Fiscal and Monetary Policy Flashcards

Flashcards based on lecture notes about fiscal and monetary policy.

Federal Budget

A financial document outlining the government’s expected revenue and proposed spending for a fiscal year.

Fiscal Year

A 12-month period used for budgeting and accounting; in the U.S., it starts on October 1st and ends on September 30th.

OMB (Office of Management and Budget)

The executive branch agency responsible for assisting the President in preparing the federal budget and overseeing its administration.

CBO (Congressional Budget Office)

Provides nonpartisan economic data to Congress, analyzes the President’s budget, and projects the impact of legislative proposals.

Balanced Budget

Occurs when total government revenue equals total government spending in a fiscal year.

Budget Deficit

Occurs when government spending exceeds its revenue in a fiscal year, leading to borrowing.

Budget Surplus

When the government collects more in revenue than it spends during a fiscal year.

Fiscal Policy

Government actions involving taxation and spending to influence economic conditions.

Government Spending

Increasing or decreasing spending to influence demand is a tool of what?

Taxation

Adjusting tax rates to influence consumer behavior and investment is a tool of what?

Expansionary Fiscal Policy

Used during a recession to increase demand by raising spending and/or cutting taxes.

Contractionary Fiscal Policy

Used during inflation to reduce demand by decreasing spending and/or increasing taxes.

Discretionary Fiscal Policy

Deliberate changes in taxes or spending by government decision-makers to manage the economy.

Automatic Stabilizers

Policies that automatically counteract economic fluctuations, like unemployment benefits and progressive income taxes.

National Debt

The total amount of money the government owes to creditors, accumulated over time from deficits.

Circular Debt

Occurs when debt obligations are transferred through various organizations or sectors in a cycle.

Debt-to-GDP Ratio

Formula: Total National Debt / Gross Domestic Product x 100

Federal Reserve System

The central banking system of the U.S., established in 1913, responsible for managing money supply and interest rates.

Central Bank

An institution that manages a nation’s currency, money supply, and interest rates; in the U.S., this is the Federal Reserve.

Board of Governors

The main governing body of the Federal Reserve, consisting of seven members appointed by the President and confirmed by the Senate.

Federal Open Market Committee (FOMC)

A branch of the Federal Reserve that makes decisions about open market operations and guides monetary policy.

Required Reserve Ratio

The percentage of deposits that banks must hold in reserve and not lend out.

Monetary Policy

The process by which the central bank controls the money supply and interest rates to influence economic activity.

Discount Rate

The interest rate the Federal Reserve charges commercial banks for short-term loans.

Open Market Operations (OMO)

The buying and selling of government securities in the open market to regulate money supply.

Federal Funds Rate

The interest rate at which banks lend reserves to each other overnight.

Expansionary Monetary Policy

Increases money supply and lowers interest rates to stimulate economic growth.

Easy-Money Policy

Another term for expansionary policy—encourages borrowing and spending by making money cheaper to obtain.

Contractionary Monetary Policy

Reduces money supply and increases interest rates to curb inflation.

Tight-Money Policy

Another term for contractionary policy—discourages borrowing and spending to control inflation.