Econ Section 6

The difference between the government’s tax revenue and its spending both on goods and services and government transfers in a given year

budget balance

What is another name for classical economies?

capitalism

set by congress and it refers to the highest amount of money the government can borrow

debt ceiling

If a government can no longer borrow money, they might have to _____ or stop paying what it owes.

default

when the government stops paying what it owes

default

when the government spends more money than it brings in

deficit

a falling aggregate (total) price level

deflation

the rate the FED charges banks to borrow money?

discount rate

the rate banks charge other banks when they borrow money?

federal fund rate

the policy used by the government to stabilize the economy/influence the money supply?

fiscal policy

begins on October 1st

fiscal year

the total value of all final goods and services produced in the economy during a given period which is usually a year

GDP

payment that does not require anything in return - example stimulus check or Social Security

government transfer

money that the government promises to pay in the future

implicit liabilities

term: prices rise and the value of the dollar decreases

inflation

who is the current chair of the FED?

jay powell

believed the government should go in debt to help with a recession. He supported a fiscal policy.

john maynard keynes

stressed monetary policy and developed the monetary theory

Milton Friedman

What is the policy used by the Central Bank/Federal Reserve to stabilize the economy/influence money supply?

monetary policy

group within the Federal Reserve that creates monetary policy and determines the interest rate

Federal Open Market Committee

the rate banks charge their customers when they borrow money

prime rate

government debt held by individuals and institutions outside the government

public debt

takes into account inflation. You use this

To determine if GDP has increased from one year to another

real GDP

the percentage of deposits that banks must hold as reserves

reserve requirement

Programs that help to fight poverty

safety net programs

example of a safety net program

food stamp program

what is the main concern when the government runs persistent budget deficits?

financial pressure on future budgets

3 largest implicit liabilities

social security, medicare, medicaid

what percentage of the budget do Social Security, Medicare, and Medicaid make up?

46%

During a fiscal expansionary policy, government spending _____, taxes _______, and government transfers______

increases, decrease, increase

During a fiscal contractionary policy, government spending _____, taxes _______, and government transfers______

decreases, increases, decrease

What are three tools used by the government’s fiscal policy?

taxes, government spending, government transfers

What are three tools used by the Central Bank’s monetary policy?

federal open market operations, discount rate, reserve requirement

During a monetary expansionary policy, federal open market operations are _____, discount rates (discount windows) _______, and reserve requirements______

bought, decrease, decrease

During a monetary contractionary policy, federal open market operations are _____, discount rates (discount windows) _______, and reserve requirements______

sold, increase, increase

What is another name for federal open market operations?

government securities

What is the policy used most often to influence the money supply?

monetary policy

Why is monetary policy used most often to influence the money supply?

the government is too slow to determine fiscal policy

Law of demand: when price goes up, demand goes ______, and when price goes down, demand goes ______

down, up

Law of supply: when price goes up, supply goes ______, and when price goes down, supply goes ______

up, down