Economics: Monetary and Fiscal Policy

Question 1

Action Lag

Answer 1

Delay from policy decisions to implementation

Question 2

Automatic Stabilizer

Answer 2

A countercyclical factor that automatically comes into plays as the economy slows and unemployment rises

Question 3

Balanced

Answer 3

With respect to a government budget, one which spending and revenues (taxes) are equal

Question 4

Barter Economy

Answer 4

An economy where economic agents, households, corporations,

and governments “pay” for a good and service with another good or service

Question 5

Base Rates

Answer 5

The reference rate on which a bank bases lending rates for all other customers

Question 6

Bond Market Vigilantes

Answer 6

Bond market participants who may reduce demand for long-term bonds, lowering price and pushing up yield.

Question 7

Broad Money

Answer 7

Encompasses narrow money plus the entire range of liquid assets that can be used to make purchases

Question 8

Budget Surplus/Deficit

Answer 8

The difference between government revenue and expenditure over a fixed amount of time.

Question 9

Capital Expenditure

Answer 9

Expenditure on physical capital (fixed assets)

Question 10

Central Banks

Answer 10

The dominant bank in a country, usually with official or semi-official govt status

Question 11

Contractionary

Answer 11

Tending to cause the real economy to contract

Question 12

Contractionary Fiscal Policy

Answer 12

A fiscal policy that has the goal to make the real economy contract

Question 13

Crowding Out

Answer 13

The thesis that government borrowing may divert private sector investment from taking place

Question 14

Current Government Spending

Answer 14

Government Expenditures on a regular recurring basis such as

• Defense
• Health
• Education

Question 15

Deflation

Answer 15

Negative Inflation

Question 16

Demand Shock

Answer 16

A typically unexpected disturbance in demand such as an unexpected interruption of trade

Question 17

Direct Taxes

Answer 17

Taxes directly levied on income, wealth or corporate profits

Question 18

Double coincidence if Wants

Answer 18

Prerequisite to barter trade, each person wants what other has.

Question 19

Economic Stabilization

Answer 19

Reduction of magnitude of economic fluctuations

Question 20

Expansionary

Answer 20

Tending to cause the real economy to grow

Question 21

Expansionary Fiscal Policy

Answer 21

Fiscal policy with goal to cause real economy to grow

Question 22

Expected Inflation

Answer 22

The level of inflation that economic agents are expecting in the future

Question 23

Fed funds rate

Answer 23

The US interbank lending rate on overnight borrowings if reserves

Question 24

Federal Funds Rate

Answer 24

The US interbank lank rate on overnight borrowings of reserves

Question 25

Fiat Money

Answer 25

Money that is not convertible into any other commodity

Question 26

Fiscal Multiplier

Answer 26

1/(1-C(1-T)) The ratio of a change in national income to a change in government spending

Question 27

Fiscal Policy

Answer 27

The use of taxes and government spending to affect the aggregate level of expenditure

Question 28

Fisher Effect

Answer 28

thesis that real interest rates are stable over time ie changes in nominal interest rates are the result of changes in expected inflation

Question 29

Foreign Currency Reserves

Answer 29

Holding by the central bank of non-domestic currency deposits and non-domestic bonds

Question 30

Fractional Reserve Bank

Answer 30

Banking in which reserves constitute a fraction of deposits

Question 31

Gilts

Answer 31

Bonds issued by UK government

Question 32

Gold Standard

Answer 32

When a currency can be converted into a specified amount of gold

Question 33

Open Market Operation

Answer 33

Central bank buying and selling bonds as a means of monetary policy.

Question 34

Operational Independence

Answer 34

A banks ability to execute monetary policy and set interest rates in the way it thought would best meet the inflation target

Question 35

Payments System

Answer 35

The system for the transfer of money

Question 36

Policy Rate

Answer 36

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.

Question 37

Portfolio Demand for Money

Answer 37

the demand to hold speculative money balances based on the potential opportunities or risks that are inherent in other financial instruments

Question 38

Precautionary Money Balances

Answer 38

Money held to provide a buffer against unforeseen events that might require money.

Question 39

Price Stability

Answer 39

In economics, refers to an inflation rate that is low on average and not subject to wide fluctuation

Question 40

Promissory Note

Answer 40

A written promise to pay a certain amount of money on demand

Question 41

Quantitative easing

Answer 41

An expansionary monetary policy based on aggressive open market purchase operations

Question 42

Quantity equation of exchange

Answer 42

M x V is equal to P x Y

Question 43

Quantity theory of money

Answer 43

Asserts that total spending (in money terms) is proportional to the quantity of money

Question 44

Recognition Lag

Answer 44

The lag in government response to an economic problem resulting from the delay in confirming a change in the stars of the economy.

Question 45

Refinancing rate

Answer 45

A type of central bank policy rate

Question 46

Repurchase agreement

Answer 46

Collaterizes loan type

Question 47

Reserve requirement

Answer 47

The requirement for banks to hold reserves in proportion to the size of deposits

Question 48

Ricardian equivalence

Answer 48

An economic theory that implies government financing deficit by increasing taxes or issuing debt is inconsequential

Question 49

Risk premium

Answer 49

An extra return expected by investors for bearing some specified risk

Question 50

Speculative Demand for Money

Answer 50

The demand to hold speculative money balances for potential opportunities/risks

Question 51

Speculative Money Balances

Answer 51

Monies held in anticipation that other assets will decline in value

Question 52

Store of Value

Answer 52

The quality of tending to preserve value

Question 53

Store of wealth

Answer 53

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

Question 54

Structural (or cyclically adjusted) budget deficit

Answer 54

The deficit that would exist if the economy was at full employment (or full potential)

Question 55

Supply Shock

Answer 55

A typically unexpected disturbance to supply.

Question 56

Target Independent

Answer 56

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.

Question 57

Transactions money balances

Answer 57

Money balances that are held to finance transactions

Question 58

Transfer Payments

Answer 58

Welfare payments made through the social security system that exist to provide a basic minimum level of income for low income households

Question 59

Two-week repo rate

Answer 59

Rate on 2 week repurchase agreement

Question 60

Unanticipated Inflation

Answer 60

The component of inflation that is a surprise

Question 61

Unexpected inflation

Answer 61

The component of inflation that is a surprise