Unit #5 Notes Handout

Unit #5: Managing the Nation’s Economy
I. Money
A. Definition –
B. Difference between commodity $ & Fiat $
C. Characteristics of $
D. M1 vs. M2
II. The Federal Reserve
A. Structure-
B. Who owns it?
C. Board of Governors
1. Appointed by ___________________________ for 14 year terms
2. Purpose =
1. Consists of
2. Purpose =
III. U.S. Banks Operate under Fractional Bank Reserve System
A. Definition-
1. Reserve Requirement
2. Legal Reserves
IV. What’s the most important job of the Fed? = Influencing
__________________ Policy!!!
A. Definition =
B. Tools
1. Reserve Requirements
2. Discount Rate
3. Open Market Operations
C. Short run vs. Long run Impacts
V. Two Schools of Thought on Fighting Inflation & Recession using Fiscal
Policy (Group #1)
A. Define fiscal policy –
B. Demand-Side Policies (Keynesian Economics)
C. Supply – Side economics
V. The Cost of Economic Instability (Group #2)
A. The Economic Costs
B. The Social Costs
VI. Macroeconomic Equilibrium (Group #3)
A. Aggregate Supply
B. Aggregate Demand
C. Equilibrium
Taxes (Group #4)
A. Two Principles of Taxation
1. Benefit Principle
2. Ability-to-Pay Principle
B. Types of Taxes
1. Proportional
2. Progressive
3. Regressive
VIII. Impact of Government Spending (Group #5)
A. Two Kinds of Spending
B. Impacts of Government Spending
IX. Deficit Spending (Group #6)
A. Definition of Deficit Spending
B. Why would we ever do this?
C. Effects