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Economics Lesson 5
The Government Takes control
20
Economics
12th Grade
04/19/2013

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Term
progressive
Definition
a progressive tax takes a larger percentage of income from high-income groups than from low-income groups. Rich can afford to pay
Term
regressive
Definition
regressive tax is the opposite of progressive tax. Takes a larger portion from the low-income groups and lees from the high-income groups
Term
proportional or flat tax
Definition
takes the same percentage from all income groups
Term
cost benefit analysis
Definition
government officials must compare the marginal benefit and marginal cost of providing little or more services.
Term
fiscal policy
Definition
the use of taxes and government spending in order to affect the economy
control inflation= decrease in government spending
encourage economic growth= increase government spending
Term
discretionary fiscal policies
Definition
the approval of tax cuts and increases by the Congress
Term
automatic stabilizers
Definition
are policies that do not require Congress to approve
examples; income tax, welfare, unemployment insurance
Term
draw back of fiscal policies
Definition
lag time/tax lags= takes to long to get started
Term
budget deficit
Definition
the money the federal government spends that goes over their allotted budget. (spending more money than you have.
Term
national debt
Definition
total amount of money the government owes
Term
government spending
Definition
decreases inflation increases economic growth
Term
taxation
Definition
raises inflation lowers economic growth
Term
monetary policy
Definition
the use economic principles and programs by the Federal Reserve to control money supply, availability of credit, and interest.
Term
goals of monetary policy
Definition
full employment, stable prices, economic growth
this is done by adjusting the money supply
Term
Duties of the Federal Reserve /Fed
Definition
1. monetary policy
2. provide banking services (banks)
3. Ensure banking customers receive adequate information and fair treatment
4. Fed is independent of the government
Term
tools of Fed
Definition
1. open market operations
2. discount rates
3. require reserve ratio
Term
open market operations
Definition
purchases and sales of the US government securities/bonds
Term
required reserve ratio
Definition
fed the reserve that banks must keep and can't loan out If the reserve is 20% then the bank can only loan 800 of 1000 dollars. They must keep 20% or 200 dollars. The lower the reserve rate the more money that can be loaned
Term
discount rate
Definition
interest rate charge to individual banks for loans from the Federal Reserve. The discount rate that the Federal Reserve loans out to banks determines the rate banks charge the customers
Term
tools of monetary policy of the Federal Reserve
Definition
sell of securities/bonds=decrease money supply
buy securities/bonds= increase money supply
reserve ratio lowered= more money supply
reserve ratio raised= decrease in money supply
discount rate lowered= increase money supply
discount rate raised =less money supply
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