Tools Of Macroeconomics Policy Flashcards
Fiscal policy
A government policy on taxes and public spending
Monetary policy
The central’s bank policy on controlling the money supply
expansionary
increases the total supply of money in the economy, used to combat unemployment in a recession
restrictive
decreases the total money supply in order to combat inflation
Implementing monetary policy (7)
1 setting interest rate ceilings and floors - establishing maximum and minimum lending rates
2 printing money, or destroying it - controlling the amount of banknotes in circulation
3 open-market operations - buying or selling government bonds to and from commercial banks
4 exchange rate supervision - intervening on foreign exchange markets
5 commercial banking supervision - ensuring sufficient liquidity ratio
6 act as lender of last resort - lending money to commercial banks to avoid going bankrupt
7 changing reserve requirements
Aggregate demand
The total level of demand for desired goods and services that makes up the GDP
Full employment
A situation in which all available labor resources are being used in the most economically efficient way
Output
An amount produced or manufactured during a certain time
Open market
An economic system with no barriers to free market activity
Reserve requirements
Minimum amount of cash or cash-equivalents
that banks and other depository institutions are required by law to keep on hand, and which may not be used for lending or investing
Discount rate
The interest rate charged to commercial banks and other depository institutions
For loans received from a central bank’s discount window
Lending capacity
A bank’s ability to fund loans
Bonds
Securities representing the debt of the company or government issuing it
Money supply
The amount of liquid asset circulating in the economy
Expansionary fiscal policy
Reducing taxes and increasing government spending
