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33 Cards in this Set
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consists of deliberate changes in government spending and tax collections designed to achieve full employment, control inflation, and encourage economic growth
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fiscal policy
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group of three economists appointed by the president to provide expertise and assistance on economic matters
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Council of Economic Advisors
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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
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expansionary fiscal policy
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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
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contractionary fiscal policy
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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
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automatic or "built-in" stabilizers
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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
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standardized budget
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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
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cyclical deficit
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time between the beginning of recession or inflation and the awareness that it is actually happening
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recognition lag
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time between need for fiscal action and the time action is taken
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administrative lag
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time between fiscal action is taken and the time that action affects output, employment, or the price level
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operational lag
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– 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
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political business cycles
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fiscal policies worsen rather than correct recession or inflation
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pro-cyclical
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expansionary fiscal policy may increase the interest rate and reduce investment spending, thereby weakening or canceling the stimulus of the expansionary policy
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crowding-out effect
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financial instruments issued by the Federal government to borrow money to finance expenditures that exceed tax revenues
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U.S. securities
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highways, mass transit systems, electric power facilities, “human capital”; increase economy’s future production capacity
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public investments
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what are the 4 functions of money?
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1. medium of exchange
2. unit of account 3. store of value 4. liquidity |
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paper money issued by the Federal Reserve System
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Federal Reserve Notes
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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)
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token money
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What does M1 consist of ?
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currency and checkable deposits
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What is included in M2?
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1. near-monies
2. savings deposits, including money market deposit accounts 3. small time deposits 4. money market mutual funds |
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directs the activities of the 12 Federal Reserve Bank, which in turn control the lending activity of the nation’s banks and thrift institutions
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Federal Reserve System
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seven members appointed by the President that provide continuity, experienced membership, and independence from political pressures
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Board of Governors
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blend private and public control and collectively serve as the nation’s central bank; banker’s bank
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12 Federal Reserve Banks
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only a portion of checkable deposits are backed up by cash in bank vaults or deposits at the central bank
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Fractional Reserve Banking System
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statement of assets and claims on assets that summarizes the financial position of the bank at a certain time
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balance sheet
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amount of funds equal to a specified percentage of the bank’s own deposit liabilities
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required reserves
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interest rate paid on overnight loans to commercial banks
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federal funds rate
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price that is paid for the use of money over some time period
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equilibrium interest rate
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buying of government bonds from, or the selling of government bonds to, commercial banks and the general public
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open-market operations
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interest rate charged by the Fed for loans granted to commercial banks
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discount rate
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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
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term auction facility
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benchmark interest rate used by banks as a reference point for a wide range of interest rates charged on loans to businesses and individuals
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prime interest rate
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Assumes that the Fed has a 2% “target rate of inflation” that it is willing to tolerate
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Taylor rule
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