Test 4 in-class notes

Question 1

Monetary Policy

Answer 1

appointed by Fed reserve, treasury. Focus on money supply, interest rates, inflation

Question 2

Fiscal Policy

Answer 2

Elected officials. Focus on taxes & gov spending

Question 3

Fiscal policy in a recession

Answer 3

Increased gov spending, decreased taxes, or both

Question 4

Fiscal policy in inflation

Answer 4

Decreased gov spending, increased taxes, or both

Question 5

National debt

Answer 5

running total of all deficits, surpluses, & balances since beginning

Question 6

What lags are associated with fiscal policy?

Answer 6

recognition lag (recognizing the issue), implementation lag (agreeing on how), and impact/effect lag (money takes time to circulate)

Question 7

What are the main revenues & expenditures of the federal gov?

Answer 7

Personal income tax +
Medicare, Social Security, & military -

Question 8

What are the main revenues & expenditures of the state gov?

Answer 8

Sales tax +
Citizen welfare -

Question 9

What are the main revenues & expenditures of the local gov?

Answer 9

Property tax +
Schools -

Question 10

What are the roles of money?

Answer 10

Medium of exchange, unit of account, & store of value

Question 11

Commodity money

Answer 11

Money backed by a valuable commodity

Question 12

Fiat money

Answer 12

worthless outside of agreement

Question 13

Greshams law

Answer 13

bad money chases out good money

Question 14

M1

Answer 14

coins, currency, & checkable deposits (CDs)

Question 15

M2

Answer 15

M1, savings, MMAs (business savings), & time deposits

Question 16

Does the money supply typically refer to M1 or M2?

Answer 16

M2

Question 17

What are the tools of monetary policy?

Answer 17

reserve ratio, open market operations, and interest rates

Question 18

What is the reserve ratio & how is it used?

Answer 18

how much banks are required to hold. stable & not changed quickly/drastically/often. Lowered in recession, raised in inflation

Question 19

What is open market operations & how is it used?

Answer 19

the buying & selling of bonds with commercial banks. most efficient & quickest tool. in recession you buy back bonds, in inflation you sell.

Question 20

How are interest rates used in monetary policy?

Answer 20

lowered in recession, raised in inflation

Question 21

Discount rate

Answer 21

rate that banks can borrow from fed reserve

Question 22

Fed funds rate

Answer 22

rate that banks can borrow from other banks

Question 23

Prime rate

Answer 23

rate that best business customers can borrow for

Question 24

What were Ciceros beliefs?

Answer 24

there’s a value in private property, we take care of the things that belong to us

Question 25

Mercantilism

Answer 25

approach to society where the most gold wins

Question 26

Laissez-faire

Answer 26

free market

Question 27

What were Hayeks beliefs?

Answer 27

wrote “road to serfdom”. didn’t like gov. overeach. Austrian economics; don’t mess with entrepreneurs

Question 28

What is the Keynesian perspective?

Answer 28

government has responsibility to citizens & must get involved

Question 29

What is the monetarist perspective?

Answer 29

Focus on money supply to manage economy. Free market, just monetary policy. Milton Friedman was prominent economist.

Question 30

What were the beliefs of Joseph Schumpeter?

Answer 30

Democracy can’t coexist with a free market because in a complete free market, you can buy democracy. Only wealthy people can get elected.

Question 31

What were the beliefs of Hamilton?

Answer 31

Don’t elect people who “level”. National debt will cause nations to lose.

Question 32

What were the beliefs of Marx?

Answer 32

There’s a pattern of tension. Resources are land, labor, capital, & entrepreneurial ability. Labor theory of value: labor creates everything & should be valued as such

Question 33

Russian revolution

Answer 33

in 1900s, removed Tzar to uplift the people. Mass executions. Lenin & Stalin were leaders.

Question 34

Why did the Soviet Union fall?

Answer 34

No oil & cable TV exposed people to other cultures

Question 35

Chinese revolution

Answer 35

in 1949, Mao as leader. Shift to total communism, briefly.

Question 36

Who is the current leader of China?

Answer 36

Xi Jiping

Question 37

What were the beliefs of Malthus?

Answer 37

overpopulation won’t happen because of war & limited resources

Question 38

Why do countries stay poor?

Answer 38

dictatorships, no private property, capital flight, no education, urban migration

Question 39

Ethnocentrism

Answer 39

belief that your culture is the best/only

Question 40

Who owns 50% of world GDP?

Answer 40

the US

Question 41

Issues with DVCs/LDCs

Answer 41

rampant population growth, high mortality, hunger, & corruption

Question 42

2 main problems with command economy

Answer 42

coordination & incentive