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Economics Test 3
Jake Mendelssohn's Class
45
Economics
12th Grade
01/16/2013

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Term
Discretionary?
Definition
The term discretionary means at your will. For example, money that you do not spend on essential items such as food is discretionary income because you can spend it at your will.
Term
Surcharge?
Definition
A surcharge is an additional fee that is attached to a good or service. It is often in the form of a tax
Term
Medium of Exchange?
Definition
A medium of exchange is a standard of currency which you exchange for goods or service.
Term
Standard of Value?
Definition
A standard of value is an agreed upon value in a transaction for a particular medium of exchange.
Term
Store of Wealth?
Definition
A store of wealth is anything that has value that can be stored and retrieved later with the expectation of retaining value.
Term
GDP?
Definition
The term GDP refers to the amount of production that occurs in a certain region
Term
Velocity of Money?
Definition
Velocity of money is how many times money is circulated throughout an economy.
Term
Money Supply?
Definition
Money supply is the amount of money being circulated throughout an economy.
Term
Bank Run?
Definition
A bank run is when everyone tries to withdraw their money from a bank at once and the bank does not have enough cash in order to satisfy the demand.
Term
Demand Deposit?
Definition
Demand deposit is money that is available to be withdrawn upon discretion.
Term
Reserve Requirement
Definition
The term reserve requirement refers to the amount of money a bank must keep in its vault at all times.
Term
What is meant by the term, U.S government securities?
Definition
U.S government securities are federal bonds. They are called securities because the government can always guarantee paying them back.
Term
What does the term, Open Market Operations mean?
Definition
The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system.
Term
Face Value?
Definition
Face value is nominal price of bond, it is what is literally written on the bond.
Term
Interest?
Definition
Interest is the payment made for using money that is not yours. Analogous to
paying rent.
Term
Price of a Bond?
Definition
The price of a bond is what is actually paid for the bond which is determined by the current economy.
Term
Three Functions of Money?
Definition
The three functions of money are to be a medium of exchange, a store of wealth, and a standard of value.
Term
How does progressive income tax system affect tax receipts in a recession or during inflation?
Definition
The progressive tax system makes it so that people are paying more taxes, despite their money being worth less, hence creating a self-perpetuating cycle of losing money.
Term
Why do public assistance and food stamps usage increase “automatically” in a recession?
Definition
Public assistance and food stamps increase in a recession because in a recession there are no jobs and people are not able to make money to support themselves.
Term
How does a change in “personal saving” stabilize the economy in a recession?
Definition
It stabilizes the economy because the more you save, the more money you have available to spend on essential items, so the economy at least doesn’t shrink.
Term
What is the downside to a decrease in personal savings during a recession?
Definition
People do not have the security to spend because they have no money at all, which means products won’t be bought and the economy stagnates or shrinks.
Term
How does a tax surcharge fight inflation?
Definition
A tax surcharge fights inflation by shrinking the money supply.
Term
Why is US Federal Government debt considered the “safest” investment of all kind?
Definition
It is guaranteed to pay off because the government can always print money.
Term
What are the two ways of determining GDP?
Definition
The two ways of determining GDP are through income and through expenditure.
Term
In Monetarist theory, when we are below full employment, what will happen when M increases and why?
Definition
GDP and quality of living increase because the public has more money to spend, so there is a high demand which results in more production, and creating the need for more employees.
Term
How does a bank make profit and thus stay in business?
Definition
The bank lends out the money that people deposit, then it charges a higher interest rate on those loans than what they are paying to the depositors, therefore making a profit.
Term
How does the FDIC system work?
Definition
The FDIC system says that if a bank is a member, they must conform to a certain reserve requirement put in place, and in return, if the bank experiences a bank run, the FDIC will give them money.
Term
What are the advantages and disadvantages to a bank for join the Federal Reserve System?
Definition
The advantages are that the bank now has eliminated the possibility of a bank run, and that they will always have money in their vault. The disadvantages are that the bank cannot maximize profit because they cannot lend out all of their money.
Term
How does the Reserve Requirement affect the money supply?
Definition
The higher the Reserve Requirement, the smaller the money supply because the banks call back money that they lent out, and vice versa.
Term
When the government sells bonds.. What does that do to the money supply? Bond Prices? and Interest Rates?
Definition
The money supply decreases, the bond prices decreases, and the interest rates increase. The bond prices decreases because there are more bonds in the market. Interest rates increase because the money supply decreases. the money supply decreases because giving money to the government paying off the debt.
Term
Say's Law is "Products are paid for with products." what does this mean?
Definition
This means that people are making money by making and selling products, then spending it on other products, creating a cycle.
Term
Draw and Label a supply and demand curve
Definition
Term
Even if it does work, what is the basic problem with Classical Economics?
Definition
It takes too much time and it goes upon the basis of solving problem, but it does not prevent the problems from happening in the first place.
Term
In Keynesian theory, what should the government do to combat recession?
Definition
The government should spend more money in order to stimulate production and increase cash flow.
Term
n Monetarist theory, what will happen when the money supply is increased too slowly and why?
Definition
If the money supply is decreased too slowly, there will be deflation and create shortages in the economy because the money supply is not keeping up with population growth
Term
What is the logic behind the crowding out effect proclaimed by Monetarists?
Definition
When the government increases certain social services, it crowds out the industries providing the same services through the private sector.
Term
What is the basic philosophy of fiscal policy?
Definition
Fiscal policy refers to government policies relating to economics.
Term
What is the basic philosophy of monetary policy?
Definition
The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.
Term
What is the basic philosophy of Classical Economics?
Definition
The basic philosophy of Classical Economics is that economy should be separate from government. In other words, it talks about lassez-faire economics and minimal government involvement.
Term
What is basic philosophy of Keynesian Economics?
Definition
The basic philosophy of Keynesian Economics is that government spending is the most effective and quickest way of boosting the economy.
Term
What is the basic philosophy of Monetarist economics?
Definition
The money supply is the key to controlling the economy. If you can control the money supply, you can control the economy.
Term
What is the basic philosophy of Supply-Side Economics?
Definition
The basic philosophy of Supply-Side Economics is that cutting taxes will increase economy because people will have more money in hand, and therefore have more money to spend, hence increasing economy.
Term
What is the Equation of Exchange and what do each of the terms mean?
Definition
PQ=MV; P is the price; Q is the quantity; M is the money supply; V is the velocity of money.
Term
How much money can a bank lend out if it has total deposits of $250 M and the current Reserve Requirement is 3.7%.
Definition
Term
How much money can a bank lend out if it has total deposits of $250 M and the current Reserve Requirement is 3.7%.
Definition
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