Fiscal Policy
What are the two tools of fiscal policy?
Government taxing and spending.
The total value of domestic output adjusted for inflation so that it measures overall economic production.
Real Gross Domestic Product (RGDP)
When more tax revenue is received than the government spends on goods and services this occurs.
Budget surplus.
Aggregate Demand is the total of all ______ in an economy.
Spending
Aggregate Supply is the total of all _______ in the economy.
Productivity.
"My home increased in value and now I owe Cobb County $500 more this year! I DIDN'T BUDGET FOR THIS!"
What tax is Mr. Williams complaining about?
Property Tax
Who are the two economists we reviewed in the rap battles?
Keynes and Hayek
If Congress spends more than it takes in tax revenue it will cause a ___________. The addition of all of these together will total the _________________.
Deficit
National Debt
What is the main role of the Federal Reserve?
To regulate the size of the money supply through changing interest rates.
What are the characteristics of an expansion?
low unemployment, more money in the economy, increased inflation, rise in real GDP
This is the target unemployment rate that the Federal Reserve tries to hit.
Under 5% unemployment
What are member banks?
4000 Banks and 25,000 other depository institutions that are required to hold reserves at the FED.
This type of tax is the same percentage rate for all earners no matter their income.
Proportional taxes.
Which economic viewpoint (Keynesian or Classical)has the US mostly followed since the Great Depression?
Keynesian
Contractionary money policy (fiscal or monetary) is meant to do what?
Decrease inflation by slowing down the economy and encouraging consumers and businesses to spend less.
Name two tools the Federal Reserve can use. (400 points each)
- Changing the interest on reserve balances
- Changing discount rate
- Changing the federal funds rate
- Changing the reserve requirement
- Buying or selling bonds/securities
The economy is currently growing very slowly and is experiencing 1% inflation.
Expansionary/loose money policy
Frictional unemployment will always occur.
What is it called when the Fed buys and sells bonds?
Open Market Operations
This is a tax on specific goods when they are purchased, imported, or produced. They can be easily passed on to consumers.
Ex: gasoline, alcohol, tobacco, airline tickets.
Excise taxes.
All sin taxes are excise taxes but not all excise taxes are sin taxes. Sin are excise taxes done to discourage specific behaviors.
Which economic viewpoint (Keynesian or Classical) would agree with this statement?
"Interventions in the economy made by the Government tend to make contractions and expansions worse."
Classical/Hayek
If Congress cuts taxes and increases spending what is the impact on the economy? (3 changes)
RGDP increases
Inflation increases
Unemployment decreases
What three things can the Fed do for expansionary monetary policy?
These put money into the economy usually during a recession 1. Lower interest rates 2. Lower reserve ratio 3. Buy gov't bonds/securities from banks
How do low interest rates (expansionary monetary policy) impact the economy?
- Cheaper/easier to borrow, businesses and households spend more.
- AD increases to the right
- RGDP increases
- Inflation increases
This is the target for stable prices/inflation that the Federal Reserve tries to hit every year.
2% inflation
This person is appointed by the President and confirmed by the Senate to run the Fed. It is currently Jerome Powell.
Chairmen of the Federal Reserve
This type of tax impacts people at higher incomes more. Example: Individual and Corporate Income Taxes
Progressive Taxes
Which economic viewpoint (Keynesian or Classical) would agree with this statement?
"Fiscal policy can be used to increase aggregate demand and cause an expansion."
Keynesian
Which two branches of the federal government are in charge of fiscal policy?
Executive and Legislative
President and Congress
If the Federal reserve increase the discount rate how does it impact the macroeconomy?
RDGP decreases
Unemployment increases
Inflation decreases
The economy currently has 3% unemployment, high inflation and increasing RGDP
Contractionary/tight money policy
This is the hardest macroeconomic problem to fix because both expansionary and contractionary policies are needed and would make one of the problems worse.
Stagflation.
What is the Board of Governors?
Seven members appointed by the President and confirmed by the senate with 14-year terms. They control the operation of the money and banking system of the U.S.
This type of tax impacts people with lower incomes more. Examples: Sales tax.
Regressive.
$3k in reserve
$27k to loan out
MM is 10
Money created is $270k