Topic 4.2 - Government Intervention

Money, Money, Money

100

Money loses its value when it...

becomes too plentiful 

200

How do governments raise money to provide services?

By raising taxes 

300

What is the main source of the federal government's revenue?

personal income tax

400

 How would tax credit most likely affect consumer spending behavior?

It would lead to increased spending

500

What are the two largest expenditures of mandatory spending?

Social Security and Medicare

Terms

100

When a government spends more than it takes in?

Budget Deficit 

200

__________ is a period when slow economic growth and joblessness coincide with rising inflation.

 Stagflation 

300

What is inflation?

• General increase in prices throughout the economy

400

Economist whose ideas rose to prominence in the 1930s, believing the government should intervene to spark economic activity

John Maynard Keynes 

500

The idea that free markets can regulate themselves.

Classical Economics or Laissez Faire Economics 

The Central Bank

100

The FED refers to?

The Federal Reserve System 

200

The Federal Reserve System regulating the flow of currency into the economy is indicative of one of the following economic policies? E.2.2

A. Fiscal Policy

B. Tax Policy

C. Monetary Policy

D. Investment Policy

C. Monetary Policy 

300

Which answer below is not a power of the FED?

A. increase/decrease discount rate/fed funds rate.

B. increase/decrease reserve requirement.

C. buy/sell bonds.

D. Increase/decrease income tax rates

D. Increase/decrease income tax rates

400

• The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the availability and cost of credit in the economy. Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates. Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States. The effective monetary policy complements fiscal policy to support economic growth.

“Conducting Monetary Policy,” The Federal Reserve System

What is the role of the Federal Reserve in the U.S. economy? E.2.3

A. to promote financial stability

B. to promote fair wages for workers

C. to help the government make money.

D. to help employers create fair conditions.

• 
  

A. to promote financial stability 

500

Identify and describe the 3 tier structure of the FED.

12 Federal Reserve Banks

7 member board of governments 

12 member open market committee

Fiscal Policy

100

Choose the two answers below that are fiscal policy tools of the Federal Government?

A. Taxes

B. Government Spending

C. Discount Rate

D. Local referendums

A. Taxes

B. Government Spending 

200

What is the purpose of fiscal and monetary policy?

make the business cycle smoother and more stable.

300

Keynesian economists believe that the primary factor driving economic activity and short-term fluctuations is the demand for goods and services. The theory is sometimes called ___________

Demand Side Economics

400

What is fiscal policy?

Various means the government uses to raise and spend money.

500

Name the 5 economists and their ideas or writings we have learned this year.

1. Leonard E. Read - I, Pencil 

2. Adam Smith - Wealth of Nations, Laissez- Faire, Capitalism, Invisible Hand 

3. Karl Marx - Communist Manifesto 

4. John Maynard Keynes - Demand Side Economics, General Theory on Employment, Interest, and Money

5. Milton Freidman - Free to Choose, Supply Side Economics

Monetary Policy

100

What is Monetary Policy?

How government regulates the amount of money in circulation

200

Leader of the Monetarist school of thought, the idea that a steady money supply was key to economic growth.

Milton Freidman

300

Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by all of the following except?

A. increasing regulation

B. allowing free trade

C. lowering taxes

D. decreasing regulation

A. increasing regulation 

400

How can the Federal Reserve influence consumers to borrow money to purchase a home during an economic downturn?

By reducing interest rates on home loans to make consumers more willing to take loans from banks

500

Because the nation’s inflation rate over the longer run is primarily determined by monetary policy, the Federal Reserve can work directly to ensure that the U.S. economy benefits from low and stable inflation. Low and stable inflation helps the economy operate efficiently. When inflation is low and stable, individuals can hold money without having to worry that high inflation will rapidly erode their purchasing power. Moreover, households and businesses can make more accurate longer-run financial decisions about borrowing and lending and about saving and investment. Longer-term interest rates are also more likely to be moderate when inflation is low and stable.

“The Federal Reserve’s Monetary Policy Mandate and Why It Matters” from Conducting Monetary Policy, The Federal Reserve System

Based on the text, what is the role of the Federal Reserve’s monetary policy in the U.S. economy? 

A. to control savings

B. to control inflation

C. to control businesses

D. to control purchasing power

B. to control inflation