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POTENTIAL REAL GROSS DOMESTIC PRODUCT: The total real output (real gross domestic product) that the economy could produce if resources are fully employed. In other words, the economy is operating ON the production possibilities frontier. Full employment is generally indicated by achieving what is termed the natural unemployment rate, which is an unemployment rate in the neighborhood of about 5%. If the economy is at full employment then actual gross domestic product is equal to potential gross domestic product and the actual unemployment rate is equal to the natural unemployment rate. The macroeconomy is thus living up to its potential, at least in terms of producing wants-and-needs satisfying goods and services.
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Lesson 20: Federal Reserve System | Unit 4: Monetary Policy
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Page: 18 of 20
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- That monetary policy is controlling the money creation activity of the fractional-reserve banking system to control deposits and the money supply.
- That expansionary monetary policy increases aggregate demand up to full employment and contractionary monetary policy decreases aggregate demand back to full employment.
- The four tools of monetary policy: open market operations, discount rate, reserve requirements, and moral suasion.
- How open market operations are used by the Fed to control the money supply.
- That the discount rate is used by the Fed to signal the intentions of the open market operations.
- That reserve requirements are the regulations the Fed uses to ensure banks keep enough reserves to back deposits.
- That moral suasion is a policy in which the Fed requests that the banking system take some sort of action.
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ABILITY-TO-PAY PRINCIPLE A taxation principle stating that taxes should be based on the ability to pay taxes. The ability-to-pay principle works from the proposition that those who have the greatest income should pay the most taxes. The ability-to-pay principle is the only reasonable way to finance the provision of public goods such as national defense, public health, and environmental quality. This is one of two taxation principles. The other is the benefit principle, which states taxes should be based on the benefits received.
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YELLOW CHIPPEROON
[What's This?]
Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors looking to buy either a handcrafted bird feeder or a New York Yankees baseball cap. Be on the lookout for slightly overweight pizza delivery guys.
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This isn't me! What am I?
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A thousand years before metal coins were developed, clay tablet "checks" were used as money by the Babylonians.
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"When you play, play hard; when you work, don't play at all. " -- Theodore Roosevelt, 26th US president
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VES
Variable Elasticity of Substitution
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