Economics 2 Spring 2012Unit 4
What I expect you to know for the test:
Chapter 10
- What Fiscal Policy is and how the government can use it to counteract problems of recessions and inflations (including representing it on a Keynesian table): Pages234-236.
- What are expansionary policies, i.e. increasing G and cutting T; and what are contractionary fiscal policies, i.e. cutting G and increasing T: Pages 234-236.
- The 2 main practical problems of using fiscal policy: political problems and lag problems: Pages 240-241.
- What Crowding Out is, and how crowding out destroys the usefulness of fiscal policy when it occurs: Pages 236-237.
- Supply Side Economics, and the importance of tax rates in determining economic behavior (the Laffer Curve): Pages 242-245.
- The Deficit and Debt of the U.S Government and the harm of the Deficit (if any): Handout.
Chapter 8
- Definition of money: Page 191.
- What gives money its value: Page 192.
- Different measures of what is money – M1 and M2: Pages 194-195.
- How the money supply in usage can be larger than the “official” money created by the government: Pages 197-203.
- The role of banks and fractional reserve banking in expanding and contracting the money supply: Pages 197-203.
- How you affect the money supply when you deposit and withdraw cash from your checking account: Pages 197-203.
- The Federal Reserve Board is the central bank of the United States: Page 204.
- Basic set-up of the Fed: Page 204.
- Two of the main roles of the Fed (lender of last resort, controls the money supply): Pages 204-208.
- Three ways the Fed has to control the money supply and how each of these works (required reserve ratio, discount rate, open market operations): Pages 204-208.
Chapter 9
- Meaning of the “velocity” of money: Pages 214-215.
- How the macroeconomic equilibrium in the economy can be described as a relationship between the quantity of money, the velocity of money, the quantity of output, and the average prices called the Equation of Exchange (MxV=PxQ): Pages 214-215.
- What the Simple Quantity Theory of Money assumes at the start (that V and Q are fixed): Pages 215-216.
- Why the Simple Quantity Theory has the result that changes in the money supply lead to proportional changes in prices: 215-216.
“Economics is the study of money and why it is good.” – Woody Allen