Unit 4 Exam

4.mut.4

Economic growth

Refers to an increase in the overall production of goods and services in an economy over time, measured by changes in the gross domestic product (GDP).

Full employment

Aims to achieve a low level of unemployment where most individuals who are willing and able to work can find employment.

Price stability

Seeks to maintain a stable and predictable rate of inflation, keeping the general level of prices relatively constant over time.

Fiscal policy

Government's use of government spending and taxation to influence the economy.

Monetary policy

Involves the central bank's management of money supply and interest rates to achieve economic goals.

Progressive Tax

Tax rate increases as taxable income or wealth increases, based on the ability to pay principle.

Regressive Tax

Tax rate decreases as taxable income or wealth increases, disproportionately affecting lower-income individuals.

Inflation

Sustained increase in the general price level of goods and services over time, eroding purchasing power.

Expansionary Fiscal Policy

Increases government spending and/or decreases taxes to stimulate economic growth and demand.

Contractionary Fiscal Policy

Decreases government spending and/or increases taxes to control inflation or reduce deficits.

Policy Lags

Recognition, decision, implementation, and effectiveness lags in the formulation and impact of economic policies.

Expansionary Monetary Policy

Increases money supply and lowers interest rates to boost economic activity and employment.

Contractionary Monetary Policy

Reduces money supply and raises interest rates to control inflation and economic overheating.

Republican administrations' preferences

Favor lower taxes, reduced government spending, and limited government intervention.

Democratic administrations' preferences

Prioritize social welfare programs, progressive taxation, and increased government spending.

Federal Reserve System

Central banking system responsible for monetary policy, bank supervision, and financial system stability.

Fed Funds Rate

Interest rate at which banks lend reserves to each other overnight, influencing short-term rates.

Reserve Rate

Percentage of deposits banks must hold as reserves, regulated by the Federal Reserve to impact money supply.

Value of the Dollar

Affects trade, inflation, and capital flows, influenced by various economic factors.

Exchange Rate

Rate at which one currency can be exchanged for another, impacting international trade and investment flows.

GDP Components in the United States:

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Total spending by individuals and households on goods and services.

Methods to Calculate GDP:

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Total spending on final goods and services (C + I + G + (X - M)).

Types of Goods:

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Short-lived goods like food and clothing.

GDP per capita:

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Difference between Real GDP and Nominal GDP:

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Not adjusted for inflation.

Business Cycle Phases:

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Increasing economic activity with rising GDP and employment.

Unemployment Types:

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Temporary job transitions.

Unemployment Types Continued:

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Arises from economic shifts.

Unemployment Types Continued:

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Associated with economic downturns.