Exam 2 Flashcards
(58 cards)
What are the goals of economic policy
Maintaining law and order; facilitating markets; facilitating commerce through the provision of public goods such as roads and education
What are economic policy tools
Fiscal policy and monetary policy
What is fiscal policy
Government taxing and spending
What is monetary policy
Particularly interest rates and the federal reserve’s discount rate (the rate at which it loans money to banks)
What followed the onset of the Depression in 1929
Smoot-Harley tariff and federal reserve raised interest rates
What resulted from the federal reserve raising interest rates
Banks were less likely to lend money to businesses
In a market economy what is the ultimate source of employment
Spending
John Maynard Keynes argued that there are two types of spending
Consumer spending and business spending
consumer spending
Does not typically shift radically unless consumer income changes
Business spending for investment
Depends on the business owner’ expectations of future sales
How are recessions and depressions started
Brought about because the economy is not spending enough to create high levels of employment or income
How did the Greet Crash of 1929 effect the business community
Business owners canceled their plans for expansion and inventory in the face of deep and growing concern about the future
What happened to the workforce as businesses stopped investing
Unemployment, workers were fired, received lower wages, resulting in a decrease consumer demand (also called the multiplier effect)
What happened with Bear Stearns
Disaster barely averted in March 2008, fed assumed $30 billion in liabilities and sold to Chase
What happened to Frannie Mae and Freddie Mac
Treasury took over in September 2008
When did Lehman Brothers declare bankruptcy
September 15 2008
When did the bailout of AIG occur and how much did it cost
September 16 and $80 billion
What happened September 18
3 page $700 billion proposal allowing the Gov to buy “toxic” bank assets
What is moral hazard
When a company knows that it is likely to be bailed out and becomes more likely to engage in risky behavior; become intertwined with other large companies and may be viewed as too big to fail
Federal responses in 2008
TARP, low interest rates, the Stimulus
What is TARP
$700 billion intended to purchase troubled assets; used to bailout financial institutions and auto makers
What is the Stimulus
$787 billion in tax cuts, extensions of unemployment benefits, money for state and local governments to cover budget shortfalls, infrastructure projects
What is sales tax
Taxes charges on the sale of designated goods, general sales tax is 6.25, localities may charge up to an additional 2%
In 2008 how much money did Texas spend to fill a gap in the budget
$3.3 billion
