Business Cycles
Repeating expansions and contractions of the economy
What is the business cycle?
Our nations central bank.
The group that controls monetary policy.
What is the Federal Reserves or the Fed?
The group that is responsible for fiscal policy.
What is Congress or the legislative branch?
A fiscal policy action for: an oil shortage which is causing long lines at gas stations, high prices for oil-based products, and inflation is increasing.
What is . . . increase taxes? (on oil)
The turning point in the business cycle where production reaches the highest current level. It represents an excellent time for business; however, it also represents the start of the contraction phase.
What is the peak?
This part of the Federal Reserve System writes rules and regulations for the banking industry.
What is the Board of Governers?
The three tools of monetary policy.
What is
•discount rate
•reserve requirement
•open market operations or the buying/selling of government bonds?
The two tools of fiscal policy
What are taxes and government spending?
The economy has rising prices and strong demand for consumer goods.
A monetary policy the Federal Reserve should take using the discount rate to lower inflation
What is . . . increase the discount rate?
In a business cycle the transition from a contraction to an expansion phase and thus the worst point in a period of decline.
What is the trough?
The Federal Reserve Banks are the operating arms of the Federal Reserve System, each located in its own district. How many districts are there and in which district is WY located? (Provide the number and city.)
What is 12 districts and WY is located in #10 Kansas City?
Difference between discount rate and reserve requirement
What is the discount rate is the interest rate the Federal Reserve charges banks to borrow money and the reserve requirement is the amount of money banks are required to have in their bank?
The main source of government revenue
What are taxes?
A fiscal policy action for: A recent economic downturn has caused falling housing prices. People are not moving as much. Those that are selling their homes are losing money because the values have decreased. Some are losing homes they can no longer afford.
What is . . . increase government spending? (on housing programs)
The phase of the business cycle where the Gross Domestic Product, or GDP, is increasing. Usually, this also means that the rate of inflation is increasing while the unemployment rate is decreasing.
What is expansion?
This part of the Federal Reserve System provides financial services, contributes to monetary policy, and supervises commercial banks.
What are Reserve Banks?
Three expansionary monetary policy actions
What are
•lowering the discount rate
•lowering the reserve requirement
•buying government bonds or securities
Contractionary fiscal policy actions
What are raising taxes and cutting government spending?
The economy is in an economic boom and low unemployment.
A monetary policy action the Federal Reserve should take by using Open Market Operations
What is . . . sell government bonds or securities?
The phase of the business cycle where the unemployment rate is increasing while the rate of inflation is decreasing.
What is contracion?
The name given to the 7 people on the Board of Governors, along with 5 of the Reserve Bank presidents who meet to make monetary policy decisions.
What is the FOMC or Federal Open Market Committee?
Three contractionary monetary policy actions
What are . . .
•raising the discount rate
•raising the reserve requirement
•selling government bonds or securities
Expansionary fiscal policy actions
What are lowering taxes and increasing government spending?
An example of one monetary and one fiscal policy action if the economy is experiencing a severe recession
What is . . .
•monetary: lower discount rate or required reserve, or buy government bonds
•fiscal: lower taxes or increase government spending