4.1-4.5 learning check

• Monetary policy is the way the government regulates the amount go money in circulation. The government controls the supply of money and cost of credit to influence the economy
• Fiscal policy is the government use of taxing and spending
• the budget is when the legislative and executive branches set fiscal policy
• In contraction, spending is increased and taxes are lowered
• In expansion spending is reduced and taxing is increased
• The problems with fiscal policy include the fact it takes too long, debt, ideological infighting, can lead to inflation (expansion), and increases unemployment (contraction)
• Discount rates are the interest rates the Fed charges banks for loans
• Lower discount rate is when banks borrow money, lower interest rate to consumers. borrow more means an increasing economy
• Higher discount rate is when banks borrow less, high interest rate. Borrowing less means slowing down the economy
• Open-market operations is the buying and selling of government bonds
• To increase economy - buy back government bonds
• To slow economy - sell bonds to remove money from economy
• Reserve requirement is the percent of money a bank must keep on hand
• A high requirement slows the economy
• A low requirement stimulates the economy
• Unemployment rate is the percent of the labor force without a job, but actively looking. Should be between 3 and 5%
• CPI measures inflation and deflation
• GDP is the total amount of goods and services. A GDP should always be growing