Chapter 15: Economic Policy

public policy

a course of action pursued by government to address a specific problem

fiscal policy

government decisions about how to influence the economy by taxing and spending

monetary policy

government decisions about how to influence the economy using control of the money supply and interest rates

full employment

the theoretical point at which all citizens who want to be employed have a job

economic depression

a deep, widespread downturn in the economy, like the Great Depression of the 1930s.

Council of Economic Advisers (CEA)

a group of economic advisers, created by the Employment Act of 1946, that provides objective data on the state of the economy and makes economic policy recommendations to the president

inflation

the increase in price of consumer goods overtime

deflation

a decrease in the general prices of goods and services

gross domestic product (GDP)

a measure of the nation's overall economic output and activity

balanced budget

a spending plan in which the government's expenditures are equal to its revenue

budget deficits

the amount by which a government's spending in a given fiscal year exceeds its revenue

current account

the balance of a country's receipts and its payments in international trade and investment

- the different between a nation's receipts (exports and money that Americans earn on foreign investments) and its payments (imports and money that foreigners earn on American investments)

trade deficit

a measure of how much more a nation imports than it exports

budget making

The processes carried out in congress to determine how government money will be spent and revenue will be raised

budget reconciliation

The process by which congressional committees are held to the spending targets specified in the budget resolution. During this process, the house and the senate budget committees combine the budgetary changes from all the legislative committees into an omnibus reconciliation bill to be approved by congress

United States Trade Representative (USTR)

An agency founded in 1962 to negotiate with foreign governments to create trade agreements, resolve disputes, and participate in

national economic council (NEC)

a group of economic advisers created in 1993 to work with the president to coordinate economic policy

Federal Reserve System

an independent agency that serves as the central bank of the United States to bring stability to the nation's banking system

Treasury Department

a cabinet-level agency that is responsible for managing the federal government's revenue. It prints currency, collects taxes, and sells government bonds

federal reserve board

the group of seven presidential appointees who govern the federal reserve system

keynesian economics

the theory that government should use economic policy, like taxing and spending, to maintain stability in the economy

supply-side economics

the theory that lower tax rates will stimulate the economy by encouraging people to save, invest, and produce more goods and services

- the focus on the effects of tax policy and regulations on the labor supply

marginal tax rate

the amount of additional tax paid for every additional dollar earned as income

- a measure of how much people are working (as more people work, more tax revenue is generated)

business cycle

the normal pattern of expansion and contraction of the economy

mandatory spending

expenditures that are required by law, such as the funding of Social Security

discretionary spending

expenditures that can be cut from the budget without changing the underlying law, which is everything other then defense, entitlements, and interest on the debt

regressive

describes taxes that take a larger share of poor people's income than wealthy people's income, such as sales taxes and payroll taxes

progressive

describes taxes that require upper-income people to pay a higher tax rate than the lower-income people, such as income taxes

reserve requirement

the minimum amount of money that a bank is required to have on hand to back up its assets

discount rate

the interest rate that a bank must pay on a short-term loan from the Federal Reserve bank

federal funds rate (FFR)

the interest rate a bank must pay on an overnight loan from another bank

open market operations

The process by which the federal reserve system buys and sells securities to influence the money supply