Macroeconomics Quiz - Econ CPX

money

anything that serves as a medium of exchange, a unit of account, and a store of value

What are the three uses of money?

1. money as a medium of exchange

2. money as a unit of account

3. money as a store of value

medium of exchange

anything that is used to determine value during the exchange of goods and services

barter

the direct exchange of one set of goods or services for another

unit of account

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

store of value

money that keeps its value if you decide to hold on to

What are the 6 characteristics of money?

1. durable

2. portable

3. uniform

4. divisible

5. limited in supply

6. acceptable for of payment

currency

coins and paper bills used as money

commodity money

consists of objects that have value in and of themselves and that are used as money

representative money

makes use of objects that have value solely because the holder can exchange them for something else of value

specie

coins made of gold or silver

Progressive tax

a tax in which the rate increase as your taxable

What are two things that the Federal Reserve controls

1. how much money is in circulation

2. the supply of money

Fiat money

“legal tender,“ has value because a government has decreed that it is an acceptable means to pay debts

mandatory spending

refers to money that Congress is mandated, or required, by existing law to spend on certain programs or use for interest payments on the national debt

What are some examples of mandatory federal spending?

1. entitlement programs

2. interest payments

3. unemployment

4. school lunch programs

What are some examples of discretionary federal spending?

• defense

• education

• government employee pay

• federal emergency management agency relief funds (FEMA)

Discretionary spending

spending about which lawmakers are free to make choices

Entitlements

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

What are 3 examples of federal entitlements?

1. social security

2. Medicaid

3. Medicare

Social Security

payments to elderly and disabled people as well as their family (around 60 million people receive monthly)

Medicare

healthcare for the elderly that is funded by tax withholding from current workers

Medicaid

healthcare for younger (64 and below) low-income Americans

defense spending

the financial resources a government has to use to support its military and defense operations

how much money is 2024 was put towards defense spending?

$842 billion (13% of US budget)

about what percent of state budgets comes from federal programs?

40%

what is the driving factor of fiscal policy?

the federal budget

what dates represent a fiscal year?

October 1st - September 30th

how long doe it take to prepare the federal budget?

18 months

What are the 4 basic steps when it comes to the federal budget?

1. agencies submit spending proposals

2. executive branch draws up a budget

3. congress debates

4. back to the White House

Budget Control and Impoundment Act of 1974

an act designed to reform the budgeting process by making Congress less dependent on the president's budget

what are the steps of the Budget Control and Impoundment Act of 1974?

1A. executive agencies submit proposals

2A. president complies budget proposal and sends it to the House of Representatives

1B. congressional budget office proposes spending proposals

2B. house complies own budget in coordination with president's budget

3. congress passes budget by September 30th

4. president signs budget bill by September 30th

fiscal policy

use of government spending and revenue collection to influence the economy

federal budget

written document estimating the federal government’s revenue and authorizing its spending for the coming year

fiscal year

a 12 month period used for budgeting purposes

appropriations bills

adopted and submitted to the President before the previous years funding end on September 30th

expansionary policy

fiscal policy that tries to increase output

What is the goal of an expansionary fiscal policy?

to increase output

when would an expansionary fiscal policy be used?

to prevent a recession or recover from one

contractionary policy

fiscal policy intended to decrease output

what is the goal of a contractionary fiscal policy?

to decrease output

when would a contractionary fiscal policy be used?

when we need to fight inflation and slow economic growth

stimulus checks during Covid were examples of which kind of fiscal policy?

expansionary fiscal policy

who controls fiscal policy?

the federal government

what are two things that can be done when more money is needed?

create money or borrow money

the amount of money that is created is based on what?

the amount of goods and services available

what is the most used practice when it comes to dealing with deficits?

borrowing money

when does the current stopgap funding run out?

September 30, 2025

what is the 2025 budget deficit?

$1.9 trillion

how much more is the 2025 budget deficit compared to the 2024 budget deficit?

$100 billion more

budget surplus

occurs in any year when revenues exceed expenditures

budget deficit

occurs in any year when expenditures exceed revenues

treasury bills

short term bonds that have maturity dates of 26 weeks or less

what do deficits do to debt?

add to it

what do surpluses do to debt?

shrink it

treasury notes

terms of 2 to 10 years

treasury bonds

mature 30 years after issue

national debt

the total amount of money the federal government owes to bondholders

crowding out effect

loss of funds for private investment caused by government borrowing

tariff

a tax on foreign goods and services

who pays tariffs?

consumers in the country who have waged that tariff

what happens to the prices of goods and services that have tariffs placed on them?

the prices increase

reciprocal/retaliatory tariff

taxes on imported goods imposed by one country in response to tariffs or trade restrictions imposed by another country

monetary policy

the actions that the Fed 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

reserve requirements

amount of reserves that banks are required to keep on hand

Check clearing

the process by which banks record whose account gives up money and whose account receives money as a result of a costumer writing a check

bank holding company

a company that owns more than one bank

discount rate

the rate the federal reserve charges for loans

money creation

putting money into circulation (Fed and Banks)

required reserve ratio (RRR)

fraction of deposits that banks are required to keep in reserve

money multiplier formula

determines the total amount of new money that can be created and added to the money supply (1/RRR)

excess reserves

reserves greater than the required amounts

What are the 3 monetary tools?

1. reserve requirements

2. the discount rate

3. open market operations

federal funds rate

interest rate that banks charge one another for loans

prime rate

the rate banks charge in short term loans to their best costumers

open market operations

buying and selling of government securities in order to alter the supply of money

security

a financial document that represents ownership of corporate shares or a promise or repayment by a company or government