Monetary and Fiscal Policy Concepts

What are the functions of money?

Money serves as a medium of exchange, a unit of account, and a store of value.

How do banks create money?

Banks create money through the process of accepting deposits and making loans, utilizing the reserve requirement.

What are required reserves?

Required reserves are the minimum amounts of funds that a bank must hold in reserve against deposits made by customers.

How do you use the deposit multiplier?

The deposit multiplier is used to determine the maximum amount of money that can be created in the banking system from an initial deposit, calculated as 1 divided by the reserve requirement ratio.

What are the long-term implications of the quantity theory of money for monetary policy?

The quantity theory of money suggests that in the long run, changes in the money supply directly affect the price level.

What are the short-term implications of the Phillips curve for monetary policy?

The short-run Phillips curve indicates an inverse relationship between inflation and unemployment, suggesting that monetary policy can be used to target either inflation or unemployment.

What are the four goals of monetary policy?

The four goals of monetary policy are price stability, full employment, economic growth, and stability of financial markets.

What is expansionary monetary policy?

Expansionary monetary policy involves increasing the money supply to stimulate economic activity.

What is contractionary monetary policy?

Contractionary monetary policy involves decreasing the money supply to curb inflation.

What are the two tools of fiscal policy?

The two tools of fiscal policy are government spending and taxation.

What is the difference between automatic stabilizers and discretionary fiscal policy?

Automatic stabilizers are built-in fiscal mechanisms that automatically adjust government spending and taxes in response to economic conditions, while discretionary fiscal policy involves deliberate changes made by policymakers.

What is expansionary fiscal policy?

Expansionary fiscal policy involves increasing government spending or decreasing taxes to stimulate economic growth.

What is contractionary fiscal policy?

Contractionary fiscal policy involves decreasing government spending or increasing taxes to reduce inflation.

How do you represent the multiplier effect in the AD-AS model?

The multiplier effect in the AD-AS model is represented by shifts in the aggregate demand curve resulting from changes in fiscal policy.

How do you calculate macroeconomic equilibrium?

Macroeconomic equilibrium is calculated by setting aggregate demand equal to aggregate supply.

What is the federal government debt?

Federal government debt is the total amount of money that the government owes to creditors.

What is crowding out?

Crowding out occurs when increased government spending leads to a reduction in private sector spending.

What are the supply-side effects of tax simplification?

Supply-side effects of tax simplification can include increased economic efficiency, higher investment, and potential growth in the labor supply.