Unit 5 Flashcards
Contractionary fiscal policy
REDUCES the money supply. Sell securities, raise federal discount rate, raise reserve requirements. INCREASING the interest rates. Indicates a shift in AD to the left to full employment, and reduce inflationary pressures
Budget deficit
When government expenditures exceed government revenue
Budget surplus
The condition that exists when government revenues exceed government expenditures
Built in stabilizer
type of fiscal policy that is already in place to offset the fluctuations of economic activity in our economy
Discretionary policy
occurs when Congress creates a new bill that is designed to change AD through government spending or taxation
Progressive tax system
one where the average tax burden increases with income.
Regressive tax system
Higher income leads to having to pay a lower percentage of tax
Proportional tax system
Each taxpayer pays the same amount regardless of income
Crowding out effect
the economic theory that public sector spending can lessen or eliminate private sector spending
Net export effect
A higher price level increases the relative price of domestic exports to other countries while decreasing the relative price of foreign imports from other countries
Federal reserve board of governors
certain responsibilities are shared between the Board of Governors in Washington, D.C., whose members are appointed by the President with the advice and consent of the Senate, and the Federal Reserve Banks and Branches, which constitute the System’s operating presence around the country
Open market operations
Buying and selling bonds
Discount rate
the interest rate that the Federal Reserve charges commercial banks to borrow money directly from the Treasury
Reserve requirement
Percentage of deposits that banks must keep and the rest can be turned into loans
Short run
A short time period
