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micro exam 3
| Question | Answer |
|---|---|
| who is responsible for monetary policy? | the federal reserve |
| what is the federal reserve's "dual mandate"? | to maximize employment & control inflation |
| what tools do the federal reserve use? | the federal fund rate & open market operations |
| what is the federal fund rate? | it's the rate that banks lend money to each other |
| what are open market operations? | the buying & selling of bonds |
| what does buying bonds do? | to get back currency |
| what does selling bonds do? | it pushes currency into the economy |
| what is the purpose of contractionary? | to slow economic activity |
| what is quantitative easing? | large-scale purchasing of bonds |
| who is responsible for fiscal policy? | the government |
| what tools does the fiscal policy use? | taxes & government spending |
| what does contractionary do for fiscal policy? | reduce inflation |
| what is the automatic stabilizer? | policy that works without new government action |
| what are examples of automatic stabilizers? | unemployment benefits & welfare |
| what does expansionary do for fiscal policy? | increases aggregate demand |
| what are examples of expansionary events for fiscal policy? | tax cuts & stimulus checks |
| what is crowding out? | it's a rise in interest rates that reduces private investment |
| what are lags? | recognition, political. implementation, evaluation, & adjustment |
| what is recognition lag? | identifying the problem |
| what is political lag? | wait for politicians to debate & decide on what to do |
| what is implementation lag? | self-explanatory |
| what is evaluation lag? | to see whether or not the policy is working |
| what is adjustment lag? | adjusting the policy if necessary |
| how can you slow inflation? | increasing taxes & decrease government spending |
| what is the national debt? | it's the aggregated amount of yearly deficits |
| what is Keynesian economics? | it's a macroeconomic theory that emphasizes the importance of aggregate demand. Developed by British economist John Maynard Keynes in 1930s |
| what is Keynesian economics used? | it's used during a recession to increase government spending to boost demand |
| what is fiscal stimulus? | it's government actions that increase aggregate demand |
| what are issues with fiscal policy? | lags, specifically |
| what are tariffs? | taxes on imported goods |
| what are quotas? | limits on imported goods |
| what is comparative advantage? | a country that can produce the good at a lower opportunity cost |
| who are the victims of tariffs? | domestic consumers |
| what are arguments for protectionism? | protecting infant industries |
| what is protectionism? | are government policies to restrict international trade in order to protect domestic industries, businesses, & workers from foreign competition |
| what will happen is world price is lower than domestic price? | we will import |
| why are tariffs bad to trade? | they create dead-weight loss |
| what is dead-weight loss? | lost gains from trade that neither consumer or producer receive |
| what is dumping? | selling goods cheaper than domestic cost |
| what is public choice? | is the application of economic tools & methods to analyze political behavior & decision-making processes |
| what is rent seeking? | activities aimed at gaining benefits from the government through political influence rather creating value |
| what are politician models? | self-interested individuals seeking votes or political support |
| what are government failures? | action by the government that leads to inefficiency or outcomes worse than market outcomes |
| what is theory? | government officials respond to the same types of incentives that guide people in the market |
| what do policies benefit? | small, organized groups that supports the politician |
| what is the implication? | political processes may create outcomes that benefit a narrow group at the expense of society |
Created by:
leestudymaster
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