Fiscal and Monetary Policy Review

Fiscal and Monetary PolicyReview Economics Mr. Bordelon

Key Terms Policy used to increase overall demand and GDP.

Key Terms • Policy used to increase overall demand and GDP. • Expansionary fiscal policy

Key Terms Theory that states that the economy regulates itself.

Key Terms • Theory that states that the economy regulates itself. • Classical economic theory

Key Terms Long-term bond, issued sometimes for as long as 30 years.

Key Terms • Long-term bond, issued sometimes for as long as 30 years. • Treasury bond

Key Terms Occurs when government has money left over after paying all of its expenses for the year.

Key Terms • Occurs when government has money left over after paying all of its expenses for the year. • Budget surplus

Key Terms Government’s use of taxing and spending and transfers to affect overall economy.

Key Terms • Government’s use of taxing and spending and transfers to affect overall economy. • Fiscal policy

Key Terms Rate Federal Reserve charges for loans to commercial banks.

Key Terms • Rate Federal Reserve charges for loans to commercial banks. • Discount rate

Key Terms Process by which money enters into circulation.

Key Terms • Process by which money enters into circulation. • Money creation

Key Terms Seven-member board that oversees Federal Reserve System.

Key Terms • Seven-member board that oversees Federal Reserve System. • Board of Governors

Key Terms Monetary policy that reduces the money supply.

Key Terms • Monetary policy that reduces the money supply. • Contractionary monetary policy

Key Terms Reserves greater than the required amounts.

Key Terms • Reserves greater than the required amounts. • Excess reserves

Key Terms Process by which banks record whose account gives up money and whose account receives money when a customer writes a check.

Key Terms • Process by which banks record whose account gives up money and whose account receives money when a customer writes a check. • Check clearing

Key Terms federal funds rate Federal Reserve District prime rate budget deficits automatic stabilizers balanced budget

Main Ideas Name and describe limits of fiscal policy.

Main Ideas • Name and describe limits of fiscal policy. • Policy lag • Political pressure • Predicting future economic activity (time lag)

Main Ideas Describe the multiplier effect.

Main Ideas • Describe the multiplier effect. • Effects of fiscal policy are multiplied in the market. Every dollar of change in fiscal policy translates into more than a dollar of change in overall national income.

Main Ideas What is national debt?

Main Ideas • What is national debt? • National debt is sum of government borrowing. Measured sometimes by comapring it to GDP (debt calculated as a percentage of GDP).

Main Idea What is the difference between the national debt and budget deficit?

Main Idea • What is the difference between the national debt and budget deficit? • National debt is all of the money that federal government owes. Deficit is the amount of money government borrows for one fiscal year.

Main Ideas What options does the government have to respond to a budget deficit (think fiscal policy tools)?

Main Ideas • What options does the government have to respond to a inflationary gap (think fiscal policy tools)? • Increase taxes • Decrease spending • Decrease transfers

Main Ideas Name services the Federal Reserve offers banks.

Main Ideas • Name services the Federal Reserve offers banks. • check clearing • supervising lending practices • lender of last resort • What about the gov’t?

Main Ideas What is the money multiplier formula?

Main Ideas • What is the money multiplier formula? • 1/rrr

Critical Thinking What’s the difference between classical and Keynesian economics?

Critical Thinking • What’s the difference between classical and Keynesian economics? • Classical economics focuses on self-regulation of the free market. • Keynesian economics supports government interaction within the market.

Critical Thinking How do automatic stabilizers affect the U.S. economy?

Critical Thinking • How do automatic stabilizers affect the U.S. economy? • Automatic stabilizers try to keep recessions and inflation from having such a large impact on the economy. Without them, the economy could end up with depression or hyperinflation.

Critical Thinking What is the crowding-out effect, and how can it influence economic growth?

Critical Thinking • What is the crowding-out effect, and how can it influence economic growth? • When governments borrow money, there is less money available to invest in businesses. If people do not invest in businesses, economic growth slows down.

Critical Thinking Why do you think open-market operations are the most commonly used monetary policy tool?

Critical Thinking • Why do you think open-market operations are the most commonly used monetary policy tool? • Open market operations have an almost immediate effect on the money supply, which is more advantageous than dealing with the required reserve or discount/federal funds rates because they can take longer.

Fiscal and Monetary Policy Review