Test 4 in-class notes Flashcards
Monetary Policy
appointed by Fed reserve, treasury. Focus on money supply, interest rates, inflation
Fiscal Policy
Elected officials. Focus on taxes & gov spending
Fiscal policy in a recession
Increased gov spending, decreased taxes, or both
Fiscal policy in inflation
Decreased gov spending, increased taxes, or both
National debt
running total of all deficits, surpluses, & balances since beginning
What lags are associated with fiscal policy?
recognition lag (recognizing the issue), implementation lag (agreeing on how), and impact/effect lag (money takes time to circulate)
What are the main revenues & expenditures of the federal gov?
Personal income tax +
Medicare, Social Security, & military -
What are the main revenues & expenditures of the state gov?
Sales tax +
Citizen welfare -
What are the main revenues & expenditures of the local gov?
Property tax +
Schools -
What are the roles of money?
Medium of exchange, unit of account, & store of value
Commodity money
Money backed by a valuable commodity
Fiat money
worthless outside of agreement
Greshams law
bad money chases out good money
M1
coins, currency, & checkable deposits (CDs)
M2
M1, savings, MMAs (business savings), & time deposits
Does the money supply typically refer to M1 or M2?
M2
What are the tools of monetary policy?
reserve ratio, open market operations, and interest rates
What is the reserve ratio & how is it used?
how much banks are required to hold. stable & not changed quickly/drastically/often. Lowered in recession, raised in inflation
What is open market operations & how is it used?
the buying & selling of bonds with commercial banks. most efficient & quickest tool. in recession you buy back bonds, in inflation you sell.
How are interest rates used in monetary policy?
lowered in recession, raised in inflation
Discount rate
rate that banks can borrow from fed reserve
Fed funds rate
rate that banks can borrow from other banks
Prime rate
rate that best business customers can borrow for
What were Ciceros beliefs?
there’s a value in private property, we take care of the things that belong to us
Mercantilism
approach to society where the most gold wins
Laissez-faire
free market
What were Hayeks beliefs?
wrote “road to serfdom”. didn’t like gov. overeach. Austrian economics; don’t mess with entrepreneurs
What is the Keynesian perspective?
government has responsibility to citizens & must get involved
What is the monetarist perspective?
Focus on money supply to manage economy. Free market, just monetary policy. Milton Friedman was prominent economist.
What were the beliefs of Joseph Schumpeter?
Democracy can’t coexist with a free market because in a complete free market, you can buy democracy. Only wealthy people can get elected.
What were the beliefs of Hamilton?
Don’t elect people who “level”. National debt will cause nations to lose.
What were the beliefs of Marx?
There’s a pattern of tension. Resources are land, labor, capital, & entrepreneurial ability. Labor theory of value: labor creates everything & should be valued as such
Russian revolution
in 1900s, removed Tzar to uplift the people. Mass executions. Lenin & Stalin were leaders.
Why did the Soviet Union fall?
No oil & cable TV exposed people to other cultures
Chinese revolution
in 1949, Mao as leader. Shift to total communism, briefly.
Who is the current leader of China?
Xi Jiping
What were the beliefs of Malthus?
overpopulation won’t happen because of war & limited resources
Why do countries stay poor?
dictatorships, no private property, capital flight, no education, urban migration
Ethnocentrism
belief that your culture is the best/only
Who owns 50% of world GDP?
the US
Issues with DVCs/LDCs
rampant population growth, high mortality, hunger, & corruption
2 main problems with command economy
coordination & incentive
