Ethan Ellis - Unit 78 Test Review 19285436 PDF

**FISCAL AND MONETARY POLICY** **UNIT TEST STUDY GUIDE** **[DIRECTIONS]:** Use your knowledge of Fiscal Policy, Monetary Policy, Economics, and your notes from the Fiscal and Monetary Policy units to complete the following study guide. ***FISCAL POLICY / TAXES, GOVERNMENT SPENDING, and the NATION...

**FISCAL AND MONETARY POLICY** **UNIT TEST STUDY GUIDE** **[DIRECTIONS]:** Use your knowledge of Fiscal Policy, Monetary Policy, Economics, and your notes from the Fiscal and Monetary Policy units to complete the following study guide. ***FISCAL POLICY / TAXES, GOVERNMENT SPENDING, and the NATIONAL DEBT NOTES*** 1. a. ***Government spending*** ---- --------------------------- b. ***Taxes*** 2. +-----------------------------------------------------------------------+ | ***Government spending boosts demand by purchasing goods.*** | | | | ***Raising the income tax rate has by far the least negative effect | | on GDP.*** | +-----------------------------------------------------------------------+ 3. ---------------------------------------------------------------------------------------------------------------- ***As more income is collected from taxes, less is available for spending, reducing inflationary pressures.*** ---------------------------------------------------------------------------------------------------------------- 4. ------------------------------------------------------------------------ ***If it is affected there will be an increase in aggregate demand.*** ------------------------------------------------------------------------ 5. **TAX STRUCTURE** **EXPLANATION** **EXAMPLE(S)** -------------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------ ***Regressive*** ***taxes have a greater impact on lower-income individuals than on the wealthy. A proportional tax is also called a flat tax. It affects low-, middle-, and high-income earners relatively equally. They all pay the same tax rate regardless of income but this places a greater burden on low-income individuals.*** ***Farmers paying more percentage than the middle class*** ***Proportional*** ***Low-income individuals take a greater hit compared to high-income earners under a regressive tax system. The government assesses tax as a percentage of the asset\'s value that a taxpayer purchases or owns. This type of tax doesn\'t correlate with an individual\'s earnings or income level.*** ***Farmers pay less percentage than the upper class*** ***Progressive*** ***A progressive tax has more of a financial impact on high-income individuals than on low-income earners. Tax rates and tax liability increase in line with a taxpayer\'s income. Investment income taxes and estate taxes are examples of progressive taxes in the U.S.*** ***People with higher incomes*** 6. a. ***Bonds*** ---- ------------------------- b. ***Increasing income*** c. ***Reducing expenses*** d. ***Increase taxes*** 7. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ***Bonds represent the least damaging option for lawmakers in the short run, as it can be immediately funded without affecting the taxpayer or vital services directly. However, lawmakers must think of the long-term consequences of rising debt.*** -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 8. ------------------------------------------------------ ***active government intervention in the economy.*** ------------------------------------------------------ 9. ---------------------------- ***The great depression*** ---------------------------- 10. **TYPE of ECONOMIC STABILIZER** **EXPLANATION** **EXAMPLE(S)** ----------------------------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- ***Automatic stabilizer*** ***These are built-in mechanisms within the tax and spending system that automatically adjust to economic conditions, providing a cushion during recessions and slowing down economic booms without requiring specific government intervention.*** ***Progressive income tax, unemployment insurance, welfare programs.*** ***Discretionary fiscal policy*** ***This involves deliberate government actions like changing tax rates or government spending levels to actively influence the economy based on current conditions.*** ***Stimulus packages, tax cuts, government spending cuts.*** ***MONETARY POLICY*** 11. ---------------------------------------------------------------------- ***The federal reserve AKA The central bank of the united states.*** ---------------------------------------------------------------------- 12. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ***A particularly severe panic in 1907 resulted in bank runs that wreaked havoc on the fragile banking system and ultimately led Congress in 1913 to write the Federal Reserve Act.*** ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 13. -------------- ***Twelve*** -------------- 14. a. ***conducting monetary policy*** ---- ---------------------------------------------- b. ***supervising banks*** c. ***maintaining financial system stability*** 15. +-----------------------------------+-----------------------------------+ | b. | ***lower interest rates, which | | | spurs investment, and through | | | putting more money in the hands | | | of consumers, making them feel | | | wealthier, and thus stimulating | | | spending.*** | +===================================+===================================+ | a. | ***real GDP decreases, and | | | consumers have less money to buy | | | goods and services.*** | +-----------------------------------+-----------------------------------+ 16. +-----------------------+-----------------------+-----------------------+ | **MONETARY** | **GROW THE ECONOMY** | **SLOW THE ECONOMY** | | | | | | **POLICY TOOL** | | | +=======================+=======================+=======================+ | ***Open market | ***It does this by | ***The process of a | | operations*** | buying government | central bank selling | | | bonds from the | government bonds | | | market, hence pumping | removes money from | | | money into the | circulation in an | | | system, which reduces | economy, increases | | | interest rates, | interest rates to | | | thereby encouraging | reduce borrowing, and | | | borrowing and | correspondingly slows | | | spending that may | economic growth.*** | | | eventually increase | | | | economic | | | | activities.*** | | +-----------------------+-----------------------+-----------------------+ | ***Discount rate*** | ***Lowering the | ***Conversely, | | | discount rate makes | raising the discount | | | it cheaper for banks | rate makes it more | | | to borrow, which can | expensive for banks | | | lead to increased | to borrow, which can | | | lending and economic | lead to higher | | | activity.*** | interest rates for | | | | consumers and | | | | businesses and slower | | | | economic growth.*** | +-----------------------+-----------------------+-----------------------+ | ***Reserve | ***Increasing the | ***This decrease in | | requirements*** | banks\' reserve | lending results in a | | | requirements leads to | lower money supply, | | | a reduction in their | which in turn can | | | lending capacity, as | lead to reduced | | | they must hold a | spending, investment, | | | larger proportion of | and slowed economic | | | their deposits as | growth.*** | | | cash on hand.*** | | +-----------------------+-----------------------+-----------------------+ ***GENERAL*** 17. +-----------------------+-----------------------+-----------------------+ | | **EXPANSIONARY** | **CONTRACTIONARY** | | | | | | | **FISCAL AND MONETARY | **FISCAL AND MONETARY | | | POLICY** | POLICY** | +=======================+=======================+=======================+ | ***BUSINESS*** | ***Aims to stimulate | ***Contractionary | | | economic growth | policy aims to slow | | ***CYCLE*** | during a recession | down an overheated | | | (through) by | economy by decreasing | | | increasing government | government spending | | | spending or lowering | or raising taxes*** | | | taxes.