government chapter 20.2 monetary policy. general economics competition the existence of two or more...
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Government Chapter 20.2
Monetary Policy
General Economicscompetition
The existence of two or more companies within a single industry that are trying to attract the same customers.
It keeps prices low in a market economy.
Monopoly One company controlling all producers of a single
product. It eliminates competition poses the threat of higher prices.
General EconomicsDemand
the amount of a product consumers are willing to purchase.
It helps dictate price in a market economy. More demand generally means an increase in value Less Demand generally means a drop in value
Supply the amount of a product available for purchase It helps dictate price in a market economy. More of something generally means a drop in value Less of something generally means an increase in value
General EconomicsScarcity
The condition of rarity for a particular product. It generally means higher prices if demand
remains high.
interest ratesThe amount of money charged by lenders for
loans. ***These go up or down depending on the money
supply.
Mixed Market capitalismmixed market capitalism
Free competition among industry combined with government intervention in some areas
The U.S. is an example because of two policies:
Fiscal Policy How a government is involved in a mixed market economy
by controlling the TAXING and SPENDING to affect inflation and unemployment.
monetary policy How a government is involved in a mixed market economy
by controlling the MONEY SUPPLY to affect inflation and unemployment(dealings of the Fed)
Economic Indicators
GDP/GNP (Gross Domestic Product/Gross National Product)the sum of the value of all goods produced in a
country within a yearA high GDP indicates a wealthy country with a
strong economyA low GDP indicates a poor country with a weak
economy
Economic IndicatorsInflation
the economic trend when prices go up and the value of money decreases.
Caused by an increase to the money supplyRepublicans are more concerned with this.
Consumer Price Index (CPI) the key measure of inflation that relates the rise in prices
over time
Economic IndicatorsUnemployment Rate
the proportion of the labor force actively seeking work but unable to find jobs
Generally caused by a decrease to the money supply
Democrats are more concerned with this.Bureau of Labor and Statistics
the part of the federal bureaucracy that measures unemployment.
Federal reserve systemFederal Reserve Act
Act of Congress in 1913 that created and established the Federal Reserve System, the central banking system of the United States of
America granted it the legal authority to issue Federal
Reserve Notes.
Federal reserve systemBoard of Governors of the Federal Reserve
System ("the fed") independent agency in the Executive Branch in charge of controlling the money supply in order
to affect inflation and unemployment.
Federal reserve systemJanet Yellen
the current chairman of the Fed
Ben Bernankethe former chairman of the Fed
Alan GreenspanChairman of the Fed before Ben Bernanke
Money Supplydecreasing the money supply
could lessen inflation by lowering pricesThe risk of increasing unemployment exists
Increasing the money supplyGenerally leads to increased investmentGenerally leads to lower unemploymentcould cause inflation by raising prices
Tools of the FedDiscount Rate
What "the Fed" charges banks in an effort to control the money supply
Raising it causes interest rates to rise, which decreases the money supply
Lowering it causes interest rates to go down, which increases the money supply
Tools of the FedReserve requirement
When "the Fed” forces banks to leave a portion of their money out of circulation.
Increasing the reserve requirement lowers the money supply because banks have less cash on hand
Decreasing the reserve requirement raises the money supply because banks have more cash on hand
Tools of the Fedopen market operations
the act of "the Fed" buying bonds and securitiesBuying bonds increases the money supply because
the fed pays money into the economySelling bonds decreases the money supply
because private business in the economy pays money to the fed, taking money out of circulation
Expansionary policyThe government's attempt to stimulate a mixed
market economy to encourage growth. Increase available moneyFiscal tools would include:
lowering taxesincreasing spending
monetary tools would include: Buying bondsdecreasing the reserve requirement decreasing the discount rate
Contractionary policyThe government's attempt to slow down a mixed
market economy to discourage growth.Decrease available money Fiscal tools would include:
raising taxes decreasing spending
monetary tools would include: selling bonds increasing the reserve requirement increasing the discount rate
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