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econ 202 > quiz 3 > Flashcards

quiz 3 Flashcards

1
Q

budget surplus

A

tax collection > gov spending
- rare
- occur in 1968, 1999, 2000

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2
Q

budget deficit

A

tax collection < gov spending
- normal for US

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3
Q

budget balanced

A

tax collection = gov spending

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4
Q

What is US national debt

A

35.8 trillion

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5
Q

what was US national debt is 2000

A

5 trillion
- it was also decreasing cuz there was a surplus

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6
Q

what was US deficits

A

$2 trillion

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7
Q

treasury bill

A

gov must repay borrowed amount within 90 days

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8
Q

notes

A

gov can repay debt between 90 days - 10 yrs

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9
Q

bond

A

gov can repay between 10-30 yrs

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10
Q

progressive income tax

A

tax rate ↑ as income ↑

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11
Q

regressive income tax

A

tax rate ↓ as income ↑
- no country currently has regressive income tax

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12
Q

flat income tax (proportional)

A

tax rate is constant at all income level
- some country has it

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13
Q

author laffer

A

suggest its possible to ↑ tax collection by ↓ tax rate on same wage earner
- laffer is DYNAMIC cuz it accounts for change in behaviors

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14
Q

what is OECD

A

organization for economic cooperation and development

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15
Q

what happen during 1980-2001

A

during this time:
- only had 30 countries
- 29/30 lowered tax rate = ↑ tax collection
- US tax rate were lowered & tax collection ↑ & deficit ↑

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16
Q

Barter system of exchange

A
  1. goods traded for good
  2. good traded for a service
  3. service traded for service
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17
Q

problem w Barter

A
  1. non-uniform value
    - ex: 1 big avocado for 1 lemons
  2. difficult to trade high value items
  3. spoilage
    - goods like agriculture lose values when it goes bad
  4. double coincidence of wants
    - every person has to find another person who has what they want and want what they have
  5. time consuming
  6. seasonality
  7. difficulty in taxation
    - no tax = no gov funding = no gov service
  8. transportations
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18
Q

3 functions of money

A
  1. score of value
  2. medium of exchange
  3. way of quoting prices
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19
Q

6 desirable characteristics of goods

A
  1. uniform consistency
  2. limited
  3. durable
  4. easily transport
  5. easily divisible
  6. universally accepted (MOST IMPORTANT)
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20
Q

Money evolution

A
  1. commodity money
  2. fully backed
  3. partially backed
  4. fiat
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21
Q

commodity money

A

money that has value on its own, even if it’s not used as money
- ex: gold/copper/rice was the past currency

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22
Q

fully backed (bodied)

A

Value is placed in a receipt, where the value of receipts = value available in the vault

ex: customized receipt -> standardized receipt (the person w that receipts now is the owner of that asset)

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23
Q

partially backed

A

notes where value exceeds the amount in the vault

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24
Q

fiat

A

our current money paper money w no backing or convertibility

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25
Q

how does fiat money get its value

A
  1. trust/confident that other will accept it
  2. trust/confident that gov will not print too much, where money value
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26
Q

banks

A

can make inflationary/recessionary gap worse by ↑ interest rate (causing AD <- = bigger gap)

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27
Q

central bank

A

1913 Federal Reserve Act

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28
Q

federal reserve system

A

known as “FED:” who regulates banking

29
Q

3 levels of banks

A
  1. board of governor (BOG)
  2. Federal Open Market Committee (FOMC)
  3. 12 regional banks
30
Q

1st level of bank

A

BOG = looks at the big picture decision of MP
- consist of 7 ppl
- appointed by the president w advice n consent of the senate
- term: 14 yr 2 yr rotation

31
Q

list of different terms

A

normal term - 14 yrs 2yrs rotation
voluntary separation - leave voluntarily
death
mental incapacity - person adjudicated by 3 panel position claiming you arent fit for the job
fraud

32
Q

who is the most important person of BOG

A

there’s 1 person who acts as “the chair”
- makes decision + break ties
- 4 yrs term n can be renominated

33
Q

FOMC

A

details of MP
- 12 ppl
(7 BOG + NYC FED president + 4 other regional bank presidents)

34
Q

12 regional banks

A

atlanta
boston
chicago
cleveland
kansas
Minneapolis
philadephia
richman
st. louis
SF
dallas
NYC (most important)
(mostly in east coast)

