Role of Government in the Economy
When one party in a transaction has more or better information than the other potentially leading to unfair advantages or market inefficiencies.
Information Asymmetry
Rules created by the government to limit negative externalities or control market behavior
Regulation
Inflation that happens when the costs of production increase, such as higher wages or raw material prices
Cost-Push Inflation
Expenditures on public services and programs
Government Spending
The cost of borrowing money, often influenced by the Federal Reserve's policies
Interest Rates
Goods or services that benefit everyone, regardless of who pays for them
Public Goods
Can be used to discourage harmful activities or encourage beneficial ones
Taxes and Subsidies
A type of inflation that occurs when the demand for goods and services outpaces the economy's ability to produce them
Demand-Pull Inflation
Can be adjusted to influence consumer spending
Taxation
An action the FED can take in changing the amount banks must keep in reserve
Reserve Requirements
When a single company dominates a market.
Monopolies
Government might directly provide the service
Direct Provision
Inflation can disproportionately affect different groups, potentially widening the gap between savers and borrowers - this is known as?
Income Redistribution
Buying or selling government securities
Open Market Operations
An institution, like the Federal Reserve, that manages a state's currency, money supply, and interest rates
Central Bank
Costs or benefits that affect third parties not involved in a transaction.
Externalities
Unexpected effects that occur as a result of government intervention or other economic actions
Unintended consequences
A tool used to measure inflation by tracking the cost of a representative sample of goods and services typically purchased by households.
Consumer Price Index (CPI)
The use of government spending and taxation to influence the economy
Fiscal Policy
The interest rate that banks charge each other for overnight loans, a key tool used by the Federal Reserve in implementing monetary policy
Federal Funds Rate
A state of the economy in which there is low volatility in key measures such as price levels and employment
Economic Stability
To prevent monopolies and promote competition in markets, ensuring that consumers benefit from choice and competitive pricing
Antitrust Laws
If a country’s money supply grows faster than its economic output, each unit of currency becomes less valuable
Monetary Inflation
Controlling the supply of money and interest rates to affect economic activity
Monetary Policy
A monetary policy in which a central bank purchases securities to increase the money supply and encourage lending and investment
Quantitative Easing