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| 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. |
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| A surcharge is an additional fee that is attached to a good or service. It is often in the form of a tax |
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| A medium of exchange is a standard of currency which you exchange for goods or service. |
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| A standard of value is an agreed upon value in a transaction for a particular medium of exchange. |
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| A store of wealth is anything that has value that can be stored and retrieved later with the expectation of retaining value. |
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| The term GDP refers to the amount of production that occurs in a certain region |
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| Velocity of money is how many times money is circulated throughout an economy. |
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| Money supply is the amount of money being circulated throughout an economy. |
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| 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. |
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| Demand deposit is money that is available to be withdrawn upon discretion. |
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| The term reserve requirement refers to the amount of money a bank must keep in its vault at all times. |
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Term
| What is meant by the term, U.S government securities? |
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Definition
| U.S government securities are federal bonds. They are called securities because the government can always guarantee paying them back. |
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Term
| What does the term, Open Market Operations mean? |
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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. |
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| Face value is nominal price of bond, it is what is literally written on the bond. |
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Interest is the payment made for using money that is not yours. Analogous to
paying rent. |
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Term
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Definition
| The price of a bond is what is actually paid for the bond which is determined by the current economy. |
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Term
| Three Functions of Money? |
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Definition
| The three functions of money are to be a medium of exchange, a store of wealth, and a standard of value. |
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Term
| How does progressive income tax system affect tax receipts in a recession or during inflation? |
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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. |
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Term
| Why do public assistance and food stamps usage increase “automatically” in a recession? |
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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. |
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Term
| How does a change in “personal saving” stabilize the economy in a recession? |
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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. |
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Term
| What is the downside to a decrease in personal savings during a recession? |
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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. |
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Term
| How does a tax surcharge fight inflation? |
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Definition
| A tax surcharge fights inflation by shrinking the money supply. |
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Term
| Why is US Federal Government debt considered the “safest” investment of all kind? |
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Definition
| It is guaranteed to pay off because the government can always print money. |
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Term
| What are the two ways of determining GDP? |
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Definition
| The two ways of determining GDP are through income and through expenditure. |
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Term
| In Monetarist theory, when we are below full employment, what will happen when M increases and why? |
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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. |
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Term
| How does a bank make profit and thus stay in business? |
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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. |
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Term
| How does the FDIC system work? |
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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. |
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Term
| What are the advantages and disadvantages to a bank for join the Federal Reserve System? |
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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. |
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Term
| How does the Reserve Requirement affect the money supply? |
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Definition
| The higher the Reserve Requirement, the smaller the money supply because the banks call back money that they lent out, and vice versa. |
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Term
| When the government sells bonds.. What does that do to the money supply? Bond Prices? and Interest Rates? |
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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. |
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Term
| Say's Law is "Products are paid for with products." what does this mean? |
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Definition
| This means that people are making money by making and selling products, then spending it on other products, creating a cycle. |
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Term
| Draw and Label a supply and demand curve |
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Definition
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Term
| Even if it does work, what is the basic problem with Classical Economics? |
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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. |
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Term
| In Keynesian theory, what should the government do to combat recession? |
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Definition
| The government should spend more money in order to stimulate production and increase cash flow. |
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Term
| n Monetarist theory, what will happen when the money supply is increased too slowly and why? |
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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 |
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Term
| What is the logic behind the crowding out effect proclaimed by Monetarists? |
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Definition
| When the government increases certain social services, it crowds out the industries providing the same services through the private sector. |
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Term
| What is the basic philosophy of fiscal policy? |
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Definition
| Fiscal policy refers to government policies relating to economics. |
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Term
| What is the basic philosophy of monetary policy? |
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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. |
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Term
| What is the basic philosophy of Classical Economics? |
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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. |
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Term
| What is basic philosophy of Keynesian Economics? |
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Definition
| The basic philosophy of Keynesian Economics is that government spending is the most effective and quickest way of boosting the economy. |
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Term
| What is the basic philosophy of Monetarist economics? |
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Definition
| The money supply is the key to controlling the economy. If you can control the money supply, you can control the economy. |
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Term
| What is the basic philosophy of Supply-Side Economics? |
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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. |
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Term
| What is the Equation of Exchange and what do each of the terms mean? |
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Definition
| PQ=MV; P is the price; Q is the quantity; M is the money supply; V is the velocity of money. |
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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%. |
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Definition
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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%. |
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