Test 4 in-class notes Flashcards
Monetary Policy
appointed by Fed reserve, treasury. Focus on money supply, interest rates, inflation
Fiscal Policy
Elected officials. Focus on taxes & gov spending
Fiscal policy in a recession
Increased gov spending, decreased taxes, or both
Fiscal policy in inflation
Decreased gov spending, increased taxes, or both
National debt
running total of all deficits, surpluses, & balances since beginning
What lags are associated with fiscal policy?
recognition lag (recognizing the issue), implementation lag (agreeing on how), and impact/effect lag (money takes time to circulate)
What are the main revenues & expenditures of the federal gov?
Personal income tax +
Medicare, Social Security, & military -
What are the main revenues & expenditures of the state gov?
Sales tax +
Citizen welfare -
What are the main revenues & expenditures of the local gov?
Property tax +
Schools -
What are the roles of money?
Medium of exchange, unit of account, & store of value
Commodity money
Money backed by a valuable commodity
Fiat money
worthless outside of agreement
Greshams law
bad money chases out good money
M1
coins, currency, & checkable deposits (CDs)
M2
M1, savings, MMAs (business savings), & time deposits
Does the money supply typically refer to M1 or M2?
M2
What are the tools of monetary policy?
reserve ratio, open market operations, and interest rates
What is the reserve ratio & how is it used?
how much banks are required to hold. stable & not changed quickly/drastically/often. Lowered in recession, raised in inflation
What is open market operations & how is it used?
the buying & selling of bonds with commercial banks. most efficient & quickest tool. in recession you buy back bonds, in inflation you sell.
How are interest rates used in monetary policy?
lowered in recession, raised in inflation
Discount rate
rate that banks can borrow from fed reserve
Fed funds rate
rate that banks can borrow from other banks
Prime rate
rate that best business customers can borrow for
What were Ciceros beliefs?
there’s a value in private property, we take care of the things that belong to us
