Economic Policies and Money Supply

This set of flashcards covers key economic concepts related to policies, money supply, and their effects on the economy.

Discretionary Policy

Government actions that are taken based on the current economic situation, such as increasing spending or taxes.

Automatic Stabilizers

Economic policies or programs that automatically counterbalance fluctuations in economic activity without the need for new legislation, like unemployment insurance.

Expansionary Policy

Policies aimed at increasing aggregate demand to stimulate the economy, such as government spending increases or tax cuts.

Contractionary Policy

Policies aimed at decreasing aggregate demand to slow down the economy, such as reducing government spending or increasing taxes.

M1 Money Supply

The total of all physical currency, demand deposits, traveler's checks, and other checkable deposits.

M2 Money Supply

M1 plus savings accounts, time deposits, and money market funds.

Inflationary Gap

A situation where aggregate demand exceeds potential output, leading to inflation.

Recessionary Gap

A situation where aggregate demand is less than potential output, leading to unemployment.

Store of Value

A function of money that allows it to be saved and retrieved in the future.

Medium of Exchange

A function of money that facilitates transactions and trade.

Unit of Account

A function of money that provides a standard measure of value for goods and services.

Stagflation

A situation where inflation and unemployment rise simultaneously.

Reserve Ratio

The fraction of deposits that a bank must hold as reserves rather than loaning them out.

Fiscal Policy

Government adjustments to spending levels and tax rates to influence the economy.

Monetary Policy

Central bank activities that manage the money supply and interest rates to influence the economy.

Aggregate Demand

The total demand for all goods and services in an economy at a given overall price level in a given time period.

Aggregate Supply

The total supply of goods and services that firms in an economy plan to sell during a specific time period.