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Definition
| total $ value of all final G/S produced within a country during 1 calendar year |
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| avg amt produced by each citizen in a year |
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| durable g/s vs non-durable g/s |
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| the total value of all capital goods produced during 1 year |
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| schools, highways, national defense |
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| amt of all g/s that will be purchased @ all possible prices |
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Term
| economies should strive to reach __/__ equilibrium |
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Definition
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| what causes AD to shift? (3) |
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Definition
1 changes in consumer spending (consumer optimism)
2 changes in gov influence (higher tax)
3 changes in investment spending (more spending) |
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| total amt of all G/S available at all possible prices |
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| what causes AS to shift? (4) |
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Definition
1. changes in input rises (all price go up)
2. changes in productivity (asssembly line invented)
3. changes in the legal environment (limits on pullution)
4. changes in labor supply (labor supply decreases) |
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Term
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Definition
| flunctuations in a market's activity |
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| how are flunctuations in a biz cycle measured |
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Definition
| by increases & decreases in the real GDP |
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| a period of economic growth (rising GDP) |
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| when real GDP stops rising |
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| bottoming out; when GDP stops falling |
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| when new peak exceeds previous one |
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| when GDP falls for 2 consecutive quarters |
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| a decline in GDP (more unemployment)with a rise in prices (inflation) |
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| what influences the business cycle (3) |
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Definition
1. public perception
2. effects of war
3. interest rates |
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Definition
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| war can ___ an economy in the short term |
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| if war drags on, the ecomonmy will most likely _____ |
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Term
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Definition
| the cost of "buying" money |
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| if interest rates are high, money is _____ |
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Definition
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| if economy appears to be slowing down, gov might _____ the interest rate |
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Definition
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| if the real GDP rises but not as fast as the population, what will happen to the standard of living |
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| economic growth is critical for a nation to maintain its.... |
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Definition
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| economic well being of a nation's people |
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| required payment to the gov |
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| without _____, gov cannot function |
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| the common defense & general warfare |
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| federal taxes must be ___ in every state |
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Definition
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| who can congress NOT tax? |
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Definition
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| amendment that allows congress to tax incomes on an UNEQUAL basis |
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Definition
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Definition
| income, property, G/S that is being taxed |
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Definition
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Definition
| tax on the $ value of a sale |
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| tax on the value of a property |
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| tax on the value of a company's profits |
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Definition
| tax that is same percentage for everybody |
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| % of income paid in taxes INCREASES as income increases |
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| which tax can cause poor people to pay nothing |
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Definition
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| % of income paid in taxes DECREASES as income increases |
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Definition
| also sales tax bc the amt a rich person makes is MUCH MORE than the 6% that will be spent |
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Term
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Definition
1. simplicity
2. efficiency (gov shouldn't spend more $ to collect than they receive)
3. certainty
4. equity (system should be fair to all) |
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Definition
| employers withold money from your check & forward it to gov |
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Definition
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| FICA (Federal INsurance Contributions Act) |
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Definition
| social security, disabled americans, surviving fam of deceased wage-earners, medicare |
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Term
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Definition
| federal tax on sale/manufacture of a good |
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Definition
| tax on total value of the $ & property of a deceased person |
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Definition
| prevents people from giving their estates away before death to avoid the estate tax |
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Definition
| general increase in prices |
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Definition
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| as prices rise, purchasing power ____ |
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Definition
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Term
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Definition
| prices NOT adjusted for inflation |
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Term
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Definition
| prices that ARE adjusted for inflation |
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Term
| CPI (consumer price index) |
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Definition
| measures price of "a market basket" |
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Term
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Definition
| bureau of labor statistics ; every month |
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| inflation rate interval that causes few problems |
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Definition
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| inflation rate that shows economy can become unstable |
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Definition
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Term
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Definition
| out of control inflation... can go as high as 100% to 500% per month |
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Term
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Definition
| occurs when gov prints TOO MUCH $ |
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Term
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Definition
| when demand for G/S exceeds supplies |
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Term
| when does demand-pull inflation occur |
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Definition
| during wartime or after natural disaster |
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Term
| cost-push inflation (worst one) |
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Definition
| producers raise prices to meet increased costs |
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| ex of cost-push inflation |
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Definition
| increase in min wage & gasoline; gov regulation |
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| pollution restrictions make doing business ____ |
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Definition
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| inflation rates often ____ wage raises, leading to a _____ |
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Definition
| exceed ; net loss of income |
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| inflation is bad for ____ |
