Monetary and Fiscal Policy Concepts

This set of flashcards covers essential vocabulary and concepts related to monetary and fiscal policy, focusing on the roles and tools of the Federal Reserve and the impact on the economy.

Domestic and International Dimensions of Monetary Policy

Explores how various factors influence money supply, interest rates, GDP, and the Federal Reserve's role in managing the economy.

Fiscal Policy

Economic policy carried out by the federal government involving changes in spending and taxation to stimulate or slow down the economy.

Monetary Policy

Policy adopted by the Federal Reserve to control the money supply to achieve specific goals like inflation control and economic growth.

Quantitative Easing (QE)

A monetary policy where the Fed buys government bonds to increase the money supply and lower interest rates.

Zero Interest Rate Policy (ZIRP)

A monetary policy that maintains interest rates at or near zero to stimulate economic activity.

Federal Open Market Committee (FOMC)

The policy-making arm of the Federal Reserve responsible for making decisions on monetary policy.

Discount Rate

The interest rate the Federal Reserve charges member banks for short-term loans.

Fed Funds Rate

The interest rate at which banks lend reserve balances to other depository institutions overnight.

Prime Rate

The interest rate that commercial banks charge their most creditworthy customers, typically higher than the Fed Funds rate.

Reserve Requirement

The amount of funds that a bank must hold in reserve against specified deposit liabilities, which can influence the money supply.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services, used to assess price change.

Personal Consumption Expenditures (PCE)

A measure of price changes in consumer goods and services that is broader than CPI.

Operation Twist

A Federal Reserve monetary policy operation that involves selling short-term securities and buying long-term securities to lower long-term interest rates.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Impact of Fed Policy on Exports/Imports

Changes in the money supply by the Fed can affect interest rates, the value of the dollar, and consequently the trade balance of exports and imports.

Expansionary Monetary Policy

A policy aimed at increasing the money supply to stimulate economic growth, usually during recessions.

Contractionary Monetary Policy

A policy aimed at decreasing the money supply to combat inflation by raising interest rates.