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5. Find proper definitions

1. Fiscal policy

2. Trade policy

3. Tax policy

4. Economic policy

5. Monetary policy

a) a government policy for maintaining economic growth and tax revenues.

b) a government policy for dealing with the budget (especially with taxation and borrowing).

c) the use of the money supply and/or the interest rate to influence the level of macroeconomic activity and other policy objectives including the balance of payments or the exchange rate.

d) the government's approach to taxation, both from the practical and normative side of the question.

e) the collection of national policies which affect the quantity and value of a nation's exports and imports. Examples include tariffs, import/export quotas, and import/export subsidies.

6. Make up sentences using the following words

1. several, of, expenditure, consists, total, elements.

2. in, was, this, governments, policy, adopted, the, period, by, postwar, most.

3. leakage, because, are, taxes, from, the, system, power, purchasing, they, remove.

4. injection, flow, the, are, exports, an, into, circular.

5. spending, forms, several, takes, government.

6. transfer, payments, directly, do, not, output, generate, income, and.

7. Complete each sentence with a word or phrase from the box

  1. The overall performance of the economy is now accepted as a major ... of the government.

  2. This ... of economy is known as macro-economics.

  3. Economic analysis is concerned with the means of achieving particular economic ... .

  4. Policy-makers are obliged to establish some scale of... .

  5. The choice of the objectives is a... of political decision.

  6. We cannot design ... measures unless we have some knowledge of how the economy works.

  7. Even in the simplest economy all the ... received by household is not spent.

  8. ... represents a leakage from the ... flow of income.

matter, branch, objectives, priorities, income,

circular, responsibility, appropriate, saving

8. Read the text using the words from the right column

______are economic variables that (1) stand in a cause-effect relation to the intermediate targets and (2) that the government can directly______.

What theory says is again crucial. If interest rates are your intermediate target some theories tell you that open market transactions are a possible instrument.

They meet condition (1) because the theory says that such ________ will influence interest rates. They meet condition (2) because monetary authorities (the Federal Open Market Committee [FOMC] in New York City) can actually buy and sell _______on the open market, pushing the nominal interest rates down or up.

The Fed has direct control of open market transactions because it has a large _______ of bonds that it can sell, and the means to buy ______from the market if it wants to.

transactions

control

policy instruments

bonds

government securities

portfolio

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