U.S. Government

The U.S. government consists of three branches: Executive, Legislative, and Judicial. The three parts act in a way of checks and balances so that no one branch becomes too powerful and can rule the government.

Executive Branch

The duty of this branch is to create policies that will maintain order and equity in the country. It consists of many departments, including Department of Agriculture, Commerce, Defense, Education, Labor, Treasury, etc. Don’t forget the President and his Cabinet.

Legislative Branch

The duty of the legislative branch is to create laws as the needs of the country change. It consists of the House of Representatives, Congress, and the Senate. Go to the House of Representative web page at http://www.house.gov to learn more about how the legislative branch works.

Judicial Branch

The duty of the judicial branch is to uphold the laws enacted by the executive and legislative branches and determine if they are constitutional. It consists of the many court systems in the country: State, Municipal, and the Supreme Court.

How can governmental policies affect the economy? 

The government can use either monetary or fiscal policy in attempt to stabilize the economy.

Monetary Policy

Monetary policy refers to changes in interest rates and the money supply executed by the Federal Reserve (Fed). The Fed is in part an independent government agency, but is influenced by both the legislative and executive branches, since Congress has the power to change the laws governing the Fed and the President appoints the chairman of the Fed (subject to congressional approval).

The Fed has three main monetary policy tools: discount rate, open market operations, and reserve requirement. The most talked about tool is the discount rate, which has been a news topic several times already this year. The most frequently used tool is open market operations.

Discount Rate – the rate at which the Fed lends money to member banks. (Discussion Point: Why would banks borrow from the Fed?)

Open Market Operations (OMO) – the buying or selling of treasury bonds to change the money supply.

Reserve Requirement – the percentage of deposits that must remain in the bank at all times.

How would these tools affect the money supply?

If the Fed uses OMO and buys bonds, the money supply is expanded because more money has been put into the hands of consumers. The reverse is true if the Fed sells bonds. (Discussion Point: What about the other two tools?)

Go to the San Francisco Federal Reserve Bank web page http://www.frbsf.org/system/fedsystem/ for more information on monetary policy and the Federal Reserve.

Fiscal Policy

Fiscal policy refers to the government’s expenditure and taxation. The government tries to stimulate or restrict the economy by manipulating spending and taxes.

What happens to the economy if the government spending is increased? Taxes?

If spending is increased the economy is stimulated by the creation of government jobs. If spending is decreased the economy must take over and create jobs to replace those that were lost. If taxes are increased the economy is restricted and the opposite is true if taxes are decreased.

What is a deficit? What is the debt?

A deficit occurs when government spending is greater than tax revenue. Debt is the accumulation of deficits over time.

Other Resources

To learn more about New York State government and its operations, visit http://www.state.ny.us.

To learn more about the legislative bodies in New York State go to http://www.senate.state.ny.us and http://www.assembly.state.ny.us.

For finance and investment information in the U.S., check out the New York Stock Exchange and Wall Street Journal at http://www.nyse.com and http://interactive.wsj.com/ushome.html.

Also check out http://www.fool.com/School/Basics/InvestingBasics.htm, a site recommended by the Wall Street Journal to learn about the basics of investing.