Government's
Role in the Economy
Role in the Economy
Who is the person who believed that government intervention helped stabilize the economy?
John Maynard Keynes
Where does the Federal Government Spend most of its budget?
Social Security and Medicare(entitlement programs)
What is the Ability-to-pay principle of tax and Example?
If you make more money, you should pay more in taxes. Ex. Income Tax
What are the functions of money?
Medium Of Exchange, Unit of Accounting, Store of Value.
What is the main function of the Federal Reserve System?
Regulating and Control the money supply (also clear checks, creates money, loan money)
What are the government's 2 tools of Fiscal Policy?
Taxing and Spending
What are 3 tools of Monetary Policy to control Unemployment?
1)Lower Reserve Requirement(more money to borrow)
2)Lower Discount Rate(cheaper to borrow money)
3)FED buy Securities(banks get more money to loan)
What is a Public good and give an example?
A good that everyone can use. Ex. Streetlight, National Defense
Where does the state government spend most of its budget?
Education
What is the benefits received principle of tax and Example.
If you want to use a service, you should pay tax on it. Ex. Thruway tolls
Define Fiat Money
Item that is money because that government says so.
Who appoints the Fed Board of governors?
7 Members chosen by the President,(then confirmed by Congress)
Part of Fiscal Policy that works quickly to give people money so they can keep buying and balance or stabilize the business cycle. Ex - Unemployment, Insurance
Automatic Stabilizers
What are 3 tools of Monetary Policy to control inflation?
1)Raise the reserve requirement (less money to borrow)
2)Raise the Discount Rate(more expensive to borrow money)
3)FED Sell Securities (banks have less money for loans)
What is a Merit good and give an example?
Something that is good for culture or society. Ex. Theater, Museum
DAILY DOUBLE
What is and causes a budget deficit?
When the government spends more than it collects in taxes. - Debt
What is Regressive tax and Example.
People with low income pay a greater % of their income to tax. Income Tax.
Where is the largest money supply located?
Checking Accounts
What Type of control do Congress and/or the President have on the fed?
NONE
What are two tools of Fiscal Policy to control Unemployment?
1)Lower Taxes(people have more money to spend)
2)Increase Government Spending ( more money in economy)
What problem would be caused by increasing the money supply?
Inflation Increased
What Groups does the government try to assist? (ex. of programs)
Old, Sick, Poor(social security, welfare, medicaid)
Define National Debt
Total amount borrowed (overspent) by the government over the years.
What is Progressive Tax and Example.
All people pay the same % of their income to tax. Medicare Tax
What term on bills gives our currency its value?
Legal Tender
What Decisions does FOMC make?
Weather ro raise or lower interest rates
What are two tools of Fiscal Policy to control inflation?
1) Raise Taxes(people have less money to spend)
2)Decrease government spending(less money in the economy)
What problem would be caused by decreasing the money supply?
Unemployment increases
In what ways does the government regulate the economy?
Agencies created to protect the people.
How does the government borrow money?
Selling Bonds(people, companies, other countries buy these)
What is a Sin Tax and Example?
Tax People in ways they don't notice(alcohol)
How many district banks of the Federal reserve are there?
12(most are located on the eastern side of the country)
What is the best way to "create money" in the United States?
Loans/Lending
What has the national debt done over the past years?
Increase significantly
95%
DAILY DOUBLE
The tools that the FED uses are called
Monetary Policy
If you increase the money supply, how does that affect the economy and the business cycle?
More Money, makes the economy go up and expand the business cycle.
What are some problems with having a large debt?
Need to pay it off, interest keeps increasing.
What is the largest tax that people pay?
Federal Income Tax
What is the reserve requirement?
A set % of a deposit that the bank must keep on reserve
If you decrease the money supply. how does that affect the economy and the business cycle?
Less Money makes the economy slow down, cause a recession
What is the discount rate?
The Interest Rate the FED charges member banks to borrow money
What is an increase in the prices of goods and services
Inflation
What are Open Market Operations?
Buying and Selling of government securities
What can monetary policies not do?
Fine-tune the economy and flatten the business cycle.