The Federal Government’s Role in Today’s Economy Review III
The ______government has the ability to influence the American economy today. It bases its decisions regarding economic policy on such economic indicators as ______(GDP), exchange rates, inflation, and ______rates. GDP is the ______market ______of all final goods and services produced in a country in a given year. It is equal to total ______investment and government ______, plus the value of ______, minus the value of ______. In short, one may define GDP as the market value of the ______and ______produced by a country. Exchange rates are the value of the American ______relative to other world currencies. In other words, the dollar’s value floats on the international ______market according to the basic economic principle of supply and demand. If the ______of dollars for sale is greater than the demand to buy dollars on the world currency market, then the value of the dollar drops in comparison to other world currencies. On the other hand, if the ______for dollars is greater than the supply, then the dollar’s value increases in comparison to other international currencies, like the Japanese Yen and the European Euro. Inflation is the economic condition, when prices ______and the dollar buys less.
A healthy economy is one that has full ______and low ______. The federal government tries to maintain a healthy economy in the United States by using ______policy and ______policy. The ______controls monetary policy, while the ______and ______control fiscal policy. ______policy is a central bank’s actions to influence the availability and cost of money and credit, as a means of helping to promote national economic goals. In the United States monetary policy refers to ______actions to influence the money supply and the availability of credit in the American economy. The Federal Reserve is the ______bank of the United States. Since interest rates determine the availability of credit, the Federal Reserve ______interest rates, if it believes the American economy is slowing down. Lower interest rates stimulate or fuel economic growth, because lower interest rates encourage ______. Greater borrowing results in an increase in the nation’s ______supply, greater ______spending, an increase in ______, the hiring of more workers, and economic expansion.
In contrast, if the Federal Reserve believes the American economy is overheating and thereby causing ______, then it raises interest rates. To slow down inflation the Federal Reserve ______interest rates. ______interest rates result in less borrowing, a reduction in the nation’s ______, less consumer spending, a decrease in demand, ______prices, a drop in the rate of ______, and a contraction or decrease in economic growth.
Fiscal policy is ______and ______actions taken by the President and Congress to influence the American economy. If the economy is slowing down, then under fiscal policy the ______and ______may reduce taxes and increase federal spending. Cutting ______enables the government to stimulate economic growth, because the government gives the American consumer ______money to spend, which should thereby increase ______for goods and services in the nation’s economy. Likewise, by increasing federal ______, Congress and the President increase demand for whatever goods and services the government buys. The increased demand created by either action, cutting taxes or increasing federal spending, should encourage business to _____ more workers to expand production. Hiring additional workers will reduce ______and thereby stimulate economic ______.
In reverse, if the President and Congress believe the American economy is overheating and thereby causing inflation, they may ______taxes or ______federal spending. By raising taxes, the government takes away money from the American ______. When the American consumer has less money to spend, demand for ______and ______in the economy decreases. A drop in demand should result in lower ______and thereby a reduction in the rate of ______. Cutting federal ______is the second way Congress and the President may use fiscal policy to slow down inflation. A reduction in government spending also decreases the demand for ______and ______. If demand drops and supply stays the same, then business should cut ______, which will in turn lower ______. Together the President and Congress make ______policy decisions. They try to regulate the American ______by deciding the levels of government spending and taxation.
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