Chapter 9 Flashcards
Fiscal Policy
Government’s budget decisions and tax policy as enacted by the president and Congress
Keynesian Theory
Government should manipulate overall demand with their own spending and taxation (Short term thinking)
Supply Side Economics
Government should allow market forces to determine prices of all goods (Long-term thinking)
Federal Reserve Act of 1913
Established Fed Reserve as the central bank to provide the nation with a safer, more flexible, and more stable monetary system
M1
Most readily available money to spend
M2
M1 + “Consumer savings deposits”
M3
M2 + “Large time deposits”
Federal Open Market Operations
Influencing money supply by buying and selling securities
Regulation T Deposit Requirement
Investor must deposit 50% of the purchase price when buying a security
Discount Rate
Base interest rate for the nation
Fed Funds Rate
Rate that commercial money center banks charge each other for overnight loans of $1 million or more
Prime Rate
Interest rate that large commercial banks charge most creditworthy corporate borrowers for unsecured loans
Broker Call Loan Rate
Interest rate that banks charge BD’s
Rate Set By the Fed Reserve
Discount Rate
What Monetary Theorists Believe
A well-controlled, moderately increasing money supply leads to price stability and a healthy economy
Who Enacts Fiscal Policy
President and Congress
Who Enacts Monetary Policy
Federal Reserve Board
When Wanting To Expand Money Supply
Buy Bonds
When Wanting To Decrease Money Supply
Sell Bonds
Most Volatile Interest Rate In The Economy
Fed Funds Rate
Elements of M1
Cash and funds held in DDAs
Monetary Theory
Guides the Federal Reserve in management of the money supply
What outside control causes Increase In US Deficit
Foreign investors pulling money out of the US
Federal Reserve
The part of the federal government that acts as an independent central bank
