxes and less government spending would reduce total spending and help slow inflation. The principal vehicle of fiscal policy is the federal budget. The annual budget plan is developed by the administration and submitted for review by the congressional budget committees. Changes in the tax code must be legislated by the Congress, and the tax system is administered by the Internal Revenue Service under the general supervision of the Secretary of the Treasury.
Beginning in 1983, the economy experienced mammoth budget deficits that, in five of the next eight years, exceeded $200 billion. These huge deficits make it very difficult to use fiscal policy as a tool of economic stabilization in as much as tax cuts to stimulate the economy would further add to the size of the deficit. Some macro-economists bemoan the virtual loss of fiscal policy as a stabilization tool, and others, usually described as monetarists, welcome it because they have never believed in the efficiency of fiscal policy as a stabilization tool.
A third group believes that the policies in order to be effective should be carefully coordinated. For example, during a recession it would be appropriate to reduce taxes. However, this implies that the Treasury must engage in added borrowing. As a result, bond prices will decline and interest rates will rise, thereby discouraging private borrowing and expenditure. If the tax cut were accompanied by open-market purchases by the Federal Reserve, this expansionary monetary policy could prevent the rise in interest rates.
Vocabulary
monetary policy - финансовая политика
fiscal policy - налоговая (фискальная) полтика
the Board of Governors of the Federal Reserve System- совет директоров Федеральной резеровной системы
supply of money - предложение денег
to credit - кредитовать
to stem from - происходить от
to purchase - покупать
government securities – государственные ценные бумаги
to transmit – передавать
to lend - одалживать
cost of borrowing - издержки займа
to be empowered - быть уполномоченным
interest rate (the rediscount rate) – процентная ставка
to reduce - уменьшать
to enable - способствовать, давать возможность
set of policies - пакет установок, законов
vehicle – средство; tax code - налоговый кодекс; to legislate - издавать законы; huge - огромный, громадный;tax cuts - урезание налогов;
to bemoan – оплакивать; virtual - фактический, виртуальный ;
to imply - подразумевать, намекать; to engage - привлекать, вовлекать;
bond - обязательство, облигация; to decline - падать, уменьшаться;
to prevent - предотвращать
General understanding:
l)What are the two principal tools of macroeconomic policy in the United States?
2) What is the basic role of the Board of Governors of the Federal Reserve System?
3)What is the role The Federal Reserve in the economy of the United States? 4)What is an example of the Federal reserve's operations? What «instrument» does it use? 5)What is a fiscal policy? What «vehicle» does it use? 6)Explain the conflict between the three group of economists? 7) What, according to the author, would happen if the takes were reduced?
1. Which of the following is true:
a) Monetary policy in the United States is under control of monetarists.
b)The Federal Reserve's control function is that it can buy and sell bonds in the open market,
c) Purchasers of the government securities are under control of Board of Governors. d) By lending funds to it's member banks, Federal Reserve discourages encourages bank borrowing, e) Government raises taxes to stimulate the Secretary of Budget and Internal Revenue Service. f) US economy had a large budget deficit beginning from year 1983. g)The group of macroeconomists called «mammoths» borrowed $200 to prevent the rise in interest rates.
2. Explain what is the role of the following agents in the market economy:
a) Board of Governors
b)Federal Reserve System
c) 
Congress
d)member banks
e) federal budget
f) Internal Revenue Service g)Secretary of the Treasury h)congressional budget committees Are there such institutions in the economic system
of the Russian Federation?
Find the equivalents in Russian and explain the difference in their functions?
Translate into Russian:
a) The Federal Reserve controls the supply of money and credit in a number of ways
b)The purchasers of the government securities transmit money balances to the Federal Reserve, thereby reducing the nation's money supply
c) It (Federal Reserve) may raise or lower the interest rate (the rediscount rate) at which it lends the funds, thereby discouraging or encouraging bank borrowing.
d) To enable individuals and firms increase their spending government expenditures may he raised directly or taxes may be reduced.
e) The tax system is administered by the Internal Revenue Service under the general supervision of the Secretary of the Treasury.
f) The huge deficits make it very difficult to use fiscal policy as a tool of economic stabilization.
3. Find antonyms. Write one sentence with each word to illustrate the difference:
a) to borrow - ...
b) subtract —...
c) purchase - ...
d) raise - ...
e) discourage - ...
f) deficit - ...
g) efficiency - ...
4. Explain the difference in meaning between
the following words:
a) to reduce - to induce - to produce
b) power-authority-government
c) big-large-great-huge-enourmous
5. Finding the roots.
a) Find the equivalents in Russian then look up the correct translation of each word. Has the meaning changed?:
1) recession 2) to engage 3) entrepreneur 4) business 5) virtual 6) tax 7) code 8) governor
b) What other borrowed terms in economics (other fields) do you know?
c) Write one sentence with each word. Try to come up with an interesting and understandable story.
Questions for discussion:
l)Do you agree that there are only two principle tools of macroeconomic policy? What other «tools» of macroeconomic policy do you know? (Please be very specific).
2)What is the major difference between the American tools of macroeconomics and the ones of Russian government?
3)Why do you think economists don't succeed in regulating the economy of Russia?