unit 4 econ test review

WHAT IS FISCAL POLICY?

Government decisions on taxing and spending to influence the economy.

WHAT IS EXPANSIONARY FISCAL POLICY?

Increasing spending or cutting taxes to reduce unemployment and stimulate growth.

WHEN IS EXPANSIONARY FISCAL POLICY USED?

During recessions or periods of high unemployment.

WHAT IS CONTRACTIONARY FISCAL POLICY?

Raising taxes or reducing spending to slow inflation.

WHEN IS CONTRACTIONARY FISCAL POLICY USED?

When inflation is rising too quickly.

WHAT IS THE FEDERAL BUDGET?

A plan for government spending and revenue for one fiscal year.

WHAT IS A BUDGET DEFICIT?

When government spending exceeds revenue in a year.

WHAT IS A BUDGET SURPLUS?

When government revenue exceeds spending in a year.

WHAT IS THE NATIONAL DEBT?

The total amount the federal government owes from past deficits.

HOW DO DEFICITS AFFECT THE NATIONAL DEBT?

Each deficit adds to the total national debt.

HOW DO SURPLUSES AFFECT THE NATIONAL DEBT?

Surpluses reduce the national debt.

WHAT IS THE ROLE OF THE FEDERAL RESERVE?

To manage the money supply and stabilize the economy.

WHAT IS MONETARY POLICY?

The Federal Reserve's actions to influence interest rates and money supply.

WHO MAKES MONETARY POLICY DECISIONS?

The Federal Open Market Committee (FOMC).

WHAT ARE THE FED'S MAIN TOOLS?

Open Market Operations, discount rate, and interest on reserve balances (IORB).

WHAT ARE OPEN MARKET OPERATIONS?

The buying and selling of government bonds to influence interest rates.

HOW DOES BUYING BONDS AFFECT THE ECONOMY?

Lowers interest rates and increases the money supply.

HOW DOES SELLING BONDS AFFECT THE ECONOMY?

Raises interest rates and decreases the money supply.

WHAT IS THE DISCOUNT RATE?

The interest rate the Fed charges banks for loans.

HOW DOES LOWERING THE DISCOUNT RATE AFFECT BORROWING?

It encourages banks and households to borrow more.

HOW DOES RAISING THE DISCOUNT RATE AFFECT BORROWING?

It discourages borrowing and slows economic activity.

WHAT IS THE RESERVE REQUIREMENT?

The percentage of deposits banks must keep and not loan out.

WHAT IS IORB?

Interest the Fed pays banks on the reserves they hold.

WHAT IS MONETARY POLICY USED FOR?

Controlling inflation, stabilizing prices, and supporting employment.

WHAT IS ABSOLUTE ADVANTAGE?

Producing more of a good using the same resources.

WHAT IS COMPARATIVE ADVANTAGE?

Producing a good at a lower opportunity cost.

WHY IS COMPARATIVE ADVANTAGE IMPORTANT?

It encourages countries to specialize and trade.

WHAT IS A TARIFF?

A tax on imported goods.

HOW DO TARIFFS AFFECT TRADE?

They make imports more expensive and protect domestic industries.

WHAT IS A QUOTA?

A limit on the amount of a good that can be imported.

HOW DO QUOTAS AFFECT TRADE?

They restrict supply and raise prices of imported goods.

WHAT IS AN EMBARGO?

A complete ban on trade with a specific country.

WHY DO GOVERNMENTS USE EMBARGOES?

For political pressure or national security reasons.

WHAT IS A TRADE BARRIER?

Any restriction on international trade, such as tariffs, quotas, or embargoes.

WHAT ARE TRADE BENEFITS?

Lower prices, greater variety, and access to resources.

WHAT IS A STRONG DOLLAR?

A dollar that has high value compared to other currencies.

HOW DOES A STRONG DOLLAR AFFECT IMPORTS?

Imports become cheaper for Americans.

HOW DOES A STRONG DOLLAR AFFECT EXPORTS?

U.S. exports become more expensive to foreign buyers.

WHAT IS A WEAK DOLLAR?

A dollar that has lower value compared to other currencies.

HOW DOES A WEAK DOLLAR AFFECT TRADE?

Exports rise (cheaper abroad) and imports fall (more expensive).