Unit 5 Flashcards
(23 cards)
Contractionary fiscal policy
REDUCES the money supply. Sell securities, raise federal discount rate, raise reserve requirements. INCREASING the interest rates. Indicates a shift in AD to the left to full employment, and reduce inflationary pressures
Budget deficit
When government expenditures exceed government revenue
Budget surplus
The condition that exists when government revenues exceed government expenditures
Built in stabilizer
type of fiscal policy that is already in place to offset the fluctuations of economic activity in our economy
Discretionary policy
occurs when Congress creates a new bill that is designed to change AD through government spending or taxation
Progressive tax system
one where the average tax burden increases with income.
Regressive tax system
Higher income leads to having to pay a lower percentage of tax
Proportional tax system
Each taxpayer pays the same amount regardless of income
Crowding out effect
the economic theory that public sector spending can lessen or eliminate private sector spending
Net export effect
A higher price level increases the relative price of domestic exports to other countries while decreasing the relative price of foreign imports from other countries
Federal reserve board of governors
certain responsibilities are shared between the Board of Governors in Washington, D.C., whose members are appointed by the President with the advice and consent of the Senate, and the Federal Reserve Banks and Branches, which constitute the System’s operating presence around the country
Open market operations
Buying and selling bonds
Discount rate
the interest rate that the Federal Reserve charges commercial banks to borrow money directly from the Treasury
Reserve requirement
Percentage of deposits that banks must keep and the rest can be turned into loans
Short run
A short time period
Long run
Something over time like several years
Phillips curve
a graph that shows how inflation rates and unemployment rates are related to each other, both in the short-run and long-run
Stagflation
a period of rising inflation but falling output and rising unemployment.
Aggregate supply shock
an inflation shock or a shock to a country’s potential national output. Adverse aggregate supply shocks of both types reduce output and increase inflation and can increase the risk of stagflation for an economy.
LRAS curve
in the long-run, the potential output an economy can produce isn’t related to the price level
Supply side economic
increasing the supply of goods translates to economic growth for a country.
Economic growth
seen by a rightward shift of the LRAS (Long-run aggregate supply)* curve
Labor productivity
measures the hourly output of a country’s economy. Specifically, it charts the amount of real gross domestic product (GDP) produced by an hour of labor
