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Active Policy
Monetary policy and fiscal policy whereby the appropriate course of action is left to the discretion of policymakers rather than to the dictates of preset rules.
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Assets
Cash, stocks, bonds, and physical goods that are stores of wealth and value.
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Balance Sheet
An accounting tool where assets and liabilities are compared side by side.
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Borrowers
Individuals who take out loans from banks.
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Budget Deficit
When the amount of money spent by the government is greater than the amount of money collected by the government.
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Budget surplus
When the amount of money spent by the government is less than the amount of money collected by the government.
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Capital
Physical, human, and intellectual property used to increase productivity.
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Consumption
Money spent on goods and services by consumers.
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Contractionary Fiscal Policy
Policy utilized by the government to slow the economy through increasing taxes and reducing government spending.
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Contractionary Monetary Policy
Policy utilized by the Fed to slow the economy through selling government bonds, increasing the reserve requirement, and increasing the federal funds interest rate.
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Crowding In
When government spending induces private investment.
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Crowding Out
When government spending reduces private investment.
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Currency
Money, either fiat or commodity, that is commonly used in an economy.
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Demand Deposits
Deposits made by in banks that can be withdrawn at any time--that is, on demand.
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Deposits
Money given to banks for safekeeping and to earn interest.
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Detection Lag
A difference in time between when an economic problem occurs and when it is noticed by economists.
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Discretionary Policy
Monetary policy and fiscal policy whereby the appropriate course of action is left to the discretion of policymakers rather than to the dictates of preset rules.
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Expansionary Fiscal Policy
Policy utilized by the government to stimulate the economy through reducing taxes and increasing government spending.
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Expansionary Monetary Policy
Policy utilized by the Fed to stimulate the economy through purchasing government bonds, reducing the reserve requirement, and reducing the federal funds interest rate.
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Factors of Production
The inputs of capital and labor required to produce output whose improvement leads to productivity increases.
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Federal Deposit Insurance Corporation
A corporation that insures individual bank accounts up to $100,000 to ensure that the public is confident in the banking system.
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Federal Funds Interest Rate
The discount interest rate at which the branch banks of the Fed loan money to other banks.
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Federal Reserve
The federal group that controls the money supply though monetary policy and fiscal policy.
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Federal Reserve Banks
Branches of the Fed that serve as banks for non-government controlled banks by accepting deposits, giving withdrawals, and making loans as needed.
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Financial Intermediary
An entity, like a bank, that works between savers and borrowers by accepting deposits and making loans.
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Fiscal Policy
Policy utilized by the government to affect the economy through taxes and government spending.
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Fractional Reserve Banking System
A banking system wherein less than 100% of the deposits are required to be held as reserves.
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Government Bonds
Bonds issued by the government and bought and sold by the Fed as a form of monetary policy to manipulate the money supply.
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Government Spending
Money spent by the government on goods and services.
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Inflation
An increase in the price level over time.
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Interest
Money paid by a borrower to a lender in return for the use of money in the form of a loan.
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Interest Rate
The rate of interest in the form of percent of the balance due per year.
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Investment
Money spent on capital goods that increase productivity in the long run.
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Lender
One who gives money to be repaid at a later date, with interest.
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Liabilities
Money owed.
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Loans
Money given by lenders to borrowers.
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Monetary Policy
Policy utilized by the Fed to affect the economy through open market operations, changing the reserve requirement, and changing the federal funds interest rate.
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Money
The stock of assets used in transactions within an economy.
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Money Multiplier
The number that describes the change in the money supply given an initial deposit and a reserve requirement. (See the Formula.)
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Money Supply
The total amount of currency in circulation as controlled by Fed policy.
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National Debt
Money owed by the government from budget deficits.
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National Savings
The difference between government spending and the amount of money collected in taxes.
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Net Exports
The difference between exports and imports.
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Open Market Operations
The purchase and sale of government bonds by the Fed in order to affect the money supply.
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Paper Balances
Deposits that exist on paper but are not backed by physical currency.
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Passive Policy
Monetary policy and fiscal policy whereby the appropriate course of action is left to the dictates of preset rules rather than to the discretion of policymakers.
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Policy by Rule
Monetary policy and fiscal policy whereby the appropriate course of action is left to the dictates of preset rules rather than to the discretion of policymakers.
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Policy Lag
The difference between when a policy is enacted and when it has the intended effects upon the economy.
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Price Level
The overall level of prices within an economy.
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Principle
The initial amount of money given as a loan.
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Real GDP
The total value of goods and services produced in an economy value in constant dollars.
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Real Variables
Economic variables that are valued in constant dollars.
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Reserve
Money not given out in loans that is available for repaying depositors.
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Reserve Requirement
The percent of total deposits required to be held back for repaying depositors. This is controlled by the Fed as a form of monetary policy.
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Savers
Individuals who deposit money in banks.
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Supply Side
Economic policies that affect suppliers rather than consumers.
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Treasury
The government agency that prints, mints, and stores money.
Terms
Formulae
| Output | Output = Y = C(Y - T) + I + G + NX |
| Money Multiplier | Money multiplier = 1 / (reserve requirement) |
