Friends
A budget ____ is when the government borrows so that it can spend more than it receives from tax revenue during a single year
Deficit
The world ____, in contrast, refers to the accumulation of such borrowing, year after year.
Debt
When looking at the trend of the national debt over time, you need to adjust for _______ since dollars today are not worth the same as dollars in the past.
Inflation
It is also important to look at national debt as a ____________ since doing that gives an indication of how easy or hard it would be for a country to pay back all the money it owes.
percentage of GDP
The U.S. GDP tends to increase every year because of __________ growth and improved ___________.
Population and productivity
What are liquid assets?
Money held as cash instead of in the forms of bonds, mortgages, stocks, etc
You deposit money in the bank. The bank loans most of it out and keeps a small amount in the bank. What is this system of banking called?
Fractional reserve banking
What is the name of the interest rate that the Fed charges to banks when it loans them money?
Discount rate
What are open market operations?
The Fed buying or selling short-term government bonds
The Fed can increase or decrease the money supply fairly quickly; which method do they most often use to accomplish this?
Open Market Operations
An interest rate is a price. What is the price?
Borrowing Money
How does the Fed influence interest rates?
By Manipulating the money supply. Increasing it lowers interest rates; decreasing it raises interest rates.
What kind of monetary policy is happening if the central bank increases the money supply, which leads to more borrowing and spending?
Expansionary
What kind of monetary policy is happening if the central bank decreases the money supply, which leads to less borrowing and spending?
Contractionary
What two things are needed to keep a banking system healthy?
Confidence and liquidity
Much more rarely, the Fed does Q.E. to increase the money supply. What do the letters stand for and what does the term mean?
Quantitative easing; the Fed bought a lot of longer-term assets, like home loans, from the banks. They did this with "made-up money," or money created electronically, which raises fears about inflation since one effect of QE is to massively increase the supply of money in circulation.
What are the two main ways to speed up or slow down the economy?
Fiscal policy (changing government spending / taxing policies) and monetary policy (changing the amount of money in circulation)
Which one of the two main ways is more effective?
It depends - monetary policy may be more effective when economic problems are not severe; when they are severe, fiscal policy might be much more effective.
True or Flase? Money must be made up of cash and coins issued and approved by the government.
Flase - Money can consist of anything that is used as a medium of exchange.
True or false? In today's world, a lot of the money in use is digital instead of physical.
True
Most economists are not worried about the borrowing the U.S. has done already, because they’re too worried about ________________________.
The borrowing the U.S. is going to do
The two programs expected to cost hugely more as the baby boom generation retires and lives longer are __________ and _________.
Social Security and Medicare
When the government doesn’t pay back its lenders as promised, this is known as __________and it's terrible for everyone.
Default
What is the U.S. debt ceiling?
It is a limit on how much the government can borrow.
What is the central bank of the United States?
The Federal Reserve