35
Q

what are 2 theme regarding the fed

A
  1. dispersion of power
  2. FED acts slowly n in tiny steps
36
Q

6 functions of the FED

A
  1. conduct MP
  2. FED serves as bank for US gov
  3. regulates bank industry
  4. responsible for clearing checks
  5. serves as an agent of US treasury
  6. lender of last resorts
37
Q

monetary policy

A

set of tools used to influence the economy

38
Q

1st FED functions

A

conduct MP (adjust the supply of money)
- use 4 tools

39
Q

1st tool

A

change in required reserve ratio (RRR)
- if FED wants expansionary MP, ↓ RRR
↓ RRR means bank has more to loan, which grows the eco

40
Q

Required reserve ratio

A

% of deposit that bank must keep in cash or on file w the fed
- if % is not met, bank shut down

41
Q

fractional reserve banking system

A

banks hold on a % of deposit
- Banks don’t keep all the money you deposit with them.
and lends them out to others

42
Q

2nd tools

A

change in discount rate
- if FED want expansionary MP = ↓ discount rate
(this will let bank have more money to loan out, growing eco

43
Q

discount rate

A

interest rate charged by the fed on loans it makes to the bank
- THE ONLY INTEREST RATE THAT THE FED CAN SET

44
Q

federal fund rate

A

interest rate that is charged by banks on loans they lend to other banks
- ↑ ↓ rate depends on supply n demand

45
Q

prime rate

A

Interest rate bank charge their best customers

46
Q

3rd tool

A

change in interest paid to banks on their excess reserve deposited w the fed
- if fed want expansion MP = ↓ interest paid to bank on excess reserve

47
Q

4th tools

A

open market operations
- if fed want expansion, fed BUYS US gov security
(when fed buys, the security goes to the fed but the bank will gain money
↑ monay = ↑ loan and ↓ interest rate

48
Q

open market operations

A

fed buy/sell US gov security
- all banks own security bc
1. make them trustworthy (safe financial institute)
2. pay good interest
3. highly liquidity

49
Q

2nd FED functions

A

fed serves as the bank for the US gov

50
Q

3rd FED functions

A

FED regulates the bank industry
3 list of regulations that no longer exit
1. min contact hrs: fed tell banks to be open for a certain amount of time
2. hold time on deposit: money can’t be automatically spent
3. vault checks: ensure RRR is met

51
Q

4th FED functions

A

fed is responsible for clearing check

52
Q

5th FED functions

A

FED serves as an agent of the US treasury
- controls the circulation of money (when to release printed bills into eco)

53
Q

6th FED functions

A

Fed is the lender of last resorts
- the idea that bank go to the FED last if they need a loan

  • why?
    1. other banks would have lower IR than the fed
    2. reluctant for scrutiny from FED (bank borrowing money from FED kinds of set off a suspicious alarm)
54
Q

1st Influence on supply
(market for loanable funds)

A

△ in wealth/income
- ↑ wealth/income ↑ supply

55
Q

2nd Influence on supply
(market for loanable funds)

A

△ in time preferences
- ↓ time preferences ↑ supply
(time pref makes ppl save more so more to loan out)

56
Q

time preferences

A

ppl tends to prefer to spend money sooner rather than later

57
Q

3rd Influence on supply
(market for loanable funds)

A

demographic △ (more specifically age)
- if there are more ppl in prime earning yrs, ↑ supply

58
Q

demographic earnings stages

A
  1. early: spending more than income
    - also known as borrowing
  2. prime earning
    - tends to save
  3. late: dis-saving where they spend less
59
Q

1st influence on demands
(market for loanable funds)

A

investor conflict
- if business management few more confidence about the future, ↑ D

60
Q

2nd influence on demands
(market for loanable funds)

A

productivity of capital
- if capital productivity ↑ D ↑

61
Q

3rd influence on demands
(market for loanable funds)

A

gov borrowing (all levels)
- if gov borrowing ↑ D ↑

62
Q

M1

A

liquid money that easily spent/converted

63
Q

part of M!

A
  1. cash/coins
    +
  2. outside of banks
  3. amount in bank’s checking account
  4. amount in NON-bank checking account
    - ex: statefarm
  5. amount in travelers checks
64
Q

US M1

A

19 trillions

65
Q

M2

A

broader measure of money that consist of M1 and other less liquid asset

66
Q

part of M2

A
67
Q

fiscal policy to fix recessionary

A

↑ gov spending
↓ tax
↑ transfr

68
Q

monetary policy to fix recessionary

A

↓ RRR
↓ discount rate
↓

econ 202 (3 decks)

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