Macroeconomics Unit 4

consists of deliberate changes in government spending and tax collections designed to achieve full employment, control inflation, and encourage economic growth

group of three economists appointed by the president to provide expertise and assistance on economic matters

– an increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

government spending in excess of tax revenues

a decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two, for the purpose of decreasing aggregate demand and thus controlling inflation

anything that increases the government’s budget deficit during a recession and increases its budget surplus during an expansion without requiring explicit action by policymakers

measures what the Federal budget or surplus would have been under existing tax rates and government spending levels if the economy had achieved its full-employment level of GDP (potential output); economists use this to adjust actual Federal budget deficits and surpluses to account for the changes in tax revenues that can happen whenever GDP changes

a Federal budget deficit that is caused by a recession and the consequent decline in tax revenues; by-product of economy’s slide into recession, NOT the result of government action

time between the beginning of recession or inflation and the awareness that it is actually happening

time between need for fiscal action and the time action is taken

time between fiscal action is taken and the time that action affects output, employment, or the price level

alleged tendency of Congress to destabilize economy by reducing taxes and increasing government expenditures before elections and to raise taxes and lower expenditures after elections

expansionary fiscal policy may increase the interest rate and reduce investment spending, thereby weakening or canceling the stimulus of the expansionary policy

financial instruments issued by the Federal government to borrow money to finance expenditures that exceed tax revenues

monetary units for measuring the relative worth of a wide variety of goods, services, and resources

enables people to transfer purchasing power from the present to the future

what are the four functions of money?

what are the components of M1?

certain highly liquid financial assets that do no function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits

what are the components of M2?

interest bearing accounts offered by investment companies, which pool depositors’ funds for the purchase of short-term securities. Depositors can write checks in minimum amounts or more against their accounts

directs the activities of the 12 Federal Reserve Bank, which in turn control the lending activity of the nation’s banks and thrift institutions

seven members appointed by the President that provide continuity, experienced membership, and independence from political pressures

blend private and public control and collectively serve as the nation’s central bank; banker’s bank

aids the board of Governors in conducting monetary policy

enables banks to transfer funds to other banks

only a portion of checkable deposits are backed up by cash in bank vaults or deposits at the central bank

statement of assets and claims on assets that summarizes the financial position of the bank at a certain time

amount of funds equal to a specified percentage of the bank’s own deposit liabilities

interest rate paid on overnight loans to commercial banks

deliberate changes in the money supply to the influence interest rates and thus the total level of spending in the economy

price that is paid for the use of money over some time period

buying of government bonds from, or the selling of government bonds to, commercial banks and the general public`

interest rate charged by the Fed for loans granted to commercial banks

introduced in Dec 2007 in response to mortgage debt crisis; Fed holds two auctions each month at which banks bid for the right to borrow reserves for 28-day periods

Assumes that the Fed has a 2% “target rate of inflation” that it is willing to tolerate