8. Government and the Economy

fiscal policy

government policy that attempts to manage the economy by controlling taxing and spending

expansionary policies

fiscal policies, like higher spending and tax cuts, that encourage economic growth

contractionary policies

fiscal policies, like lower spending and higher taxes, that reduce economic growth

aggregate demand

the amount of goods and services in the economy that will be purchased at all possible price levels

inflation

an increase in the overall level of prices in the economy

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

monetary policy

a form of government regulation in which the nation's money supply and interest rates are controlled

Federal Reserve System

the central banking authority of the United States, which manages the nation's money supply

open market operations

the buying and selling of government securities to alter the supply of money

discount rate

the interest rate on the loans that the Federal Reserve makes to banks

reserve requirement

required reserve ratio - the fraction of deposits that banks must keep on reserve and not use to make loans

government securities

bonds or other promissory certificates issued by the government