Ch. 17 Economic Policy Flashcards
Goals of economic policy
to foster trade and commerce and increase prosperity for as many of the nation’s citizens as possible.
Democracy in America
book by Tocqueville in which he remarked on the egalitarian nature of the American people, who by their qualities of individualism, hard work, money-making, and capitalist spirit were able to avoid the pitfalls of the Old World aristocratic system.
The American Way/ American System
the economic policy characterized by high tariffs, a national bank and stable currency, and internal improvements.
boom and bust
period of rapid economic growth and low rates of unemployment followed by a period of rapid economic contraction and high rates of unemployment.
business cycles
series of natural fluctuations of business expansion and contractions; can be measured by changes in the GDP.
robber barons
term of contempt for the late 19th century and early 20th century industrialists who used exploitative, unethical, and sometimes illegal mean to amass great wealth and power.
monopoly
a single business that controls all of the goods and services in a market without any competition.
Interstate Commerce Act (1887)
prohibited monopolistic behavior in the railroad industry.
Sherman Anti-Trust Act of 1890
prohibited monopolies, trusts, and restraint of free trade in all industries.
Progressive Era
1890s-1920s was marked by an attempt to reform business, political and social ills.
laissez-faire economics
a hands-off approach to government interference in the economy.
16th Amendment
authorized a national income tax
19th Amendment
granted women the right to vote
state interventionist mixed economy
economy in which the government attempts to influence the economy in a number of areas from employment to inflation and everything in between.
bank run/ bank panic
mass withdrawals of funds by panicked bank customers
bank holiday
the day following the inauguration of FDR in which all the nation’s banks were closed to stop the collapse of the banking system.
Emergency Banking Act (1933)
the federal government guaranteed to insure bank deposits and keep unhealthy banks from reopening.
Banking Act of 1933 (Glass-Steagull Act)
separated investment and commercial banking and created the FDIC
Federal Deposit Insurance Corporation (FDIC)
guarantees bank deposits against bank failure.
leveraging and margin
when an investor borrows money to purchase more stock than he could afford to buy using only his personal funds.
margin calls
situation in which the broker exchange requires an investor to put down more collateral or sell the stock.
Securities Act of 1933
bill containing several investment industry reforms including limits on margin buying and requirements that investors be informed about investment risks.
Securities and Exchange Commission (SEC)
agency created to enforce securities laws.
Dust Bowl
period of dust storms that decimated agriculture on the prairies of North America due to drought and imprudent farming practices.
Department of Agriculture
federal institution that provided assistance to farmers and played a pivotal role in agricultural reform and conservation during the Great Depression.
Soil Conservation Corps
agency created to reclaim the lands ravaged by the Dust Bowl
Civilian Conservation Corps
agency created to provide windbreaks and hold the earth in place.
Agricultural Adjustment Act of 1933 and Second Agricultural Act of 1938 (AAA)
legislation designed to help stabilize commodity prices to farmers in exchange for a limit on the crops that they planted and the livestock that they raised.
economic regulations
government regulations of business practices
social regulations
government regulations that protect consumers and the general public in areas like health, the environment, and safety
deregulation
the reduction or elimination of government regulations in favor of markets and natural factors
free market economy
an economy where prices for goods and services are based on supply and demand and in which there is little or no government intervention.
Gramm-Leach-Bliley Act (1999)
repealed the Glass-Steagull Act and deregulated the financial industry
global warming
increase in average global temperature due to increasing carbon in the atmosphere from the burning of fossil fuels.
laissez-faire capitalists
economists who believe in the “hands off” economy that stresses competition and a free market
An Inquiry into the Nature and Causes of the Wealth of Nations
written by Adam Smith in which he championed laissez-faire capitalism
Keynesians
those who favor the economic theories of John Maynard Keynes, who believed that government spending could stimulate the economy
Monetarists
those who favor the economic theory of Milton Friedman, who believed government interference should be limited to manipulating the monetary supply to control inflation
supply-side economics
an economic theory that asserts that there is an optimum tax rate at which work and investment will be maximized.
fiscal policy
taxing and spending by the government as an economic tool.
progressive taxation
a tax system in which the level of taxation increases with the wealth of an individual or ability to pay.
regressive taxation
a tax system in which the level of taxation decreases with the wealth of the individual or ability to pay.
flat tax
a tax system in which the level of taxation is the same for everyone with the wealth of the individual or ability to pay.
redistribution of wealth
government taxing and spending that reduces the disparities between the rich and poor in society.
Office of Management and Budget (OMB)
the executive office that prepares the president’s budget and gives the executive branch advice, research, and forecasting about the economy and other policy issues pertaining to the federal budget.
Congressional Budget and Impoundment Control Act of 1974
sets the limits on the presidential practice of impoundment
Congressional Budget Office (CBO)
non-partisan agency whose purpose is to provide Congress with an accurate estimate of revenues and expenditures for the upcoming year so that Congress can plan for the annual budget.
president’s budget request
request presented to Congress on the first Monday in February that details the amounts to be spent and collected by the federal government and the predicted deficit or surplus.
mandatory spending
government spending on things that cannot be controlled by the budget process.
discretionary spending
government spending on things that can be controlled by the regular budget process.
Congressional budget resolution
a broad guide to how much money will be spent and how much will be allocated to 20 spending categories
budget functions
20 spending categories used by Congress to fashion the Congressional budget resolution
deficit
a revenue shortfall; not enough revenue to cover spending
surplus
a revenue excess; more than enough to cover spending
budget “point of order”
parliamentary mechanism that allows any single member of the House or Senate to block a piece of legislation if it oversteps spending allocations or cuts taxes below the level set by the budget resolution.
budget reconciliation
congressional procedure that limits consideration of the budget bill to 20 hours.
“pay-as-you-go” or “PAYGO” rule
congressional rule that states that the reconciliation process cannot add to the deficit by reducing taxes or increasing spending
monetary policy
government regulation of national money supply and interest rates
Federal Reserve Act of 1913
act that created the Federal Reserve System
Federal Reserve System
manipulates transactions between member banks and monetary policy to affect the economy.
Federal Open Market Committee (FOMC)
body in charge of open market operations
open market operations
purchase and sale of government securities on the open market by a central bank
Federal Reserve Board of Governors
7 members who oversee the Federal Reserve Banks; appointed by potus and serve 14 year over-lapping terms.
reserve requirements
the percentage of a bank’s deposits that must be held in reserve to cover loans
discount rate
the interest rate that the Federal Reserve charges member banks when they borrow money
