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13 Cards in this Set
- Front
- Back
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Crowding out |
May occur with government deficit spending. It may increase the interest rate and reduce private spending, which weakens or cancels the stimulus of fiscal policy |
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Discretionary fiscal policy |
Deliberate manipulation of taxes and government spending by Congress to alter red domestic output and employment, control inflation, and stimulate economic growth |
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Expansionary fiscal policy |
Used to combat a recession. During a recession, aggregate demand is too low, so increasing gov't spending and/or reducing taxes increases aggregate demand. This creates a deficit. |
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Fiscal policy |
Automatic adjustment of gov't expenditures and tax revenues when the economy moves through the business cycle phases. |
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Built-in stability |
Arises because net taxes change with GDP. Auto stability reduces instability but does not eliminate economic instability. |
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Progressive/Regressive Tax |
Progressive = average tax rate rises with GDP. Regressive = average tax rate falls as GDP rises. Tax revenues will rise under progressive and proportional, but may rise, fall, or stay the same under regressive. |
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Contractionary fiscal policy |
Uses decreases on gov't spending, increases in taxes, or both, to reduce demand-pull inflation. |
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Functions of money |
Medium of exchange and a store of value. Unit of account in measuring GDP et al. Without money, trade would be difficult. Consistent way to compare business values. Money allows for wealth w/o the need to store actual products. |
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M1 |
Currency, checkable deposits. |
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Coins(currency) are token money |
The face value of the currency is unrelated to its intrinsic value. |
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M2 |
M1 + near-monies. Savings deposits incl. money market deposit accounts. Small-denominated time deposits(less than $100,000). Money market mutual funds. |
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Distribution of M1 & M2 |
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Basic functions of Federal Reserve Banks |
Stability, worry more about overall economy than personal wealth. 12 banks. Independent. |
