Unit 5: Economics Final Exam Review Flashcards
Tools of Fiscal Policy
Taxes and government spending.
The Multiplier Effect
The theory that every dollar spent by the government multiplies itself in the economy.
To fix a slow economy the government should
Raise spending and cut taxes.
To fix a fast economy the government should
Cut spending and raise taxes.
Balanced budget
When taxes equal spending.
Budget deficit
When taxes are less than spending.
Budget surplus
When taxes are greater than spending.
The Federal Reserve
Our govenrment’s bank. Created to stabilize the economy/control nation’s money supply.
Monetary Policy
Actions by the Federal Reserve to expand or contract the money supply to keep the economy stable.
How banks work
Pay interest to depositors and charge interest to borrowers.
What tools does the Fed use to fix the economy?
The Discount Rate, Buying/selling bonds, the required reserve ratio.
Discount Rate
The interest rate that the Federal Reserve charges your bank to borrow funds if they are in danger.
The Required Reserve Ratio
The portion of a deposit that a bank must keep on hand, money in the vault.
Open Market Operations
The buying and selling of government bonds - most important and frequently used monetary policy tool.
Loose Money
Money supply is increased. Lower discount rate, reserve requirement, and buy bonds from citizens.
