Economic Theories and Federal Reserve Functions
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Questions and Answers

What is the primary focus of Keynesian economic theory?

  • Regulating the money supply
  • Tax incentives for businesses
  • Self-adjusting market dynamics
  • Creating demand through government spending (correct)

Which function is NOT associated with the Federal Reserve?

  • Supervising and regulating banks
  • Managing currency
  • Maintaining financial stability
  • Controlling fiscal policy (correct)

What type of economic policy does protectionism refer to?

  • Promoting free trade agreements
  • Shielding domestic industries through import taxes (correct)
  • Encouraging exports through subsidies
  • Reducing tariffs on foreign goods

What was the primary consequence of the Smoot-Hawley Act?

<p>Increased import duties on several products (D)</p> Signup and view all the answers

Which country is identified as the United States' largest trading partner?

<p>Mexico (B)</p> Signup and view all the answers

What does 'comparative advantage' imply?

<p>Certain countries can produce goods more efficiently (D)</p> Signup and view all the answers

What does the term 'race-to-the-bottom' signify in international trade?

<p>Decreasing wages to attract businesses (B)</p> Signup and view all the answers

Which of the following statements is true regarding the United States' trade policy?

<p>It employs a three-pronged strategy including regional integration (A)</p> Signup and view all the answers

Which economic theory primarily emphasizes the self-adjusting nature of the economy?

<p>Classical economic theory (D)</p> Signup and view all the answers

What is one of the key roles of the Federal Reserve in the financial system?

<p>Controlling monetary policy (A)</p> Signup and view all the answers

Which of the following best describes protectionism?

<p>Shielding domestic industries by taxing imports (A)</p> Signup and view all the answers

The Smoot-Hawley Act primarily led to what action?

<p>Increasing import duties (D)</p> Signup and view all the answers

Which option correctly identifies one benefit of greater international trade for the United States?

<p>Increased national income (B)</p> Signup and view all the answers

What characterizes the race-to-the-bottom phenomenon?

<p>Rich countries outsourcing jobs to poorer countries (D)</p> Signup and view all the answers

What does NAFTA stand for, and what was its main purpose?

<p>North American Free Trade Agreement; eliminating trade barriers (B)</p> Signup and view all the answers

Which person is recognized as the father of modern economics?

<p>Adam Smith (D)</p> Signup and view all the answers

Flashcards

Keynesian economic theory

Economic theory that argues government spending can stimulate demand and boost the economy.

Supply-side economics

Economic theory that argues tax incentives, spending cuts, and deregulation encourage economic growth.

Protectionism

Government policies that protect domestic industries by taxing imports.

Smoot-Hawley Act

US law that increased import duties and contributed to the global economic downturn.

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Comparative advantage

The ability of a country to produce a good or service at a lower opportunity cost than another country.

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Federal Reserve

The central bank of the US, responsible for managing monetary policy and financial stability.

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Battleground states

States that are considered politically competitive and have a significant role in presidential elections.

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WTO

World Trade Organization; an international organization that regulates trade between nations.

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Classical Economics

An economic theory that emphasizes self-regulation and minimal government intervention. It assumes that markets naturally adjust to achieve equilibrium, and that government interference can disrupt this process.

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Keynesian Economics

An economic theory that supports government intervention to stimulate demand, particularly during recessions. It emphasizes government spending and tax cuts as tools to boost economic activity.

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Monetary Economics

The study and practice of managing a country's money supply and credit conditions through actions taken by a central bank. It aims to stabilize the economy by controlling inflation, interest rates, and other financial variables.

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What are some of the main functions of the Federal Reserve?

The Federal Reserve, often called the Fed, serves as the central bank of the United States. Its key functions include: controlling monetary policy, supervising and regulating banks, maintaining financial stability, and managing currency.

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Who is Adam Smith?

Considered the father of modern economics, Adam Smith was a Scottish philosopher and economist. He's best known for his book The Wealth of Nations, which introduced the concept of the invisible hand—the idea that markets naturally regulate themselves.

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What is protectionism?

Protectionism is a trade strategy that uses government actions to protect domestic industries from foreign competition. These actions often include imposing taxes (tariffs) on imported goods, limiting quotas, or imposing other restrictions on foreign imports.

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What is comparative advantage?

Comparative advantage is an economic principle that suggests countries should specialize in producing goods or services that they can produce more efficiently or at a lower opportunity cost than other countries. This specialization leads to more efficient global resource allocation and increased overall production.

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Study Notes

Economic Theories

  • Classical Economics: Self-adjusting economy, market forces resolve issues.
  • Keynesian Economics: Government intervention to stimulate demand through spending.
  • Supply-Side Economics: Tax cuts and incentives to stimulate supply, reduced government spending.
  • Monetary Economics: Regulating the money supply to influence the economy.

Federal Reserve Functions

  • Controlling monetary policy (interest rates, money supply).
  • Supervising and regulating banks.
  • Maintaining financial stability.
  • Managing currency.

Key Economic Figures

  • Adam Smith: Considered the father of modern economics.
  • Jerome Powell: Current Chairman of the Federal Reserve.

Trade Policy

  • Protectionism: Shielding domestic industries by taxing imports.
  • Protectionist Policies in the US: Followed in the 19th century.
  • Smoot-Hawley Act: Increased import duties, including agricultural imports.
  • Largest US Trading Partner: Mexico.
  • Comparative Advantage: Devoting resources to produce goods and services more efficiently (beneficial for exporters and consumers).
  • Disadvantage of International Trade: Job losses in some sectors. Workers are disadvantaged.
  • US Trade Strategy: Three-pronged approach—global tariff reductions, regional integration, and bilateral agreements.
  • Benefits of International Trade: Trade imbalances reflected in investment, increased national income.
  • Disadvantages of International Trade: Job losses, risk of "race to the bottom" (lowering labor standards). Race to the bottom means going from rich countries working to poor countries.
  • WTO: World Trade Organization, overseeing trade rules between nations.
  • NAFTA: North American Free Trade Agreement, eliminated trade barriers between the US, Canada, and Mexico.
  • TPP: The United States is not a part of the Trans-Pacific Partnership.

Recent Election Results

  • Battleground States: Arizona, Michigan, North Carolina, Wisconsin, Georgia, Nevada, Pennsylvania.
  • Senate Control: Democrats.
  • House Control: Republicans.
  • Texas Senate Winner: Ted Cruz.

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Test your understanding of various economic theories, including Classical, Keynesian, Supply-Side, and Monetary Economics. Dive into the essential functions of the Federal Reserve and learn about key economic figures that shaped modern economics. Explore trade policies and their historical impact.

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