*** | | +-----------------------+-----------------------+-----------------------+ | ***TAXES*** | ***Lowering taxes to | ***Raising taxes to | | | increase disposable | reduce disposable | | | income and stimulate | income and curb | | | spending*** | inflation*** | +-----------------------+-----------------------+-----------------------+ | ***GOVERNMENT*** | ***Increases | ***Decreases | | | government spending | government spending | | ***SPENDING*** | on infrastructure, | to reduce aggregate | | | social programs, | demand and control | | | etc., to boost | inflation.*** | | | aggregate demand*** | | +-----------------------+-----------------------+-----------------------+ | ***MONETARY POLICY*** | ***Increases the | ***Decreases the | | | money supply to | money supply to | | ***(MONEY SUPPLY)*** | encourage borrowing | reduce inflation.*** | | | and investment.*** | | +-----------------------+-----------------------+-----------------------+ | ***GOVERNMENT*** | ***The government is | ***Involves the | | | buying back its | government selling | | ***SECURITIES*** | securities to | securities to | | | increase the money | decrease the money | | | supply.*** | supply.*** | +-----------------------+-----------------------+-----------------------+ | ***RESERVE*** | ***Lowers the reserve | ***Raises the reserve | | | requirement allowing | requirement, reducing | | ***REQUIREMENT*** | banks to lend more | the amount banks can | | | money*** | lend.*** | +-----------------------+-----------------------+-----------------------+ | ***DISCOUNT*** | ***Lowers the | ***Policy raises the | | | discount rate (the | discount rate to make | | ***RATE*** | interest rate at | borrowing more | | | which commercial | expensive*** | | | banks can borrow from | | | | the central bank) | | | | making borrowing | | | | cheaper.*** | | +-----------------------+-----------------------+-----------------------+ 18. a. --------------------------------------------------------------------------------------------------------------------------------------- ***Expansionary policy is a type of macroeconomic policy that is implemented to stimulate the economy and promote economic growth.*** --------------------------------------------------------------------------------------------------------------------------------------- b. ------------------------------------------------------------------------------------------------------------------------------------------------------------ ***A contractionary policy is a tool used to reduce government spending or the rate of monetary expansion by a central bank to combat rising inflation.*** ------------------------------------------------------------------------------------------------------------------------------------------------------------ c. ----------------------------------------------------------------------------- ***the use of government spending and taxation to influence the economy.*** ----------------------------------------------------------------------------- d. -------------------------------------------------------------------------------------------------------------------------------------- ***Taxes are a mandatory contribution levied on corporations or individuals to finance government activities and public services.*** -------------------------------------------------------------------------------------------------------------------------------------- e. -------------------------------------------------------------------------------------------------------------------------------------------------------------- ***money spent by the public sector on the acquisition of goods and provision of services such as education, healthcare, defense, and social protections.*** -------------------------------------------------------------------------------------------------------------------------------------------------------------- f. ----------------------------------------------------------------------------------------------------- ***funding for Social Security, Medicare, veterans benefits, and other spending required by law.*** ----------------------------------------------------------------------------------------------------- g. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ***The portion of the federal budget that is decided by annual appropriations bills, which includes funding for programs like education, defense, and transportation.*** -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- h. ------------------------------------------------------------------------ ***A budget surplus is when income or revenue exceeds expenditures.*** ------------------------------------------------------------------------ i. ---------------------------------------------------------------------------------------------------------------------------- ***A budget deficit occurs when money going out (spending ) exceeds money coming in (revenue ) during a defined period.*** ---------------------------------------------------------------------------------------------------------------------------- j. --------------------------------------------------------------------------------------------------------------------------------------- ***a budget (i.e., a financial plan) in which revenues are equal to expenditures, such that there is no budget deficit or surplus.*** --------------------------------------------------------------------------------------------------------------------------------------- k. ---------------------------------------------------------------------------------------------------------------------------------------------- ***the Federal Reserve\'s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates.*** ---------------------------------------------------------------------------------------------------------------------------------------------- l. ---------------------------------------------------------------------------------------------------------------------------------------------------------------- ***The money supply is the total amount of cash and cash equivalents, such as savings account balances, circulating in an economy at a given point in time.*** ---------------------------------------------------------------------------------------------------------------------------------------------------------------- m. ----------------------------------------------------------------------------------------------------------------------------------------------------- ***Government securities are debt instruments of a sovereign government. They sell these products to finance day-to-day governmental operations.*** ----------------------------------------------------------------------------------------------------------------------------------------------------- n. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ***the amount of cash that financial institutions must have, in their vaults or at the closest Federal Reserve bank, in line with deposits made by their customers.*** ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ o. ------------------------------------------------------------------------------------------------------------------------- ***the interest rate applied to determine the present value of forthcoming cash flows from an investment or project.*** -------------------------------------------------------------------------------------------------------------------------