Unit 6

Monetary Policy

Actions by the Federal Reserve (the Fed) to control money supply, interest rates, and inflation to stabilize the economy.

Federal Reserve (Fed)

The central banking system of the U.S. that regulates banks and manages money supply, interest rates, inflation, and unemployment.

Fiscal Policy

Government decisions on taxation and spending used to influence economic conditions, controlled mainly by Congress and the President.

Budget

A yearly plan for government spending and revenue, typically totaling trillions of dollars.

Deficit Spending

When the government spends more money than it collects in revenue in a year, adding to national debt.

National Debt

The total amount of money the government owes from accumulated past deficits.

Balanced Budget

When government revenue equals government spending in a fiscal year.

Income Tax

A tax on individual earnings, created by the 16th Amendment and the largest source of federal revenue.

Corporate Tax

A tax imposed on business profits.

Social Security Tax

A payroll tax (6.2% split between employee and employer) that funds retirement and disability programs.

Medicare Tax

A payroll tax (1.45% from employee and employer) that funds healthcare for people over 65.

Excise Tax

A tax on specific goods such as gasoline, alcohol, and tobacco.

Estate Tax

A tax on the transfer of wealth after someone dies.

Tariffs (Custom Duties)

Taxes on imported goods, once a major revenue source but now relatively small.

Mandatory (Entitlement) Spending

Government spending required by law for programs like Social Security, Medicare, and Medicaid.

Discretionary Spending

Spending that Congress sets each year, including defense, education, and infrastructure.

Office of Management and Budget (OMB)

Executive agency that helps the president prepare and manage the federal budget.

Congressional Budget Office (CBO)

Nonpartisan agency that provides Congress with economic and budget analysis.

House Ways and Means Committee

House committee responsible for writing tax legislation.

Senate Finance Committee

Senate committee responsible for taxation and revenue policy.

Interest Groups

Organizations that try to influence government policy to benefit their members.

Iron Triangle

A relationship between Congress, bureaucratic agencies, and interest groups that shapes policy and funding.

Keynesian Economics

Theory that government should increase spending during recessions to stimulate demand and growth.

Supply-Side Economics

Theory that lowering taxes and regulations increases production and economic growth.

Laffer Curve

The idea that lower tax rates can sometimes increase total tax revenue by boosting economic activity.

Unemployment Rate

The percentage of the labor force that is actively seeking work but cannot find it.

Inflation

A general increase in prices over time that reduces purchasing power.

Consumer Price Index (CPI)

Measure of inflation based on changes in prices of a fixed basket of goods and services.

Stagflation

Economic condition with high inflation and high unemployment at the same time.

Environmental Protection Agency (EPA)

Federal agency created in 1970 to regulate pollution and protect the environment.

Clean Air Act (1970)

Law aimed at reducing air pollution and controlling emissions from industries and vehicles.

Unfunded Mandate

A federal requirement placed on states without providing funding to carry it out.

Medicare

Federal health insurance program for people aged 65 and older.

Affordable Care Act (ACA / Obamacare)

Law expanding health insurance coverage and reforming healthcare markets.