Government and the Economy Flashcards
What happens when the Federal Reserve increases interest rates?
The cost of taking out loans increases. Consumers spend more in the economy.
This can lead to reduced consumer spending overall.
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What is a primary responsibility of the Federal Reserve System?
to moderate the impact of expansions and contractions in the economy
This helps maintain economic stability.
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How does the Federal Reserve regulate economic activity?
by regulating the amount of money in circulation
This is a key mechanism for controlling inflation and economic growth.
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What is one of the Federal Reserve’s primary functions in the United States economy?
regulating the nation’s money supply
This function is crucial for managing economic stability.
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What is one outcome the Federal Reserve might want to produce when purchasing government securities?
fostering economic expansion
This is achieved by increasing the money supply.
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What fiscal policy does the government use to stimulate economic growth?
expansionary fiscal policy
This typically involves increased government spending and decreased taxes.
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What is an example of contractionary fiscal policy?
decreasing government spending and increasing taxes
This policy aims to slow down economic growth.
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The federal government uses fiscal policies to maintain economic stability by making changes to ???.
taxes and government spending
These tools are essential for managing economic fluctuations.
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What type of policy is related to changes in government taxation?
Tax Policy
This includes measures like changing tax rates and deductions.
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What is an economic cost associated with government regulation?
The average price of cars increased.
Regulations can lead to higher production costs for manufacturers.
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What is a benefit of government regulation in the context of consumer safety?
Fewer injuries occurred, reducing the need for medical care.
This illustrates the positive impact of safety regulations.
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What effect does increasing interest rates have on inflation?
Inflation increases
Higher interest rates can lead to reduced spending, impacting prices.
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When the government cuts taxes, what is a likely outcome?
People would have more money to spend.
Tax cuts typically increase disposable income for consumers.
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The government has enacted a law requiring the installation of seat belts in new cars.
What is the intended benefit of this type of increased government regulation?
to enhance consumer protections
This regulation aims to improve safety for drivers and passengers.
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What happens when the Federal Reserve decreases interest rates?
People buy more houses
Lower interest rates make borrowing cheaper, stimulating the housing market.
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What tool does the Federal Reserve use to reduce the money supply?
Sell government securities
This action can help control inflation by taking money out of circulation.
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What is one way the Federal Reserve fosters economic contraction?
Increase bank reserves
This can restrict the amount of money available for loans.
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What is a primary responsibility of the Federal Reserve System?
to moderate the impact of expansions and contractions in the economy
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