Business Cycle
-systematic changes in real GDP marked by alternating periods of expansion and contraction.
Fiscal Policy
-use of government spending and revenue collection measures to influence the economy
Expansionary Fiscal Policy
-goal is to increase government spending and/or cutting taxes
Contractionary Fiscal Policy
-goal is to decrease government spending and/or raising taxes
Monetary Policy
-actions by the Federal Reserve System to expand or contract the money supply in order to affect the cost and avaliability of credit.
-changes in the money supply in order to affect the availability and cost of credit.
-changes interest rates by changing
Easy Money Policy
-fed expands the money supply, causing interest rates to fall (increases economic growth)
-monetary policy resulting in lower interest rates and greater access to credit; associated with an expansion of the money supply.
Tight Money Policy
-fed restricts the size of the money supply, causing interest rates to increase (decreases economic growth)
-encourages everyone to borrow and spend less.
-monetary policy resulting in higher interest rates and restricted access to credit; associated with
Tools used in Monetary Policy
Reserve Requirement, Open Market Operations, Discount Rate
Reserve Requirement
-formula used to compute the amount of a depository institution's required reserve.
-used the least
-creating money
-one bank loans money, the money is generally deposited into another bank
-creates more deposits and more reserves are lent out
-when a ban
Open Market Operations
-monetary policy in the form of U.S. treasury bills or bond sales and purchases or both.
-most used
-federal reserve buys bonds (government securities) to expand or contract the money supply.
*banks have more money to spend
*interest rates drop
*borrowing
Discount Rate
-interest rate the Fed charges banks for loans
*high discount rate: high money policy
*low discount rate: low money policy
-interest rate that the Federal Reserve System charges on loans to the nation's financial institutions.
Keynesian Economics
-government spending and taxation policies suggested by John Maynard Keynes to simulate the economy; synonymous with fiscal policies or demand-sid economics.
Deficit Spending
-annuel government spending in excess of taxes and other revenues
Supply-Side Policies
-economic policies designed to stimulate the economy by increasing production.
-focus on stimulating production of goods and services
-Benefits:
*increased productivity, and more goods and services in the market
*drive prices down which would lead to grow
Demand-Side Policies
-focus on stimulating the consumption of goods and services
-Benefits:
*1945-1973 "Golden Age" of Capitalism (people should choose what they want to buy and sell)
*growth rates were high and most people ad jobs
-Cost:
*government over-expanded the money s
Multiplier Effect
-a change in investment spending will have a magnified effect on total spending.
-change in overall spending caused by a change in investment spending.
-in todays economy it is 2
Federal Reserve System
-privatly owned, publicaly controlled; central Bnak of the United Staes.
Required Reserve Ratio
...
Proportional Tax
-tax in which percentage of income paid in tax is the same regardless of the level of income
Progressive Tax
-tax where percentage of income pais in tax rises as level of income rises.
Regressive Tax
-tax where percentage of income paid in tax goes down as income rises.
Flat Tax
-proportional tax on individual income after a specified threshold has been reached.
VAT Tax
(value-added tax)
-tax on the value added at every stage of the production process.
Tax Criteria
1.) equity
-fairness are the taxes just?
2.) simplicity
-written so that everyone can understamd them
3.) efficiency
-the tax should be easy to administer and easy to generate revenue
Tax Reform
...
Public Sector
-the part of the economy made up of the local, state, and federal governments.
Private Sector
-the part of the economy made up of private individuals and businesses.
Mandatory Spending
-federal spending authorized by law that continues without the need for annual approvals of Congress.
Discretionary Spending
-spending for federal programs that must recieve annuel authorization.
Deficit
...
Surplus
-situation where quantity supplied is freater than quantity demanded at a given price.
National Debt
-the total amount borrowed from investors to finance the government's deficit spending.
Describe Adam Smith's four tax principles and what they say about taxes.
Equity:
-The rich should pay a higher percentage
Certainty:
-People should know when and how they will pay
Convenience:
-Paying taxes should be simple and straightforward
Efficiency:
-Maximum gain for government, minimum loss for taxpayers
Explain monetary policy and the tools the Fed uses to stabilize the economy.
1.)Reserve Requirement-the least used
-Creating money
-When one bank loans money, that money is generally deposited into another bank.
-This creates more deposits and more reserves to lent out.
-When a bank makes a loan from its reserves, the money supply
Explain fiscal policy and the tools Congress uses to stabilize the economy.
1.) Expansionary Fiscal Policy
-Goal is to increase government spending and/or cutting taxes
2.) Contraction army Fiscal Policy
-Goal is to decrease government spending and/or raising taxes
Identify and describe three different taxes you may pay in your lifetime. Be sure to include the structure, incidence, and who levies the tax.
9.1
Explain 3 tax reforms that have occured since 2000 and explain why tax reforms have occured more frequently in recent years.
1.) 2001-fed gov was collecting more taxes than they were spending
2.) 2003-caused by slow economic growth in 2002
3.)...
How does the desire of members of Congress to please their constituents affect decisions about government spending?
...
What is national debt and what impact does it have on the economy?
-the total amount borrowed from investors to finance the givernments deficit spending.
1.) Transferring Purchasing Power
-private sector to the public sector
-The debt will go from generation to generation and just keep growing.
2.) Reducing Economic Ince