Crash Course Economics (8) Fiscal Policy and Stimulus, (9) Deficits and Debts, (10) Monetary Policy and the Federal Reserve, and (11) Money and Finance

deficit

A budget _____ is when the government borrows so that it can spend more than it receives from tax revenue during a single year.

Government spending

According to Keynes, what can make up for a decrease in consumer spending?

borrowing money

An interest rate is a price. What is it the price of?

about 90%

Banks are free to loan out their excess reserves. What percentage of their deposits make up excess reserves?

Austerity

During the Great Depression, many European countries adopted a policy of raising taxes and cutting government spending. Give the one-word name for this policy.

Government spending and taxes

Fiscal policy, explained simply, means that if the economy is going too fast or too slow, the government will try to fix it by changing two things. What are they?

Greece; Argentina; Russia

Governments that did not pay back their lenders include _____ a few years ago, _____ in 2001, and _____ in 1998.

Higher suicide rates, more domestic violence, other kinds of social upheaval as rising costs wipe out savings leading to protests and riots

High unemployment doesn't just mean that people are out of work. What other social effects has it been linked to?

by manipulating the money supply

How does the Fed influence interest rates?

loans

If the government continues to borrow, many economists worry that this means there will be fewer _____ available for businesses.

It might take months or even years to complete.

Infrastructure projects like building roads and bridges have strong multipliers, making government spending look very worthwhile. What drawback does this kind of fiscal stimulus have, though?

percentage of GDP

It is important to look at national debt as a __________ since doing that gives an indication of how easy or hard it would be for a country to pay back all the money it owes.

the borrowing the U.S. is going to do

Most economists are not worried about the borrowing the U.S. has done already, because they're too worried about ____________.

It leads to government debt since it requires deficit spending.

People who don't like Keynesian policy have one basic complaint against it. What is their complaint?

Greece and Italy

Some countries with high debt-to-GDP ratios are in crisis. These include _____ and _____. Other countries with high debt-to-GDP ratios are stable. These include Japan and France.

open market operations

The Fed can increase or decrease the money supply fairly quickly; which method do they most often use to accomplish this?

population; productivity

The U.S. GDP tends to increase every year because of _____ growth and improved _____.

low

The U.S. is usually able to borrow money at extremely _____ interest rates.

The United States

The nation with the largest debt is ______.

Social Security and Medicare

The two programs expected to cost hugely more as the baby boom generation retires and lives longer are _____ and _____.

debt

The word _____ refers to the accumulation of borrowing, year after year.

true

True or False: A bank loan might be made up of money deposited from thousands of people.

true

True or False: A bond can be understood as basically the same thing as an IOU that includes interest on the money lent.

false

True or False: About 20% of the world's nations still use the gold standard today.

false

True or False: Bank loans, bonds, and stocks are all regarded as "debt".

true

True or False: Bitcoin is an electronic currency that is not regulated or issued by any national government.

true

True or False: Bonds and stocks both consist of pieces of paper that are traded on markets that connect buyers and sellers.

true

True or False: Businesses that borrow money to invest in "capital" will often be spending their loans on things like machineries, tools, and factories.

false

True or False: Fluctuations in the stock market are a reliable indicator of the health of the economy.

true

True or False: In the past, dollars issued by the U.S. government could be traded in for a set amount of gold.

true

True or False: In today's world, a lot of the money in use is digital instead of physical.

true

True or False: Lenders sometimes consist of corporations with cash on hand, but ordinary households can also be lenders.

false

True or False: Money must be made up of cash and coins issued and approved by a government.

false

True or False: Ordinary households as well as governments and corporations sell bonds to lenders.

true

True or False: People who become lenders by depositing their savings into banks gain an advantage from the financial system because their savings might make up a part of dozens or hundreds of separate loans, which lets them spread out the risk of lending out their money.

true

True or False: Stock is an ownership share of a company, and people with stock are called shareholders.

true

True or False: The "gold standard" meant that as long as the government had additional gold reserves not yet backed by currency, it could issue more dollar bills.

false

True or False: The U.S. debt ceiling is a useful tool because it triggers cuts in spending and increases in revenue.

true

True or False: The United States began to move off the gold standard as long ago as the 1930s.

false

True or False: The financial system is a network made up of two groups: workers and employers.

false

True or False: The vast majority of people who use Bitcoin plan to spend their Bitcoins on goods and/or services.

false

True or False: There are only two main groups of borrowers in the financial system: households and businesses.

true

True or False: There are there main ways that loans take place: through banks, through the bond market, and through the stock market.

true

True or False: Using the barter system takes more time and energy than using money to trade for goods.

false

True or False: When the U.S. debt-to-GDP ratio is compared to the ratio for other nations, the U.S. comes out worst of all.

John Keynes

What British economist became one of the most influential and controversial of the 20th century by arguing against this classical view?

money held as cash instead of in the form of bonds, mortgages, stocks, etc.

What are liquid assets?

the Fed buying or selling short-term government bonds

What are open market operations?

fiscal policy and monetary policy

What are the two main ways to speed up or slow down the economy?

give them emergency loans

What could the Fed have done to increase the liquidity of banks during the Great Depression, which would have kept them from having to close their doors?

The Fed blew it / messed up, and they're very sorry

What did Fed Chairman Ben Bernanke admit about the Fed's role during the Great Depression?

It will fix itself eventually and government interference can only make things worse.

What do classical economic theories assume about the economy when it's in trouble?

It might turn out to be worth $175 of actual spending in the economy.

What does the "ripple" effect of increasing government spending mean when the government provides $100 of stimulus?

That it's not always operating at its full potential.

What does the business cycle demonstrate about the economy?

The Great Recession

What era was the result of the 2008 financial crisis?

They have increased hugely as banks are much more reluctant than before to lend out money.

What happened to banks' excess reserves from 2008 to 2015?

The Federal Reserve

What is the central bank of the United States?

To reduce consumer spending

What is the goal of contractionary fiscal policy?

discount rate

What is the name of the interest rate that the Fed charges to banks when it loans them money?

contractionary

What kind of monetary policy is happening if the central bank decreases the money supply, which leads to less borrowing and spending?

expansionary

What kind of monetary policy is happening if the central bank increases the money supply, which leads to more borrowing and spending?

The American Recovery and Reinvestment Act

What stimulus bill attempted to heal the Great Recession, adding more than 800 billion dollars to the economy by pursuing both strategies?

confidence and liquidity

What two things are needed to keep a banking system healthy?

It seemed like the days of deep recessions and high inflation were over

What was the economy like during the Great Moderation of the mid-1980s?

unemployment

When Paul Volcker's policies drove down inflation, what increased?

inflation

When looking at the trend of the national debt over time, you need to adjust for _____ since dollars today are not worth the same as dollars in the past.

Increasing government spending, or cutting taxes, or doing some of both

When the economy is in deep recession, what are the two fiscal policy strategies used to return things to normal?

default

When the government doesn't pay back its lenders as promised, this is known as _____ and it's terrible for everyone.

Janet Yellen

Who steers the largest economy in the world?

It causes widespread panic and leads to even more banks failing

Why can it be a bad idea to let several large banks fail?

It's unpopular with voters

Why don't we see contractionary fiscal policy used more?

fractional reserve banking

You deposit money in the bank. The bank loans most of it out and keeps a small amount in the bank. What is this system of banking called?