Fiscal Policy and Monetary Policy Review

Flashcards covering key concepts of fiscal and monetary policy, including definitions and functions related to economic principles.

Expansionary policy

Fiscal policy that increases aggregate demand by raising spending or cutting taxes.

Net taxes

Calculated as Taxes minus (Transfer payments + Subsidies).

Open market operations

The purchase or sale of government securities by a central bank.

Fiscal policy

Changes in government spending and/or taxes to achieve full employment.

Reserve requirement

The percentage of deposits banks must keep on hand.

Monetary policy

Involves the central bank influencing the supply of money and credit.

Unit of account

One of the three purposes of money along with medium of exchange and store of value.

Money supply

The total volume of money held by the public at a given time.

Federal Open Market Committee (FOMC)

The main function is to be in charge of monetary policy and the money supply.

Creating money in a fractional reserve system

Banks primarily create money by giving out loans.

Function on money

Serving as a medium of exchange

Cash

According to the sources, which of the following is considered part of the M1 money supply

Money supply increases, interest rates decrease

If the federal reserve buys government bonds from the public, what happens to the money supply and interest rates?

Contractionary monetary policy

In increasing the rate

Primary goal for fiscal policy

To decrease unemployment

Automatic stabilizer

Unemployment benefits increasing during a recession

Progressive tax

Type of tax the U.S federal income tax

Three purposes of money

Medium of exchange, store of value, and unit of account