Exam #3

Macroeconomics (Chapters 15, 17, and 20)

bank run

when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost

basic quantity equation of money

money supply x velocity \= nominal GDP

central bank

institution which conducts a nation's monetary policy and regulates its banking system

contractionary monetary policy

a monetary policy that reduces the supply of money and loans

countercyclical

moving in the opposite direction of the business cycle of economic downturns and upswings

deposit insurance

an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt

discount rate

the interest rate charges by the central bank on the loans that it gives to other commercial banks

excess reserves

reserves banks hold that exceed the legally mandated limit

expansionary monetary policy

a monetary policy that increases the supply of money and the quantity of loans

federal funds rate

the interest rate at which one bank lends funds to another bank overnight

inflation targeting

a rule that the central bank is required to focus only on keeping inflation low

lender of last resort

an institution that provides short-term emergency loans in conditions of financial crisis

loose monetary policy

see expansionary monetary policy

open market operations

the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates

quantitative easing (QE)

the purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand

reserve requirements

the percentage amount of its total deposits that a bank is legally obligates to either hold as cash in their vault or deposit with the central bank

tight monetary policy

see contractionary monetary policy

velocity

the speed with which money circulates through the economy: calculated as the nominal GDP divided by the money supply

automatic stabilizers

tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation.

balanced budget

when government spending and taxes are equal

budget deficit

when federal government spends more money that it receives in taxes in a given year

budget surplus

when the federal government receives more money in taxes than it spends in a year

contractionary fiscal policy

fiscal policy that decreases the level of aggregate demand, either through cuts in government spending or increase in taxes

corporate income tax

a tax imposed on corporate profits

crowding out

federal spending and borrowing causes interest rates to rise and business investment to fall

discretionary fiscal policy

the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level of overarl economic activity

estate and gift tax

a tax on people who pass assets to the next generation - either after death or during life in the form of gifts

excise tax

a tax on a specific good - on gasoline, tobacco, and alcohol

expansionary fiscal policy

fiscal policy that increases the level of aggregate demand, either through increases in government spending or cuts in taxes

implementation lag

the time it takes for the funds relating to fiscal policy to be dispersed to the appropriate agencies to implement the programs

individual income tax

a tax based on the income, of all forms, received by individuals

legislative lag

the time it takes to get a fiscal policy bill passed

marginal tax rates

or the tax that must be paid on all yearly income

national debt

the total accumulated amount the government has borrowed, over time, and not yet paid back

payroll debt

a tax based on the pay received from employers; the taxes provide funds for social security and medicare

progressive tax

a tax that collects a greater share of income from those with high incomes than from those with lower incomes

proportional tax

a tax that is a flat percentage of income earned, regardless of level of income

recognition lag

the time it takes to determine that a recession ahs occured

regressive tax

a tax in which people with higher incomes pay a smaller share of their income in tax

standardized employment budget

the budget deficit or surplus in any given year adjusted for what it would have been if the economy were producing at potential GDP

absolute advantage

when one country can use fewer resources to produce a good compared to another country; when a country is more productive compared to another country

gain from trade

a country that can consume more than it can produce as a result of specialization and trade

intra-industry trade

international trade of goods within the same industry

splitting up the value chain

many of the different stages of producing a good happen in different geographic locations

tariffs

taxes that governments place on imported goods

value chain

how a good is produces in stages

comparative advantage

when a country can produce a good at a lower cost in terms of other goods

opportunity cost

loss of the next best alternative foregone when making a decision

Jerome Powell

Who is the current Chair of the Federal Reserve Board

the Reserve Bank's Class B and C directors (subject to approval of the Federal Reserve Board of Governors)

Who appoints the 12 regional Federal Reserve bank Presidents

12

how many federal reserve bank presidents are there?

the president

who appoints the board of governors

seven

how many board of governors are there?

FDIC

federal deposit insurance corporation

FOMC

Federal open market committee

7 members of the Board of Governors of the Federal Reserve System, President of the Federal Reserve Bank of NY, and 4 of the remaining 11 Reserve Bank presidents, who serve 1 yr terms on a rotating basis

who makes up the FOMC

M\*V=P\*Q

equation of exchange

specialization

a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency

comparative costs

based on the differences in production costs of similar commodities in different countries

(money supply x velocity) = (price level x real gdp)

written out equation of exchange