Economics – Ch15 and Ch16
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fiscal year
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12-month period that can begin on any date
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fiscal policy
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the use of gov't spending and revenue to influence the economy
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federal budget
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a plan for the federal gov't's revenues for the coming year
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Office of Management and Budget (OMB)
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gov't office that manages the federal budget
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appropriations bill
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a bill that sets money aside for specific spending
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example of a contractionary fiscal policy
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A decrease in government spending and increase in taxes
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parts of the gov't who put the federal budget together
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OMB, President and Congress
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example of an expansionary fiscal policy
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Lowering taxes and raising government spending
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budget deficit
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a situation where the gov't spends more money than it takes in
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crowding-out effect
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loss of funds for private investments due to gov't borrowing
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hyperinflation
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very high inflation
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treasury bill
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a gov't bond repaid in 3 months to a year
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treasury bond
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a gov't bond that can be issued for as long as 30 years
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budget surplus
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when a budget's revenues exceed expenditures
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Purpose of an expansionary fiscal policy
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to increase aggregate demand, employment, and output
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Why is it difficult for the federal government to increase or decrease spending?
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Many of spending categories (Medicaid, Social Security, etc) are entitlements fixed by law
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major uses of government fiscal policy
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to achieve economic growth, full employment and price stability
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2 major problems associated with national debt
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it reduces the funds available for businesses to invest and the gov't must pay interest to bondholders
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Federal Open Market Committee (FOMC)
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committee that makes key decisions about the interest rates and growth of the U.S. money supply
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check clearing
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the process where banks record whose account gives up/receives money when a customer writes a check
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discount rate
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rate the Federal Reserve charges for loans to commercial banks
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monetary policy
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actions that the Federal Reserve takes to influence GDP and inflation
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federal funds rate
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interest rate banks charge each other for loans
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banks that must join the Federal Reserve system
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all nationally chartered banks
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lender of last resort
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The Federal Reserve makes emergency loans to commercial banks so they can maintain required reserves
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How many federal district banks are there?
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12
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ways the Federal Reserve Bank serve the federal government
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acts as the federal gov't's banker, auctions off gov't securities and issues currency
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Who appoints the members of the Board of Governors of the Federal Reserve?
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The President
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excess reserves
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reserves greater than the required amount
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net worth
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total assets minus total liabilities
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prime rate
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rate of interest banks charge on short-term loans to their best customers
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open market operations
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the buying and selling of gov't securities to alter the supply of money and is the most used monetary policy tool
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required reserve ratio (RRR)
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ratio of reserves to deposits required of banks by the Federal Reserve
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Who issues U.S. paper currency?
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District Federal reserve banks
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Bank examiner
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A person who makes sure banks are obeying laws and regulations
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How does the Fed encourage banks to loan more money?
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Reducing the discount rate
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How does a bond sale made by the Fed affect the money supply?
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It decreases money supply because the money they get after selling bonds is out of circulation meaning that it reduces reserves in the banking system and reverses the money mulitplier
