Macroeconomics Unit 4

Front 1

consists of deliberate changes in government spending and tax collections designed to achieve full employment, control inflation, and encourage economic growth

Back 1

fiscal policy

Front 2

group of three economists appointed by the president to provide expertise and assistance on economic matters

Back 2

Council of Economic Advisors

Front 3

an increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

Back 3

expansionary fiscal policy

Front 4

a decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two, for the purpose of decreasing aggregate demand and thus controlling inflation

Back 4

contractionary fiscal policy

Front 5

anything that increases the government’s budget deficit during a recession and increases its budget surplus during an expansion without requiring explicit action by policymakers

Back 5

automatic or "built-in" stabilizers

Front 6

measures what the Federal budget or surplus would have been under existing tax rates and government spending levels if the economy had achieved its full-employment level of GDP (potential output); economists use this to adjust actual Federal budget deficits and surpluses to account for the changes in tax revenues that can happen whenever GDP changes

Back 6

standardized budget

Front 7

a Federal budget deficit that is caused by a recession and the consequent decline in tax revenues; by-product of economy’s slide into recession, NOT the result of government action

Back 7

cyclical deficit

Front 8

time between the beginning of recession or inflation and the awareness that it is actually happening

Back 8

recognition lag

Front 9

time between need for fiscal action and the time action is taken

Back 9

administrative lag

Front 10

time between fiscal action is taken and the time that action affects output, employment, or the price level

Back 10

operational lag

Front 11

– alleged tendency of Congress to destabilize economy by reducing taxes and increasing government expenditures before elections and to raise taxes and lower expenditures after elections

Back 11

political business cycles

Front 12

fiscal policies worsen rather than correct recession or inflation

Back 12

pro-cyclical

Front 13

expansionary fiscal policy may increase the interest rate and reduce investment spending, thereby weakening or canceling the stimulus of the expansionary policy

Back 13

crowding-out effect

Front 14

financial instruments issued by the Federal government to borrow money to finance expenditures that exceed tax revenues

Back 14

U.S. securities

Front 15

highways, mass transit systems, electric power facilities, “human capital”; increase economy’s future production capacity

Back 15

public investments

Front 16

what are the 4 functions of money?

Back 16

1. medium of exchange
2. unit of account
3. store of value
4. liquidity

Front 17

paper money issued by the Federal Reserve System

Back 17

Federal Reserve Notes

Front 18

face value of any piece of currency is unrelated to its intrinsic value (the value of the physical material out of which that piece of currency is constructed)

Back 18

token money

Front 19

What does M1 consist of ?

Back 19

currency and checkable deposits

Front 20

What is included in M2?

Back 20

1. near-monies
2. savings deposits, including money market deposit accounts
3. small time deposits
4. money market mutual funds

Front 21

directs the activities of the 12 Federal Reserve Bank, which in turn control the lending activity of the nation’s banks and thrift institutions

Back 21

Federal Reserve System

Front 22

seven members appointed by the President that provide continuity, experienced membership, and independence from political pressures

Back 22

Board of Governors

Front 23

blend private and public control and collectively serve as the nation’s central bank; banker’s bank

Back 23

12 Federal Reserve Banks

Front 24

only a portion of checkable deposits are backed up by cash in bank vaults or deposits at the central bank

Back 24

Fractional Reserve Banking System

Front 25

statement of assets and claims on assets that summarizes the financial position of the bank at a certain time

Back 25

balance sheet

Front 26

amount of funds equal to a specified percentage of the bank’s own deposit liabilities

Back 26

required reserves

Front 27

interest rate paid on overnight loans to commercial banks

Back 27

federal funds rate

Front 28

price that is paid for the use of money over some time period

Back 28

equilibrium interest rate

Front 29

buying of government bonds from, or the selling of government bonds to, commercial banks and the general public

Back 29

open-market operations

Front 30

interest rate charged by the Fed for loans granted to commercial banks

Back 30

discount rate

Front 31

introduced in Dec 2007 in response to mortgage debt crisis; Fed holds two auctions each month at which banks bid for the right to borrow reserves for 28-day periods

Back 31

term auction facility

Front 32

benchmark interest rate used by banks as a reference point for a wide range of interest rates charged on loans to businesses and individuals

Back 32

prime interest rate

Front 33

Assumes that the Fed has a 2% “target rate of inflation” that it is willing to tolerate

Back 33

Taylor rule