Economics: Monetary and Fiscal Policy Flashcards
Action Lag
Delay from policy decisions to implementation
Automatic Stabilizer
A countercyclical factor that automatically comes into plays as the economy slows and unemployment rises
Balanced
With respect to a government budget, one which spending and revenues (taxes) are equal
Barter Economy
An economy where economic agents, households, corporations,
and governments “pay” for a good and service with another good or service
Base Rates
The reference rate on which a bank bases lending rates for all other customers
Bond Market Vigilantes
Bond market participants who may reduce demand for long-term bonds, lowering price and pushing up yield.
Broad Money
Encompasses narrow money plus the entire range of liquid assets that can be used to make purchases
Budget Surplus/Deficit
The difference between government revenue and expenditure over a fixed amount of time.
Capital Expenditure
Expenditure on physical capital (fixed assets)
Central Banks
The dominant bank in a country, usually with official or semi-official govt status
Contractionary
Tending to cause the real economy to contract
Contractionary Fiscal Policy
A fiscal policy that has the goal to make the real economy contract
Crowding Out
The thesis that government borrowing may divert private sector investment from taking place
Current Government Spending
Government Expenditures on a regular recurring basis such as
- Defense
- Health
- Education
Deflation
Negative Inflation
Demand Shock
A typically unexpected disturbance in demand such as an unexpected interruption of trade
Direct Taxes
Taxes directly levied on income, wealth or corporate profits
Double coincidence if Wants
Prerequisite to barter trade, each person wants what other has.
Economic Stabilization
Reduction of magnitude of economic fluctuations
Expansionary
Tending to cause the real economy to grow
Expansionary Fiscal Policy
Fiscal policy with goal to cause real economy to grow
Expected Inflation
The level of inflation that economic agents are expecting in the future
Fed funds rate
The US interbank lending rate on overnight borrowings if reserves
Federal Funds Rate
The US interbank lank rate on overnight borrowings of reserves
Fiat Money
Money that is not convertible into any other commodity
Fiscal Multiplier
1/(1-C(1-T))
The ratio of a change in national income to a change in government spending
Fiscal Policy
The use of taxes and government spending to affect the aggregate level of expenditure
Fisher Effect
thesis that real interest rates are stable over time ie changes in nominal interest rates are the result of changes in expected inflation
Foreign Currency Reserves
Holding by the central bank of non-domestic currency deposits and non-domestic bonds
Fractional Reserve Bank
Banking in which reserves constitute a fraction of deposits
Gilts
Bonds issued by UK government
Gold Standard
When a currency can be converted into a specified amount of gold
Open Market Operation
Central bank buying and selling bonds as a means of monetary policy.
Operational Independence
A banks ability to execute monetary policy and set interest rates in the way it thought would best meet the inflation target
Payments System
The system for the transfer of money
Policy Rate
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
Portfolio Demand for Money
the demand to hold speculative money balances based on the potential opportunities or risks that are inherent in other financial instruments
Precautionary Money Balances
Money held to provide a buffer against unforeseen events that might require money.
Price Stability
In economics, refers to an inflation rate that is low on average and not subject to wide fluctuation
Promissory Note
A written promise to pay a certain amount of money on demand
Quantitative easing
An expansionary monetary policy based on aggressive open market purchase operations
Quantity equation of exchange
M x V is equal to P x Y
Quantity theory of money
Asserts that total spending (in money terms) is proportional to the quantity of money
Recognition Lag
The lag in government response to an economic problem resulting from the delay in confirming a change in the stars of the economy.
Refinancing rate
A type of central bank policy rate
Repurchase agreement
Collaterizes loan type
Reserve requirement
The requirement for banks to hold reserves in proportion to the size of deposits
Ricardian equivalence
An economic theory that implies government financing deficit by increasing taxes or issuing debt is inconsequential
Risk premium
An extra return expected by investors for bearing some specified risk
Speculative Demand for Money
The demand to hold speculative money balances for potential opportunities/risks
Speculative Money Balances
Monies held in anticipation that other assets will decline in value
Store of Value
The quality of tending to preserve value
Store of wealth
Goods that depend on the fact that they do not perish physically over time, and on the belief that others would always value the good
Structural (or cyclically adjusted) budget deficit
The deficit that would exist if the economy was at full employment (or full potential)
Supply Shock
A typically unexpected disturbance to supply.
Target Independent
A banks ability to determine the definition of inflation that they target, the rate of inflation that they target and the horizons over which the target is to be achieved.
Transactions money balances
Money balances that are held to finance transactions
Transfer Payments
Welfare payments made through the social security system that exist to provide a basic minimum level of income for low income households
Two-week repo rate
Rate on 2 week repurchase agreement
Unanticipated Inflation
The component of inflation that is a surprise
Unexpected inflation
The component of inflation that is a surprise
