Everything you’ve learned so far comes together in our final two chapters, where we’ll explore how the government uses its policy tools to try to manage the economy. You’ll learn to make sense of the economic news you hear during your daily commute: What’s happening with interest rates? Can policy makers prevent a looming recession? Should you worry about government debt? Along the way we’ll learn how to interpret the promises that politicians make when trying to court your vote.
Our tour begins when we step inside a Federal Reserve meeting to learn how it sets monetary policy. We’ll explore the Fed’s goals, its targets, and the tools it uses to keep the economy and financial system running smoothly. Along the way, we’ll discuss how you should respond to monetary policy when managing your business and personal finances.
Next, we’ll take a look at how the government shapes economic outcomes through its spending and taxing decisions. We’ll uncover what the government spends money on and where it gets the money. Then we’ll consider how it can use fiscal policy to smooth out business cycles. Finally, we’ll take a long hard look at government deficits and debt, and what they mean for you now, and for the economy in the long run.