ECON 200 Handout 8 Key Terms

Question 1

Subsidy

Answer 1

A negative tax

Question 2

Regulations

Answer 2

Standards set by the government that participants in the affected markets must uphold

Question 3

Expansionary Fiscal Policy

Answer 3

Fiscal policy undertaken by the Federal government intended to increase Y

Question 4

Contractionary Fiscal Policy

Answer 4

Fiscal policy passed by Congress intended to pull back on Y

Question 5

Monetary Policy

Answer 5

Conducted by the central bank; consists of determining the supply of money (M^s) circulating around the economy, often with the goal of influencing the country’s interest rates, inflation rate, or exchange rate

Question 6

Discount Window Lending

Answer 6

When the Fed lends directly to banks “through the discount window” at the discount rate

Question 7

Discount Rate

Answer 7

The interest rate the Fed charges the borrowing banks for the lent reserves

Question 8

Quantitative Easing

Answer 8

NMA’s are purchased with freshly minted monetary base, except the type of NMAs purchased are different (long-term private securities rather than short-term government securities in OMOs)

Question 9

Interest Rate Target

Answer 9

A designated (targeted) level the Fed wants to keep an interest rate at until it chooses to alter its policy by changing or removing its target

Question 10

Fed Funds rate

Answer 10

The interest rate equilibrating the Fed Funds Market

Question 11

Fed Funds Market

Answer 11

The market where reserves are borrowed and lent between banks overnight (for only one night)

Question 12

Expansionary Monetary Policy

Answer 12

Central Bank engineered increases in M^s intended to increase Y

Question 13

Contractionary Monetary Policy

Answer 13

Central Bank engineered decreases in M^s designed to reduce Y

Question 14

Monetary Transmission Mechanism

Answer 14

The casual linkage by which changes in M^s lead to changes in Y