fiscal and monetary policy

Laissez-faire economy

Economic system where government barely intrudes in transactions among businesses and citizens

Command and control economy

Government dictates economic activity (the amount of production and prices for goods)

Mixed economy

Federal government regulates economic activity, but many decisions are left to individuals and businesses

GDP

The total value of goods and services produced by an economy

Economic recession

Decline in economic activity (2 consecutive quarters of negative GDP growth)

Unemployment rate

The percentage of people who cannot find jobs actively looking for work

Inflation

Rise in price of goods and servcies

CPI

Cost of fixed goods and services overtime

Business cycle

Cyclical nature of economic activity

Keynesianism, supply side economics, monetarism

Explain how government activities affect economical performance

Keynasism

stimulate economy in times of economic recession by encouraging people to spend money

Supply side

Stimulate economy by cutting taxes to encourage taxpayers to spend more money

Fiscal policy

Government uses taxes and spending

Republicans support…

Military spending and decreasing taxes

Federal Reserve System

A board of governors, responsible for monetary policy

Monetary policy

A set of economic policy tools to regulate money in the economy

Medicare

Provides health insurance to seniors and the disabled

Medicaid

Federal program that provides health care for the poor

Entitlement spending

Mandatory government spending on programs (Medicare, Medicaid, social security)

Non-means programs

Provide assistance to qualified people, regardless of their income

Discretionary spending

Optional government spending through appropriations

Means test

Benefits for all citizens with incomes below specified levels (food stamps)

Keynes

Liberals suppor

Keynes: when demand is low..

Government should put more money into the economy (reduce taxes, increase gov. Spending even if that means borrowing money)

Keyes: if demand is high…

Take money out of economy (taxing more, spending less)

Who supports supply side?

Conservatives, tax less and less regulations, (people have more money to spend, increases purchasing and jobs), gov will earn revenue collected from spending, encourages people to work and save more

What is the primary source of revenue for the Social Security program?

Payroll (paid by you and employer)

What threatens the future of the social security program (why does it decrease)?

People love longer, more retirees, birth rates decrease

What agency is in charge of monetary policy?

Federal Reserve

What type of agency is the Federal Reserve?

Independent regulatory agency

What is the meaning of dual employment in regards to the federal reserve?

Maintain maximum employment and low inflation and stable prices at the same time

Why is the Federal Reserve given independence when making monetary policy decisions?

Removes politics from decision making, expertise of governors, efficient decision making, continuity in policy

Tight monetary policy

Raise interest rate, slow economic growth

Easy monetary policy

Expansionary, reduce interests rates, spur economic growth

Discount rate

Interest rates charged banks that borrow money from the Federal Reserve

Reserve Requirements

Raise or lower banks reserve requirements