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Economics Unit 4 Packet

GDP
total dollar value of all final goods and services produces in a nation in a single year
inflation
prolonged rise in the general price level of goods and services
aggregate supply
real domestic output of producers based on the rise and fall of the price level
trough
lowest part of the business cycle in which the downward spiral of the economy levels off
economic indicators
statistics that measure variables in the economy
commodity money
a medium of exchange such as cattle or gems that has value as a commodity or good aside from its value as money
M1
narrowest definition of the money supply, consists of moneys that can be spent immediately and against which checks can be written
Fed
The Federal Reserve System created by Congress in 1913 as the nation’s central banking organization
Tight Money Policy
monetary policy that makes credit expensive and in short supply in an effort to slow the economy
Prime Rate
rate of interest that bans charge on loans to their best business customers
Income Redistribution
government activity that takes income from some people through taxation and uses it to help citizens in need
Medicaid
state and federal public-assistance program that helps pay health costs for low-income and disabled persons
budget deficit
situation when the amount of government spending exceeds its receipts during the fiscal year
Proportional tax
tax that takes the same percentage of all incomes; as income rises the amount of tax paid also rises
regressive tax
tax that takes a larger percentage of low incomes than higher incomes
What 5 sources make up national income?
wages and salaries, income of self employed individuals, rental income, corporate profits and interest on savings, and other investments.
What is the difference between inflation and deflation?
Inflation is the rise in the general price level of final goods and services while deflation is the decline.
What are the phases of a typical business cycle?
Expansion- GDP increasing at an increasing rate
Peak- GDP increase constant
Contraction (recession)- GDP decrease at an increasing rate
Trough- GDP decrease constant
What are three major categories of economic indicators?
Leading indicators, coincident indicators, lagging indicators
What are three functions of money?
Medium of exchange, unit of accounting, store value
What is the type of money used by the United States?
Fiat money
What are government’s main functions?
Providing public goods, general welfare, regulation and economic stability
Give 5 examples of public goods.
insurance, health, communication, transportation, military
What are the five largest federal expenses?
health and human services, department of defense, treasury department, department of agriculture, and department of education.
What are the two principles of taxation?
The benefits-received principle and the ability to pay principle.
When was the most serious banking panic of the twentieth century?
the banking panic of 1907 was the most severe banking panic in the United States for 6 short years later the federal reserve was created.
Which agency of the federal government is responsible for printing and maintaining paper currency?
The Fed
What are the two basic types of monetary policies?
1. Central Bank Policy
2. Money Supply Policy
What are two measurements of government growth?
How man public programs are implemented and how much taxes have been raised.
What are government’s main functions?
Providing public goods, promoting the general welfare, regulation economic stability
What are the four categories of economic activity are used to measure GDP?
consumer sector (goods brought directly by consumers), investment sector (business purchase items for other goods), government sector (good and services bought), net exports (dif between exports and imports)
What is the relationship between the purchasing power of money and the rate of inflation?
When inflation occurs, the purchasing power of a dollar goes down.
What are commonly used price indexes?
food, housing, transportation, clothing, education, recreation, medical care, and personal care
What causes the aggregate supply curve to slow upward?
Lower taxes or interest rates or lower prices for foreign oil.
What is determined at the intersection of the aggregate supply and aggregate demand?
the equilibrium price level is determined where the aggregate demand curve crosses the aggregate supply curve, or at a GDP price deflator of 140.
What two aspects of government activity affect business cycles?
through its policies on taxing and spending and through its control over the supply of money available in the economy
What are the six services offered by banks and savings institutions?
checking accounts, interest on certain types of checking accounts, automatic deposit and payment, storage of valuables, transfer of money from 1 to another and overdraft checking.
M2
broader def of the money supply, including all of the M1, plus such near moneys as savings deposits, small denomination time deposits, money market deposit accounts, and retail money market mutuals fund balances.
What is the purpose of fractional reserve banking>
Also, its just in case customers want to withdraw large amounts of and in cash from their checking accounts.
What are some of the difficulties of carrying our monetary policy?
Time lag between the implementation o the policy and detectable effects in the economy and inflationary effects driven by influences demand
What percent of GDP accounts for government purchases?
19%
Compare and Contrast Merit Goods
merit is one that is deemed socially desirable by government leaders, museums, ballets. demirt are goods in which government officials have deemed socially undesirable such as tobacco, alcohol, and gambling.

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