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ECON 102
Final Exam
Term | Definition |
---|---|
central bank | institution which conducts a nation’s monetary policy and regulates its banking system |
bank run | when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost |
deposit insurance | an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt |
lender of last resort | an institution that provides short-term emergency loans in conditions of financial crisis |
discount rate | the interest rate charged by the central bank on the loans that it gives to other commercial banks |
open market operations | the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates |
reserve requirement | the percentage amount of its total deposits that a bank is legally obligated to to either hold as cash in their vault or deposit with the central bank |
contractionary monetary policy | a monetary policy that reduces the supply of money and loans |
countercyclical | moving in the opposite direction of the business cycle of economic downturns and upswings |
expansionary monetary policy | a monetary policy that increases the supply of money and the quantity of loans |
federal funds rate | the interest rate at which one bank lends funds to another bank overnight |
loose monetary policy | see expansionary monetary policy |
quantitative easing (QE) | the purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand |
tight monetary policy | see contractionary monetary policy |
basic quantity equation of money | money supply × velocity = nominal GDP |
excess reserves | reserves banks hold that exceed the legally mandated limit |
inflation targeting | a rule that the central bank is required to focus only on keeping inflation low |
velocity | the speed with which money circulates through the economy; calculated as the nominal GDP divided by the money supply |
balanced budget | when government spending and taxes are equal |
budget deficit | when the federal government spends more money than it receives in taxes in a given year |
budget surplus | when the government receives more money in taxes than it spends in a year |
corporate income tax | a tax imposed on corporate profits |
estate and gift tax | a tax on people who pass assets to the next generation—either after death or during life in the form of gifts |
excise tax | a tax on a specific good—on gasoline, tobacco, and alcohol |
individual income tax | a tax based on the income, of all forms, received by individuals |
marginal tax rates | or the tax that must be paid on all yearly income |
payroll tax | a tax based on the pay received from employers; the taxes provide funds for Social Security and Medicare |
progressive tax | a tax that collects a greater share of income from those with high incomes than from those with lower incomes |
proportional tax | a tax that is a flat percentage of income earned, regardless of level of income |
regressive tax | a tax in which people with higher incomes pay a smaller share of their income in tax |
national debt | the total accumulated amount the government has borrowed, over time, and not yet paid back |
contractionary fiscal policy | fiscal policy that decreases the level of aggregate demand, either through cuts in government spending or increases in taxes |
expansionary fiscal policy | fiscal policy that increases the level of aggregate demand, either through increases in government spending or cuts in taxes |
automatic stabilizers | tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation |
discretionary fiscal policy | the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level or overall economic activity |
standardized employment budget | the budget deficit or surplus in any given year adjusted for what it would have been if the economy were producing at potential GDP |
crowding out | federal spending and borrowing causes interest rates to rise and business investment to fall |
implementation lag | the time it takes for the funds relating to fiscal policy to be dispersed to the appropriate agencies to implement the programs |
legislative lag | the time it takes to get a fiscal policy bill passed |
recognition lag | the time it takes to determine that a recession has occurred |
absolute advantage | when one country can use fewer resources to produce a good compared to another country; when a country is more productive compared to another country |
gain from trade | a country that can consume more than it can produce as a result of specialization and trade |
intra-industry trade | international trade of goods within the same industry |
splitting up the value chain | many of the different stages of producing a good happen in different geographic locations |
value chain | how a good is produced in stages |
tariffs | taxes that governments place on imported goods |