Economics - Unit 6 - Irondale

Monetary Policy, Fiscal Policy and Trade

money as medium of exchange

Anything generally accepted in exchange for goods and services

money as a unit of account

when money provides a means for comparing the values of goods and services

money as a store of value

when money keeps its value if you decide to hold on to it instead of spend it

“Dual mandate” of the Fed

maximize employment and keep prices and interest rates stable (control inflation)

monetary policy

the actions that the Federal Reserve System takes to influence the level of real GDP and the rate of inflation in the economy

reserves

deposits that a bank keeps readily available as opposed to lending them out

money supply

The quantity of money available in an economy. The basic money supply in the United States consists of currency, coins,checking account deposits and savings accounts

liquidity

a key measure of how well financial markets are working. It refers to how easily assets can be bought or sold.

federal funds rate

the interest rate that banks can charge each other for loans

easy money

also called expansionary policy. This is when the Fed lowers interest rates or lowers reserve requirements to expand the money supply. Usually done when unemployment is a concern.

tight money

also called contractionary policy. This is when the Fed raises interest rates or raises reserve requirements to contract the money supply and slow down spending. Usually done when inflation is a concern.

government securities

bonds issued by the Treasury department (called T bills, Treasury notes or Treasury bonds)

revenue

the income received by a government from taxes and other nontax sources

progressive tax

a tax for which the percentage of income paid in taxes increases as income increases

proportional tax

a tax for which the percentage of income paid in taxes remains the same at all income levels

regressive tax

a tax for which the percentage of income paid in taxes decreases as income increases

Individual Income tax

a tax on the income earned by individuals from things like work, interest and investments. It is the main source of revenue for the federal government.

customs duties

Also called tariffs, these are taxes paid on imported goods.

excise tax

A tax on the sale or manufacture of a specific good. Usually this is paid per unit (per gallon, per pack, etc.)

sales tax

usually a percentage of the value of a good charged when it is sold. Not used by the federal government but it is used by many states.

tax withholding

taking tax payments out of an employees’ pay before they receive it

deductions

a variable amount or percentage that taxpayers may subtract from their gross income to reduce their taxable income

mandatory spending

Government spending required by law

Entitlements

social welfare programs that people are “entitled to” and benefit from if they meet certain eligibility requirements

Social Security

a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement.

Medicare

a federal program that provides health coverage for people age 65 and older or for people under 65 who have a disability, no matter their income.

Medicaid

a state and federal program that provides health coverage for people who have a very low income.

discretionary spending

Government spending authorized by Congress on an annual basis. Spending about which Congress is free to make choices

fiscal policy

the use of government spending and revenue collection to influence the economy

budget surplus

the situation when government revenues exceed expenditures in a given period

budget deficit

the situation when government revenues are less than expenditures in a given period

national debt

The accumulation of budget deficits. It is the total amount of money the federal government owes to bondholders

export

a good or service sent to another country for sale

import

a good or service brought in from another country for sale

absolute advantage

when a country can produce more then another country given the same quantity of resources

comparative advantage

when a country can produce a good at a lower opportunity cost than another country

tariff

a tax on imported goods

import quotas

a limit on the amount of a good that can be imported

exchange rate

the value of a nation’s currency in relation to a foreign currency

trade deficit

a situation in which a nation imports more goods and services than it export