Economics monetary and fiscal policy test

Federal Reserve System

The country's central banking system which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

Inflation

A general and progressive increase in prices

Fiscal policy

controlled by the president and congress. Regulates economy through their powers to tax and spend

monetary policy

controlled by the fed reserve board. Regulates the economy by manipulating interest rates

M1

currency

M2

M1 + savings accounts and other liquid assests (units of accounts

M3

M1 + M2 + large time deposits (stores of values)

Market Crash of 2008 factors

banks giving loans out to untrusty ppl - ppl pulling out of their investments (Bear Sterns and systemic risk) - Credit default swaps - sub-prime mortgages

Moral Hazard

Arises when people behave recklessly because they know they will be saved if things go wrong

systemic risk

the risk that the failure of one financial institution can bring down other institutions as well

Credit default swap

insurance on cdo's (corporate bonds/loans)

credits

a "coupon" that is applied after tax brackets are filled and final tax $ due is calculated

deductions

amounts subtracted from your gross pay

proportional tax

The % of income earned remains the same for all earners (ex. property tax- everyone pays 10% of house value)

regressive tax

the % of income paid increases as your salary decreases

progressive tax

the % of income paid increases as your salary increases (ex. income tax)

Inflation Quantity Theory

inflation happens bc there is too much money in the economy

Inflation demand-pull theory

demand for goods and services increases faster than the available goods and services can be supplied

inflation cost-push theory

inflation occurs when producers must raise prices to keep up with increasing costs to produce goods and services

frictional unemployment

occurs when people are in transition (looking for jobs)

seasonal unemployment

occurs in industries that will predictably slow or stop during parts of the year (ski resorts)

structural unemployment

occurs when workers do not match the labor requirements (ex. as jobs become more technical- common laborers are less in need)

cyclical unemployment

when the business cycle becomes disrupted or slows and producers must respond to economic downturns (impacts everything not just one sector)

deficit

an excess of federal expenditures over federal revenue