15.1
Plan to increase AD
Expansionary Fiscal Policy
Theory that states that changes in AD influence the business cycle. Net exports play a small role in GDP
Keynesian Theory
Government takes more than it spends
Surplus
Central Bank of US
The Fed
Process in which banks record the receipts and expenditures of their clients
Check Clearing
Involves Fed actions that change the money supply in order to influence the economy.
Monetary Policy
Plan to reduce AD
Contractionary Fiscal Policy
A small change in spending causes a much larger change in GDP
Spending Multiplier Effect
Government spends more than it takes
Deficit
How many regional banks of the Fed are there?
12
The fraction of a bank's deposits that it must keep in reserve
RRR
The sales and purchases of marketable federal government securities
OMOs
Two tools used by gov't to influence Economy
Taxation and Gov't Spending
The MPC is 0.5. What is the SME?
2
Held for specific purposes to be expended at a future date
Trust Funds
True or False: A central bank seeks profit through lending
False
An audit of the bank's financial practices
Bank Exams
The interest rate that banks charge one another to borrow money overnight
Federal Funds Rate
PTPs and Progressive Income Taxes are examples of what?
Automatic Stabilizers
Shows how tax cuts affect tax revenue and economic growth
Laffer Curve
Short term bonds that mature in less than a year
Treasury Bills
Central banks do this to influence the amount of loanable funds that banks have available
Hold Reserves
A company that owns, or has controlling interest in, more than one bank
Bank Holding Company
The interest rate that banks charge their best customers
Prime Rate
States that people anticipate that changes in fiscal policy will affect the economy in a particular way and that, as a result, people will take steps to protect their interests.
Rational Expectations Theory
Focuses on cutting tax rates on income, spending cuts, decreased gov't regulation
Supply-Side Economics
The result of gov't's outbidding private bond interest rates. (i.e. US gov competing with private sectors to raise money through higher interest rates)
Crowding-Out Effect
Primary Goal that ensures that even in drastic times, actions are taken so that banks don't fail and the economic system remains running smoothly.
Maintaining Financial Stability
Factor that ensures banks in areas with big tourist attractions in certain times of year have the amount of money they need.
Cash on Hand
Increasing the RRR does what to the money supply?
Decreases it
How would a form of expansionary policy affect the price level?
Higher Price Level
What happens at a tax rate of 100 percent?
People collect no revenue
The war on terror is associated with which of the causes of deficit?
National Emergencies
Set Monetary Policy
Regulate Banks
Provide Payment Services
Maintain Financial Stability
What are the three main services the Fed provides to the government?
Paying bills
Selling securities
Distributing Currency
Nickname for expansionary monetary policy because its tendency to put more money into circulation.
Easy-money Policy
This is an example of when an economy is already moving out of a recession and an expansionary fiscal policy takes effect
Timing Issue
The MPC is 0.5. What happens to real GDP if the gov't increases spending by 20 million?
Real GDP = 40 mil
Gov't spending programs to stimulate the economy is falls under what cause of deficit?
Stabilization of the Economy
How long is a term for a member of the Board of Governors of the Fed?
14 Years
The RRR is 21. The Initial deposit is 100. How much total money can be loaned out?
2000