Monetary and Fiscal Policy Glossary

Fiscal Policy

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

Monetary Policy

Actions taken by a country's central bank to manage the money supply and interest rates.

Expansionary Fiscal Policy

Increasing government spending or decreasing taxes to stimulate economic activity.

Contractionary Fiscal Policy

Decreasing government spending or increasing taxes to slow down economic activity.

Expansionary Monetary Policy

Lowering interest rates or increasing the money supply to stimulate economic activity.

Contractionary Monetary Policy

Raising interest rates or reducing the money supply to control inflation.

Central Bank

A national bank that provides financial services and regulates the money supply and interest rates.

Interest Rates

The cost of borrowing money expressed as an annual percentage rate (APR).

Open Market Operations (OMOs)

The buying and selling of government securities by a central bank to regulate the money supply.

Inflation

The rate at which the general level of prices for goods and services rises.

Unemployment Rate

The percentage of the labor force that is unemployed and actively seeking employment.

Aggregate Demand

The total demand for goods and services within an economy.

Fiscal Deficit

The difference between a government's total expenditures and its total revenues.

Public Debt

The total amount of money the government owes to external and internal creditors.

Taxation

The system through which the government collects revenue from individuals and businesses.

Government Spending

The total expenditure by the government on goods, services, and public projects.

Monetary Base (Money Supply)

The total amount of a country's money supply, including currency and central bank reserves.

Quantitative Easing (QE)

A non-conventional monetary policy to increase the money supply by purchasing government bonds.

Fiscal Multiplier

The ratio of a change in national income to the change in government spending or taxation.

Crowding Out

Increased government spending reduces private sector spending or investment.

Supply-Side Economics

An economic theory focusing on increasing supply by reducing taxes and regulations.

Stagflation

A situation of stagnant growth, high unemployment, and high inflation simultaneously.

Fiscal Stimulus

A government policy aimed at encouraging economic growth through increased spending and/or tax cuts.

Currency Devaluation

A decrease in the value of a country's currency relative to other currencies.

Policy Lags

Delays between the implementation of policies and their effects on the economy.

Automatic Stabilizers

Economic policies and programs that automatically stabilize the economy without intervention.

Budget Surplus

A situation where government revenues exceed government expenditures.

Liquidity Trap

A situation in which low interest rates and high savings render monetary policy ineffective.