Macro Fiscal and Monetary Policy

the Government has taken in more money than it spent.

A budget surplus means that

expansion/recovery-peak-contraction/recession/trough

Basic business cycle knowledge. Cycles tend to run in the following pattern:

-Decrease Gov't Spending- AD will decrease -Increase Taxes- Disposable income will decrease, consumer spending will decrease, AD will decrease

Closing an Inflationary Gap with Fiscal Policy:

eventually, wages will increase, costs will increase, and AS will decrease

Closing an Inflationary Gap with No Policy:

-Increase Reserve Requirment -Increase Discount Rate -Open Market Operations- Sell bonds (each of these would: decrease the money supply which would increase int. rates that would decrease investment and decrease AD, slowing down the economy)

Closing an inflationary Gap with Monetary Policy:

economic growth

Comparing real GDP between two consecutive years is MOST useful in determining which economic measurement?

- The 12 District Banks - The Board of governors - The Federal Open Market Committee - Congress and the President

Components of the Federal Reserve System

aggregate supply

Finding the amount of Real Gross Domestic Product produced at all possible price levels will determine

-Government spending- increase gov't spending would shift the AD to the right. -Taxation- cut taxes, lowering taxes would increase consumer spending, which would shift AD to the right

Getting out of a recession with Fiscal Policy:

wages decrease (causing high unemployment), costs decrease, AS will increase and shift to the right. Eventually resources prices will go down; all this will put us back at full employment. long-run AS

Getting out of a recession with No Policy:

No policy (wait it out) Fiscal policy (Gov't) Monetary policy (Fed)

Getting out of a recession. We have 3 different options

-Increase money supply, this will decrease interest rates and increase investment and consumption that will increase AD (shift to the right) and close a recessionary gap.

Getting out of recession with Monetary Policy:

- Consumption - Investment - Government - Net Exports

Gross Domestic Product is a method for calculating how much a country produces by adding which four spending categories?

trough

If an economy is currently experiencing a contraction or recession, which stage of the business cycle will they experience next?

-Reserve Requirement- lower the reserve req. and banks can create more money. -Discount Rate- lower the discount rate and they can loan out more money to banks -Open Market Operations- buy bonds, when the Fed buys bonds it puts money in the system increasing money supply.

Monetary Policy. How do we increase the money supply?

decisions of the Federal Reserve System that determine the money supply.

Monetary policy is defined as the

unit of account

Money helps people compare relative values of goods/services, allows people to discuss something's "worth" and helps give meaning to profits and losses. In this way, money serves which role/function in society?

national debt is the sum of all past deficits plus interest.

National debt is different than government deficits in that

monetary policy

Remember, the Fed conducts

fiscal policy

Remember, the federal Gov't conducts

in a recession. it can be at full employment, or it can have an inflationary gap

When it comes to measuring the economy there's only 3 possible things that could be happening at any given period of time. The economy can be

The Federal Open Market Committee

Which component of the Federal Reserve System holds the most influence in regards to the direction of monetary policy?