OJA 5 - Monetary Policy, Inflation, Unemployment Flashcards
What is the Trickle-down economics?
It states that tax brakes and benefits to corporations and the wealthy will trickle down to everybody else, mainly the middle class
It hinges on 2 assumptions: all members of society benefit from the growth and that the growth is likely to come from those with resources and skills to increase productive ouputs
It is criticized because it is more likely that cutting taxes for the wealthy will result in them keeping the extra money and not spending it, it is a better idea to cut taxes for the poor and working families because they are more likely to spend the money
What is the Laffer curve?
This curve shows the relationship between tax rates and the amount of tax revenue collected by governement
Lower taxes should pay for themselves because they may encourage spending and economic growth (employer hiring new workers, people spending more money)
On the other hand high taxes may result in less spending and tax evasions
Governement is trying to find the optimal tax rates that will give them the most income and at the same time make it worthwhile for people to work and make income for themselves
What is monetary policy?
It is conducted by central banks, it influences the money supply in the country through interest rates and by printing money - it is done in order to speed up/slow down the overall economy
What are the goals of monetary policy?
To keep prices stable, sustain economic growth, keep a reasonable level of unemployment
What are interest rates?
It is the cost of borrowing money, compensate for the service/risk of lending money
What is the difference between low and high interest rates?
When interest rates are low people are more likely to borrow money amd spend the money in the economy
When imterest rates are high, people are borrowing less amd spending less
Who is a creditor?
Creditor is someone who lends money to someone else
It can be either individual or an institution
The borrowed money are intended to be repaid in the future typically with some added interest
Who is a debtor?
It is a company or individual who owes money to someone (to another person or an institution)
If a person borrows money from a banks he is called a borrower
