Monetary Policy
When a recession is starting, the Federal Reserve will ________ interest rates
Lower
If inflation is too high, what type of monetary policy will the Federal Reserve implement?
Contractionary
A tax that takes the same proportion of income/wealth from all citizens
Proportional tax
The difference between revenues and spending in a single year is this
Deficit
The name for money that is made legal tender by government decree (like the US dollar)
Fiat money
Why do we have a Federal Reserve?
To stabilize the economy
Who determines fiscal policy?
Congress & the President
A tax that takes a higher proportion of income/wealth from wealthier individuals
Progressive tax
When the federal government has more expenditures than receipts over time, this increases
National debt
The inventor of classical (laissez-faire) economics
Adam Smith
What are the two main goals of the Federal Reserve?
- limit unemployment
- limit inflation
Contractionary fiscal or monetary policy is designed to fix excessive _________
Inflation
A tax that takes a higher proportion of income/wealth from poorer individuals
Regressive tax
The name for spending that the government spends every year, without having to include in the budget (e.g. Social Security)
Mandatory spending
The inventor of modern demand-side economics (spend more and tax less to boost consumer spending and fix recessions)
John Maynard Keynes
What are 3 tools of the Federal Reserve?
- control money supply (printing money, open market operations)
- regulate banks (reserve requirements)
- lend money (lender of last resort, discount rate)
What are the two tools of fiscal policy?
Taxing and spending
A tax that is placed on businesses but passed on to consumers in the form of higher prices
Indirect tax
The name for federal spending that is determined by Congress and the President each year as part of the budget process
Discretionary spending
Expansionary monetary or fiscal policy is designed to fix excessive ___________
Unemployment
What characteristic of the economy is affected by open market operations (buying and selling bonds)?
The money supply
When the economy is in a recession, what would the government do to tax rates to boost the economy?
Lower
A tax on imports, designed to protect domestic businesses
Tariff
The name for benefits that all citizens are entitled to upon reaching a certain age or income bracket
Entitlements
What does reserve requirement mean?
Fraction of deposits that banks have to hold on reserve