Economic Policy

What is fiscal policy?

Government decisions on taxing, spending, and deficits to influence the economy (e.g., stimulus spending during recessions).

Define monetary policy.

Federal Reserve actions to control the money supply via interest rates, reserve requirements, and open market operations (e.g., lowering rates to encourage borrowing).

What is GDP?

Total annual production of goods/services valued at market prices. In 2015, U.S. GDP was ~$18 trillion.

What defines a recession?

Two or more quarters of negative GDP growth (e.g., the 2008 "Great Recession").

How is inflation addressed?

By tightening the money supply (e.g., raising interest rates to reduce spending).

What is mandatory spending?

Legally required spending (e.g., Social Security, Medicare), accounting for ~60% of the federal budget.

Describe Classical Theory.

Markets self-adjust via price mechanisms; minimal government intervention (e.g., laissez-faire policies).

What is Keynesian Theory?

Government should manage aggregate demand through countercyclical spending/taxation (e.g., 2009 $787 billion stimulus).

Explain Supply-Side Economics.

Focuses on production via tax cuts and deregulation to spur growth (e.g., Reagan-era tax cuts).

How does the Fed impact the money supply?

Adjusts reserve requirements, sets discount rates, and conducts open market operations (buys/sells Treasury bonds).

Why is the Fed independent?

Self-funded, not subject to congressional appropriations; decisions require no political ratification.

How do entitlements impact federal spending?

Social Security, Medicare, and Medicaid dominate (~60% of budget). Reform proposals include raising retirement age and capping healthcare costs.

Deficit vs. National Debt?

Deficit: Annual shortfall (e.g., 1.7Tin2009).∗Debt (Cumulativedeficits( 18T in 2015).

Name 3 deficit reduction proposals from 2010.

1. Cut federal workforce by 10%.

2. Raise Social Security retirement age.

3. Cap Medicare/Medicaid growth.

What is a balanced budget amendment?

Constitutional rule limiting spending to revenue. Pros: Fiscal discipline. Cons: Limits crisis flexibility.

What was TARP?

$700B program to stabilize banks via equity purchases (e.g., Citigroup bailout).

How did the Fed respond to the 2008 crisis?

Lowered rates to near-zero, injected $1.25T into markets, and guaranteed loans.

What did the Dodd-Frank Act do? (2008 recession)

Enhanced financial regulation (e.g., created the Consumer Financial Protection Bureau).

Describe the 2009 stimulus package.

$787B in spending/tax cuts (e.g., infrastructure, Medicaid expansion, "Making Work Pay" rebates).