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Public Goods
Government purchases that are for public goods are those provided for everyone and exclude no one from their use.
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Quasi-Public Good
A good or service that the government provides that can be sold in a private market such as education or ambulance.
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Progressive Tax
A tax with a direct relationship between the percentage of income taxed and the size of the income. The higher the income, the higher the percentage is to be taxed.
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Proportional Tax
Flat Tax. The percentage of income taxed is the same for all no matter how high or low the income is.
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Regressive Tax
The percentage of income taxed varies inversely with the size of the income. The percentage increases as income decreases and decreases as income increases.
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Tax Reform Act of 1986
Major legislation that changed federal income tax exemptions, deductions, brackets and rates.
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Fiscal Policy
When the federal government changes its spending and/or taxing to control unemployment or demand-pull inflation, it is putting fiscal policy into play.
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Automatic Fiscal Policy/Automatic Stabilization
Changes in government expenditures and/or taxes that occur automatically as the level of economic activity changes; helps to control unemployment or demand-pull inflation
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Entitlements
Programs set up by the government to pay benefits to people who meet eligibility requirements for the program.
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Deficit Budget
A governments expenditures are more than its income.
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Surplus Budget
A governments income is greater than its expenses.
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Crowding Out
Occurs when borrowing by the federal government reduces borrowing by households and businesses.
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Medium of Exchange
Something that is generally accepted as payment for goods, services, and resources; the primary function of money.
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Measure of Value
It is a function of money; the value of every good, service and resource can be expressed in terms of an economy's base unit of money.
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Velocity of Money
Average number of times the money supply is turned over in a year in relationship to GDP.
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Commercial Bank
Institution that holds and maintains checking accounts (demand deposits) for its customers, makes commercial (business) and other loans, and performs other functions.
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Open Market Committee
Oversees the buying and selling of government securities by the Federal Reserve System.
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Equation of Exchange
MV = PQ; illustrates how changes in the supply of money (M) influence the level of prices (P) and/or the total output of goods and services (Q). V stands for velocity of money or the nmber of times each dollar is spent for new goods and services in a year.
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Money Multiplier
Multiple by which an initial change in excess reserves in the system can change the money supply.
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Excess Reserves
Reserves of a financial depository institution over the amount it is required to maintain in actual reserves; actual reserves minuse required reserves.Reserves over and above those taht an institution must maintain.
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Reserve Requirements
Specific percentage of deposits that a financial depository institution must keep as actual reserves.
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Discount Rate
Interest rate that a Federal Reserve bank charges a financial depository institution for borrowing reserves.
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Monetary Policy
Changing the money supply to influence the levels of output, employment, and/or prices in the economy.
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Open Market Operations
The buying and selling of securities, primarily U. S. government securities, on the open market by the Federal Reserve.
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Monetizing the Debt
Increasing the money supply by the Federal Reserve to accommodate federal government borrowing and reduce upward pressure on the interest rate.
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Classical Economics
Popularly accepted theory prior to the Great Depression of the 1930s; says the economy will automatically adjust to full employment.
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Keynesian Economics
Based on the work of John Maynard Keynes (1883-1946), who focused on the role of aggregate spending in determining the level of macroeconomic activity.
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Stagflation
Occurs when an economy experiences high rates of inflation and unemployment.
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Phillips Curve
Curve showing the relationship between an economy's unemployment and inflation rates.
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Closed Economy
An economy where foreign influences have no effect on output, employment, and prices.
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Open Economy
An economy where foreign influences have an effect on output, employment, and prices.
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Monetarist
Persons who favor the economic policies of monetarism.
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