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Definition
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| inflation is good for _____ |
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Definition
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Definition
| sustained drop in price levels |
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Term
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Definition
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Term
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Definition
| a government policy for dealing with the budget (especially with taxation and borrowing) |
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Term
| fiscal policy is determined by ? (2) |
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Definition
1. collecting taxes
2. spending $ |
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Term
| who controls fiscal policy |
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Definition
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Term
| what is expansionary policy used for (2) |
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Definition
| to raise GDP & pull economy out of recession |
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Term
| how does congress go about expansionary policy (2) |
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Definition
1. spend more $
2. cut taxes |
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Term
| what is contractionary policy used for |
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Definition
| to slow down the economy growth which could would have caused inflation |
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Term
| how does congress go about contractionary policy (2) |
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Definition
1. cut spending
2. raise taxes |
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Term
| fiscal policy: classical economics |
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Definition
| adam smith - laissez faire |
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Term
| fiscal policy: keynesian economics |
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Definition
| gov should spend more $ by building schools, airports etc to create jobs |
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Term
| demand-side economy goes with which person? |
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Definition
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Term
| supply-side believe in ____ _____ |
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Definition
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Term
| 2 problems w/ demand-side theory |
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Definition
1. increased gov spending during bad times
2. massive gov savings during good times |
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Term
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Definition
| they don't use extra profit to hire new workers |
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Term
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Definition
| gov spends more than it takes in |
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Term
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Definition
| gov takes in more than it spends |
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Term
| what does deficit lead to? |
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Definition
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Term
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Definition
| total $ gov owes to bondholders |
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Term
| every year the gov runs a deficit, it must ____ money to operate |
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Definition
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Term
| to borrow $, the gov sells ____ aka _____ |
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Definition
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Term
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Definition
| loss in value of the dollar |
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Term
| interest on national debt per year |
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Definition
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Term
| what does the gov do to attract bond purchasers |
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Definition
| offer high interest rates |
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Term
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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
| Federal Reserve Act of 1913 |
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Definition
| created the Federal Reserve System (fed) composed of 12 regional banks |
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Term
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Definition
| board of governors that lend $ to private banks |
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Term
| "the lender of last resort" |
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Definition
| the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing and whose failure to obtain credit would dramatically affect the economy. |
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Term
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Definition
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Term
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Definition
1. processes all gov payments (social security, IRS refunds)
2. makes interest payments on gov bonds
3. responsible for issuing currency |
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Term
| fed does check cleansing which is ... |
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Definition
| process by which banks record whose account gives/receives $ |
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Term
| banks hold ____ of their funds in reserve, the rest is ____ to its customers |
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Definition
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Term
| the fed ensures that each banks keeps the required amount in ______ |
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Definition
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Term
| Required Reserve Ratio (RRR) |
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Definition
| the amt the bank must keep on hand |
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Term
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Definition
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Term
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Definition
| total amt of currency held by indivudals, plus $ in bank accounts |
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Term
| by controlling money supply, fed influcnes... (2) |
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Definition
1. growth of GDP
2. rate of inflation |
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Term
| 3 methods fed uses to control amt of money in ecomonmy |
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Definition
1. altering the reserve requirements
2. open market operations
3. setting interest rates |
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Term
| reducing the RRR causes ____ in money supply |
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Definition
| increase (banks are allowed to lend more $) |
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Term
| increasing the RRR causes _____ in money supply |
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Definition
| decrease (bank loans are limited) |
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Term
| when fed buys gov bonds/securities, bond sellers receive $ that enters the economy and the money supply _____ |
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Definition
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Term
| when fed sells bonds/securities, money supply ____ |
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Definition
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Term
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Definition
| interest rate the fed charges on loans to other banks |
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Term
| lowering the discount rate makes loans ____ |
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Definition
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Term
| how do banks respond to lowering discount rate (aka loans are cheaper) |
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Definition
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Term
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Definition
| interest rate banks charge their customers |
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Term
| when discount rate is loowered, money suppply _____ |
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Definition
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Term
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Definition
| introduced during periods of expansion & inflation |
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Term
| 3 methods for tight money policy |
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Definition
1. increase RRR
2. sell gov securities
3. increase discount rate |
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Term
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Definition
| introduced during times of contraction &receession |
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Term
| 3 methods for loose money policy |
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Definition
1. lower RRR
2. buy gov securities
3. lower discount rate |
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