question
Why did the US government initiate a policy of more frequent intervention during the Great Depression?
answer
to stabilize the economy
question
What is the primary goal of supply-side economic policies?
answer
to stimulate production
question
Why did Paul Volcker, Federal Reserve chairman during the Carter administration, adopt a tight-money policy?
answer
to reduce inflation caused by the oil crisis
question
What is the principal economic argument for deficit spending?
answer
to increase overall demand
question
fiscal policy
answer
federal government; control over taxes, government spending, debt
question
monetary policy
answer
Federal Reserve Board; control over interest rates, money supply, OMOs, discount window, currency, Reserve requirements, quantity easing, signaling, pegging; to regulate the money supply
question
open market operation
answer
buying/selling of bonds/securities
question
Why do fiscal policy measures rarely have an immediate impact on the economy?
answer
the multiplier effect takes time
question
crowding-out effect
answer
occurs when high government borrowing drives up interest rates, making business investment more expensive
question
Why is it not fully accurate to describe the national debt as money we owe only to ourselves?
answer
about one-quarter of the debt is held by foreigners
question
multiplier effect
answer
a change in spending leads to more changes in spending
question
easy-money policy
answer
type of monetary policy that adds more to the money supply
question
deficit spending
answer
when the government spends more than they have
question
tight-money policy
answer
type of monetary policy that adds less to the money supply
question
stagflation
answer
supply shock causes high inflation and a stagnant economy which causes no economic growth, high unemployment, and more inflation
question
functions of the Fed
answer
control the money supply, supply paper money, hold bank reserves, supervise member banks, provide check clearing services, serve as the government's banker, lender of last resort (for banks), fiscal agent for Treasury
question
3 tools to control the money supply
answer
OMOs, reserve requirement ratio, discount rate
question
fractional Reserve banking
answer
most of money is loaned out by the bank
question
discretional fiscal policy
answer
to change aggregate demand thru government spending/taxes
question
non-discretionary fiscal policy
answer
changes in welfare, unemployment, minimum wage, etc.
question
contractionary fiscal policy
answer
brake; decrease government spending, increase taxes
question
expansionary fiscal policy
answer
gas; increase government spending, decrease taxes
question
inflation
answer
increase in prices
question
inflation rate
answer
percent increase of inflation in a given time
question
economic indicators
answer
statistics that help economists judge an economy's health
question
consumer price index
answer
measure of price changes in consumer goods/services over time; shows changes in the cost of living
question
gross domestic product
answer
market value of all final goods/services produced in a country in a given time
question
business cycle
answer
recurring pattern of growth/decline in economic activity over time
question
unemployment rate
answer
percent of labor force that is not employed, but is actively seeking work
question
recession
answer
period of declining national economic activity, usually measured as a decrease in GDP for at least 2 consecutive quarters (6 months)
question
vitals of economy
answer
GDP, unemployment rate, inflation rate
question
GDP equation
answer
Consumption + Investment + Government Spending + Net Exports
question
real GDP
answer
adjusted for inflation
question
frictional unemployment
answer
when a worker leaves a job to seek another
question
structural unemployment
answer
when demand for certain skills declines due to technological advances
question
seasonal unemployment
answer
when businesses shut/slow down for part of the year, often due to weather
question
cyclical unemployment
answer
during period of economic decline
question
Why is the unemployment rate above zero when the economy reaches full employment?
answer
there are always some people in transition between jobs
question
The official unemployment rate may be overstated because it ignores...
answer
workers in the illegal or informal economy who do not report their jobs
question
What inflationary condition is considered normal in the US?
answer
creeping inflation
question
1 cause of inflation
answer
rise in production costs
question
What phase of the business cycles is business investment most likely to increase?
answer
expansion
question
Why is consumer confidence important to the business cycle?
answer
confident consumers purchase more, increasing business profits and unemployment
question
net exports
answer
value of all exports minus imports
question
per capita GDP
answer
standard of living; nation's GDP / population
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