BF Unit 5

What are the three types of unemployment?

Frictional, Structural, and Cyclical.

What is Frictional unemployment?

Unemployment that occurs when people are in-between jobs or just entering the labor force.

What is Structural unemployment?

Unemployment that happens when you have skills that don’t match available jobs.

What is Cyclical unemployment?

Unemployment that occurs when people are laid off and companies cannot afford to pay employees.

What is the Federal Funds Rate?

The interest rate that banks charge each other to borrow and lend money overnight.

Who is the current head of the Federal Reserve?

Jerome Powell.

What is the purpose of the Federal Reserve?

To control the supply of money to achieve stable prices, full employment, and economic growth.

What is the function of the Federal Open Market Committee (FOMC)?

It votes on the federal funds rate and consists of 12 total voters.

7 governors, 1 NY District Bank, 4 rotating district bank

meets and votes 8 times a year

What are the three ways the Fed controls the money supply?

Reserve requirement, Discount rate, and Open market operations.

What does the Consumer Price Index (CPI) measure?

The rate of inflation.

What can the government do to fight inflation?

Contract the money supply, raise interest rates, or raise taxes.

Why is unexpected deflation detrimental?

It hurts debtors and helps creditors, and is associated with higher levels of unemployment.

Monetary Policy

Management of the money supply for the purpose of maintaining stable prices, full employment, and economic growth.

Board of Governors

Controling body of the Federal Reserve, whose members are appointed by the president of the united states.

District Bank

One of the 12 banks that compose the Federal Reserve.

Federal Open Market Committee (FOMC)

Part of the Federal Reserve that esablishes and executes monetary policy.

Federal Funds Market

Market in which banks borrow and lend excess reserves.

Discount rate

Interst rate charged banks for borrowing reserves form the Federal Reserve.

Open Market Operations

Buying and selling of US Treasury securities by the Federal Reserve.

Fiscal Policy

Taxation, expenditures, and debt management by the Federal Reserve.

Deficit

Disbursements exceeding receipts.

Government spending exceeds revenues.

Surplus

Receipts exceeding disbusments.

Government revenues exceed spending.

Inflation

General increase in prices with special emphasis on increases in consumer prices.

Deflation

General decline in prices

Recession

Period of at leat 6 months during which the economy experiences increased unemployment and negative growth.