Principles of Economics I - Test 3 Study Guide

Vocabulary flashcards covering fiscal policy, money systems, and the structure and powers of the Federal Reserve from Principles of Economics I Test 3 Study Guide.

Fiscal Policy

The use of government spending and taxes to impact the economy.

Fiscal Stimulus

An economic measure where the government spends more or lowers taxes to stimulate economic activity.

Deficit Ceiling

A proposed limit placed on the size of the government budget deficit to help reduce it.

Barter System

An early system of exchange where people trade one good directly for another, limited by the requirement that both parties need something of value.

Money

Anything that people accept in exchange for goods and services; its value comes from what people can buy with it rather than gold or silver backing.

Functions of Money

The three standard roles fulfilled by money: medium of exchange, standard of value, and store of value.

Aspects of Good Money

Desirable physical and functional traits of currency, including being portable, easy to carry, easy to recognize, and hard to counterfeit.

Forms of Money Supply

The categories where money is held, which consists mostly of transaction checking accounts, savings accounts, or cash.

Fiat Money

Monetary instruments that possess less intrinsic value as commodities than their designated value as money.

Legal Tender

Currency that the law specifies must be accepted as legal payment.

Board of Governors

The policy-making body of the Federal Reserve.

Central Bank

A financial institution established by a government to oversee a nation, with which the general public cannot deal directly as a bank.

Roles of the Federal Reserve

Responsibilities that include clearing checks for banks, issuing paper currency, regulating and inspecting banks, and acting as a fiscal agent for the U.S. Treasury across its 12 districts.

Banker's Bank

The concept describing the Federal Reserve's role as a bank for commercial banks, holding deposits for them and providing them with loans.

Open Market Operations

A general power of the Federal Reserve involving buying and selling securities on the market; during a recession, the Fed buys securities to increase excess reserves.

Discount Rate

The interest rate charged by the Federal Reserve to banks, which is typically lowered during a recession to encourage borrowing.

Required Reserve Ratio

The most powerful, rarely used general tool of the Federal Reserve, which can be decreased during a recession so banks are required to hold less money in reserve.