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Fiscal Policy
Managing the economy by altering tax and spending laws
expansionary fiscal policy
the plan to increase aggregate demand and stimulate a weak economy
expansionary monetary policy
a plan to increase the amount of money in circulation; also called easy-money policy
automatic stabilizers
a feature of fiscal policy that works automaticallay to steady the economy
Keyenesian economics
the idea, first advanced by John Maynard Keynes, that the government needs to stimulate aggregate demand in times of recession
spending multiplier effect
a situation in which a small change in spending eventually results in a much larger change in GDP
Laffer Curve
a graph that illustrates how tax cuts affect tax revenues and economic growth
budget surplus
a situation in which the government takes in more than it spends
National Debt
The total amount of all deficits
crowding-out effect
a situation in which the government outbids private bond interest rates to gain loanable funds
Federal Reserve System
a system in which Wilson decided that the nation would be divided into 12 districts and establish a regional central bank in each district, these central banks would then serve the other banks. For loans and transfer funds.
central bank
a nation's main monetary authority
Board of Governors
the board of seven appointed members that supervises the operations of the Federal Reserve System and sets monetary policy
required reserve ratio
the fraction of a bank's deposits, determined by the federal reserve, that it must keep in reserve so that it can loan out money
Monetary Policy
Managing the economy by altering money and interest rates
federal funds rate
the interest at which a depository instituation lends available funds to another depository instituation overnight
easy-money policy
same as expansionary monetary policy
tight-money policy
a plan to reduce the amount of money in circulation
absolute advantage
the ability of one trading nation to make a product more efficiently than another trading nation
the use of trade barriers between nations to protect domestic industries
a limit on the amount of product that can be imported
a fee charged for goods brought into a country from another country
foreign exchange market
a market in which currencies of differnet countries are bought and sold
balance of trade
the difference between the value of a country's imports and exports
Free Trade Zones
a specific region in which trade between nations takes place without protective tariffs
the North American Free Trade Agreement, which ensures free trade throughout the continent and constitutes the largest free- trade zone in the world