Fiscal and Monetary Policies

These flashcards cover key concepts related to fiscal and monetary policies, defining terms and functions critical to understanding economics.

Fiscal Policy

The use of government spending and taxation to influence the economy.

Monetary Policy

The process by which the central bank (Federal Reserve) controls the supply of money, often targeting interest rates to promote economic growth and stability.

Discretionary Spending

The portion of the federal budget that is decided by Congress through the annual appropriations process.

Mandatory Spending

Expenditures required by existing laws, such as Social Security and Medicare.

Expansionary Fiscal Policy

A policy that increases government spending and/or decreases taxes to stimulate economic growth.

Contractionary Fiscal Policy

A policy that decreases government spending and/or increases taxes to slow down economic growth.

Federal Reserve System

The central banking system of the United States, established in 1913 to oversee monetary policy.

Reserve Requirements

The minimum amount of reserves a bank must hold against its deposits, set by the Federal Reserve.

Discount Rate

The interest rate charged by the Federal Reserve to commercial banks for short-term loans.

Open-Market Operations

The buying and selling of government securities by the Federal Reserve to influence the money supply.

Net Worth

The difference between assets and liabilities, representing the financial value of an individual or organization.

Assets

Items of value owned by an individual or company that can be used to generate income.

Liabilities

Financial obligations or debts owed to others, which must be paid in the future.

Revenue

The income generated from normal business operations, such as taxes in the context of fiscal policy.

Outlays

The amount of money spent by the government, including expenses on mandatory and discretionary programs.

Federal Open Market Committee

A component of the Federal Reserve System that makes key decisions about interest rates and the growth of the United States money supply.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.