Monetary and Fiscal Policy Essentials
Key Fed tools, policy players, and the cause-and-effect chains tested on the SIE.
Keyboard Shortcuts
💡 Pro tip: Use keyboard shortcuts for faster studying!
Study Smart Tips for Monetary and Fiscal Policy Essentials
Master these concepts using proven study techniques that actually work:
Active Recall
Test yourself before flipping each card to strengthen memory retention
Spaced Repetition
Review difficult cards more frequently than easy ones
Multiple Sessions
Break study time into shorter, focused sessions
Explain Aloud
Verbalize answers to reinforce understanding
Questions Covered in This Set
10 cards to master
Who conducts monetary policy vs. fiscal policy?
Monetary policy = the Federal Reserve; fiscal policy = Congress and the President (taxing and spending). The Treasury issues debt and collects taxes — it does NOT set monetary policy.
What is the Fed's dual mandate?
Maximum employment and stable prices. Supporting the stock market is NOT part of the mandate.
Composition of the FOMC?
12 voting members: the 7 Board of Governors plus 5 Reserve Bank presidents; the New York Fed president always votes. The FOMC directs open market operations.
Effect of the Fed BUYING Treasury securities in the open market?
Cash flows to banks → reserves and money supply rise → interest rates fall → existing bond prices rise → stocks generally rise → dollar tends to weaken. Mnemonic: Buy = Bigger money supply.
Effect of the Fed SELLING Treasury securities?
Cash is drained → money supply shrinks → interest rates rise → bond prices fall → stocks pressured → dollar strengthens (tight money).
Discount rate vs. federal funds rate?
Discount rate: set by the Fed's Board of Governors for banks borrowing at the discount window. Fed funds rate: market-determined rate banks charge each other overnight; the Fed only targets it via open market operations.
Reserve requirement — what is it and how is it used?
The percentage of deposits banks must hold. Very blunt, rarely used (0% since 2020). Lowering it is expansionary (more lending).
What is Regulation T and who sets it?
The Fed sets Reg T, the initial margin requirement for buying securities on credit — currently 50%. It's a credit-control tool, not a money-supply tool.
Rank these rates in normal conditions: prime, discount, fed funds, T-bill
T-bill (lowest) < fed funds ≤ discount rate < prime rate.
Why does easy money weaken the U.S. dollar?
Lower U.S. interest rates mean foreign investors earn less on U.S. deposits, reducing demand for dollars. A weaker dollar helps U.S. exporters and hurts importers.
