Fiscal Policy
Who determines fiscal policy at the national level?
Congress and the president
What is a reserve requirement?
The percentage of a deposit banks actually have to keep in the bank. The rest they can send out as loans.
What happens to GDP growth rates during a large recession (like in 2009?)
GDP growth will approach zero OR be negative (GDP will slow or shrink)
What is a healthy inflationary target for a year?
Between 1 and 3%
What is cyclical unemployment?
During a business cycle (called a recession), companies lose money and are forced to lay off workers
Why do governments sometimes use stimulus checks?
To boost spending - people spend money in businesses - businesses hire people + improve the economy
What is the discount rate?
How easy or hard it is for banks to borrow money from the federal reserve
What is GDP?
Gross Domestic Product - The value of all goods and services produced in a country in a year
What is hyperinflation?
When prices rise too quickly in an uncontrolled manner
When technology or other changes eliminate certain jobs
What is contractionary fiscal policy?
It slows down an economy when it is out of control (particularly due to inflation)
What is the Federal Reserve or the Fed?
It does not - GDP is a measure of what is produced in a country but it does not measure WHO is producing those things. A country can have high GDP but wealth could be concentrated with a few people.
What is negative inflation called?
Deflation
What is frictional unemployment?
People who are between jobs
What are examples of contractionary fiscal policy?
Cutting government spending, increasing taxes, or both. The opposite actions are called expansionary policies
Explain the multiplier effect of banks
When someone deposits money in a bank, the bank is able to put most of that money out into the economy through loans - this increases money in the economy and expands the economy
What is per capita GDP?
The average GDP or production per person
If a country has an inflation rate that is too high, what happens?
Prices rise too quickly, there is an affordability crisis
What is unemployment?
People looking for work who cannot find work
How does government spending boost the economy?
People spend with businesses -> business owners hire people and spend that money on other businesses
What does a low discount rate mean?
It is easier for banks to borrow money from the federal reserve - this is an EXPANSIONARY policy that increases the money supply and boosts the economy. High discount rate = contractionary
What is the formula for GDP per capita? (something divided by something)
What is the CPI?
It is an index or mix of different goods in a society (such as rent, groceries, gas) used to measure inflation
What is the formula for unemployment? (hint: something divided by something)