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Macroecon > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

What is fiscal policy

A

Changes in government purchases and/or taxes
Discretionary fiscal policy

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2
Q

What is purpose of fiscal policy

A

To achieve full employment and low inflation

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3
Q

Multiplier Effect

A

Creation of real GDP with each additional $1 of expenditures

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4
Q

recession

A

Decline in real output for 2 consecutive quarters or more

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5
Q

full employment real GDP

A

Real GDP when economy operates at natural rate of unemployment or when economy is in long-run equilibrium

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6
Q

Expansionary fiscal policy

A

Fiscal policy to increase AD by increasing G and/or dec T

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7
Q

Short run Equilibrium equation

A

AS=AD

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8
Q

Long run equilibrium

A

Y=Y full-employement

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9
Q

Contractionary fiscal policy

A

Decrease AD by decreasing G and/or increasing T

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10
Q

What fiscal policy in a recession

A

Expansionary fiscal policy to increase AD and bring economy to full employment

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11
Q

What fiscal policy in an expansion/rising price level

A

Contractionary fiscal policy to decrease AD to lower price level and move economy to full employment

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12
Q

Expenditures Multiplier

A

Change in real GDP by additional $1

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13
Q

Cost push inflation

A

Inflation due to decrease in AS

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14
Q

Demand pull inflation

A

Inflation due to increase in AD

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15
Q

Automatic Stabilizer

A

Part of government policy that automatically steadies spending

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16
Q

How does automatic stabilizer work if the economy grows

A

Decreases G and/or increases T

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17
Q

How does automatic stabilizer work if the economy contracts

A

Increases G and/or decreases T

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18
Q

Progressive Tax

A

Ave tax rate changes in relation to changes in income

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19
Q

Recognition lag

A

Time to recognize how an event affects an economy

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20
Q

Crowding out

A

inc in government borrowing results in less borrowing by non government.

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21
Q

Money

A

Any item buyers and sellers accept for exchange of G-S

22
Q

Unit of Account

A

Measurement unit used to compare value of G-S. One function of money

23
Q

Medium of exchange

A

Any item used to facilitate trade between buyers/sellers

24
Q

What are the functions of money

A

Unit of account
Medium of exchange
Store of value

25
Q

Store of value

A

Certain assets that enable transfer of wealth from present to the future.

26
Q

M1

A

Most liquid; Demand deposits, travelors checks, currency, other checkable deposits

27
Q

M2

A

M1 + savings deposits; small denomination time deposits, money market mutual funds

28
Q

Time deposits

A

money held in an account for a specified period of time, cannot be converted to currency without penalty

29
Q

M1 or M2 Demand Deposits

A

M1/M2

30
Q

M1 or M2 Traveler’s Checks

A

M1/M2

31
Q

M1 or M2 Money Market Mutual Funds

A

M1/M2

32
Q

M1 or M2 Savings deposits

A

M2

33
Q

M1 or M2 Time deposits

A

M2

34
Q

M1 or M2 Money Market mutual funds

A

M2

35
Q

Nominal variables

A

variables measured in monetary units or prices

36
Q

real variables

A

Variables measure in numerical units

37
Q

Classical dichotomy

A

Real variables (employment/output) are independent from nominal variables (money)

38
Q

Velocity of Money

A

Number of times in a given period each dollar in a nation’s money supply is used to make purchases

39
Q

What makes up the Federal Reserve System

A

12 regional banks and the board of Governors

40
Q

What is the purpose of the Federal reserve system

A

Conduct monetary policy, supervises and regulates banks, monitors stability of financial sector, Provides financial services to the US Government

41
Q

Federal Reserve Board

A

“Board of Directors”
7 members appointed by presidents and confirmed by the senate for 14-year terms

42
Q

Federal Open Market Committee (FOMC)

A

Committee of federal reserve system responsible for monetary policy decisions

43
Q

Central Bank

A

Provides financial services to country’s government and responsible for nations monary policy

44
Q

Federal Reserve

A

Central bank of US

45
Q

Open Market Operations

A

purchase or sale of government securities by central bank. Used ot influence money supply and interest rates

46
Q

Discount Rate

A

Interest rate for banks to borrow from the Fed

47
Q

Money Market

A

Market where interest rate is determined by demand for and supply of money or opportunity cost of holding money balances.

48
Q

Surplus of money exists

A

initial interest rate exceeds equilibrium

49
Q

Shortage of money exists

A

interest falls below equilibrium

50
Q

Inc MD or Dec MS

A

Shortage of money in the market
Puts upward pressure on interest rate

51
Q

Dec MD or inc MS

A

initial surplus of money in the market
surplus causes interest rates to fall

Macroecon (1 decks)

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