ECO 212 Macroeconomics in a Global Economy

Video Notes ~/~ Mac Web App ~/~ Lessons ~/~ Flashcards ~/~ Review Quizzes
Textbook Website
20th / 19th ~/~ Online Lectures ~/~ Blackboard
LESSON TOPICS: Click on the links below for the reading assignments, video assignments, outcomes, key terms, and key graphs, and more for each lesson.

Unit 1: ECONOMICS and GLOBALIZATION

  • 1a - Introduction to the Course
  • 1b - What is Economics and the 5Es
  • 1c - Making Choices: Production Possibilities (PPC) and Benefit-Cost Analysis (BCA)
  • 2a - Economic Systems and Globalization
  • 2b - Role of Government and Government Finance
  • 3a - Demand
  • 3b - Supply
  • 3c - Market Equilibrium and Efficiency
  • 20a -Why we Trade: Comparative Advantage
  • 20b - International Trade and Foreign Exchange Markets

Unit 2: INTRO. TO MACROECONOMICS

  • 12a - AD/AS Model: AD Graph and Determinants
  • 12b - AS and Equilibrium: UE, IN, and EG
  • 12c - Stabilization Policies and AS/AD in the Long Run
  • 9a - Unemployment (UE)
  • 9b - Inflation (IN)
  • 7a - Measuring the Economy: GDP
  • 8a - Economic Growth (EG)
  • 22Wa - Economic Growth in the LDCs

Unit 3: MACROECONOMIC POLICY

  • 14a - Money, the Money Market, and the Fed
  • 15a - How Banks Create Money
  • 16a - Monetary Policy (MP)
  • 16b - Other Monetary Policy Issues
  • 10a - The Spending Multiplier
  • 13a - Fiscal Policy
  • 13b - Other FP Issues and Government Debt


Unit 1: Economics and Globalization

Lesson 1a: The Class and the Math

1a Introduction

Welcome to ECO 212!

This course will cover the area of economics commonly defined as macroeconomics. The main goal of macroeconomics is to gain a better understanding of the causes of, and remedies for, UNEMPLOYMENT (UE) and INFLATION (IN), as well as the factors that affect ECONOMIC GROWTH (EG). We will also discuss the two types of economic growth, what I like to call "ACHIEVING THE POTENTIAL" and "INCREASING THE POTENTIAL".

Please buy the textbook as soon as possible. If you buy your textbook online, order it today. See the syllabus for the correct textbook. The textbook should cost less than $30 if you buy it online.

While you wait for your textbook to arrive there is still some work that you can do.

To begin, I suggest you do the following:

- read the syllabus
- check out our Blackboard site. Click on the menu links and see what is there
- take the Syllabus Quiz (see link on Blackboard)
- you may also begin some of the chapter 1 assignments,
+ see: LESSONS
+ especially the online reading:
The 5Es of Economics

Email me or use the Blackboard Discussion Board if you have questions.

Many students end up dropping or failing this course due to the lack of basic math skills. If your math skills are weak you should consider building them before taking this course. If you are required to take MTH 060 or MTH 082 and have not yet done so, do not take this economics course until you have successfully completed one of them.

I have posted a math quiz on our Blackboard site. Take the math quiz on Blackboard. If you score less then 14 or 15, consider dropping ECO 212 and taking a math class first.

Good luck and start studying. 

1a Something Interesting - Why are we studying this?

Optional: a funny look at some major ideas of economics by the Stand-up Economist.

Principles of economics, translated
https://www.youtube.com/watch?v=VVp8UGjECt4

*NOTE: There will be a short case study for most lessons ("Something Interesting - Why are we studying this?"). The case study does not include everything from the lesson but it will highlight an interesting and important topic. The case studies are meant to grab your attention and help you APPLY a concept from the lesson to a real world issue. At first the case study may not make sense. In fact, many will appear contrary to common sense, (like why are high prices GOOD for the people suffering from a natural disaster), but after finishing the lesson you should have a better understanding of the case study or ask for help in class or on the Blackboard discussion board.

1a Assignments: Readings

Read:
Syllabus

20th: Ch. 1, pp. 4-8, (19th: pp. 3-7) "The Economic Perspective", "Theories Principles and Models", "Microeconomics and Macroeconomics",

Ch.1, Appendix on Graphing

Lecture Outline

1a Assignments: Video Lectures

WHAT IS ECONOMICS: THE STUDY OF SCARCITY

REVIEW OF GRAPHING CONCEPTS

OPTIONAL:

1a Outcomes - What you should learn

TOPICS

OUTCOMES

1a Key Terms

Key Terms Flash Cards - Class Activities - Click Here

Key Terms Flash Cards - What is Economics? - Click Here

Key Terms Flash Cards - Math - Click Here

Key Terms:

CLASS ACTIVITIES: Pre-quiz, Clicker Quiz, Required Activity, Yellow Pages, Tomlinson Videos on Thinkwell, Video Notes, LESSONS webpage,

WHAT IS ECONOMICS?: economics, economic model, microeconomics, macroeconomics, utility, rational choice, opportunity cost, benefit-cost analysis (marginal analysis), ceteris paribus (other things equal assumption),

MATH: direct (positive) relationship, inverse (negative) relationship, slope of a line, positive slope, negative slope, origin, horizontal (x) axis, vertical (y) axis

1a Key Formulas

Slope = rise/run

Slope = vertical change / horizontal change

Slope = marginal value of the total

1a Key Graphs

Any Point on a Graph Represents Two Numbers

Direct Relationship

Inverse Relationship

Calculating Slope

1a Review Videos

Episode 5A: Models & Theories
[3:26 YouTube mjmfoodie]

Episode 6: Graph Review
[4:22 YouTube mjmfoodie]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 1: Economics and Globalization

Lesson 1b: How to Reduce Scarcity - Introduction to Economics and the 5Es

1b Introduction

The "5Es of Economics" are not from the textbook. I borrowed the concept (with many modifications) from another textbook many years ago. I believe it concisely explains the purpose of economics. Also, it begins to introduce students to the economic way of thinking. The economic problem that we all face, that all countries face, that the world faces, is SCARCITY. Economics is the study of how we can reduce scarcity. What I like about the 5Es model is that it shows us that there are only five ways to reduce scarcity. Only five. I call them the "5Es" of economics.

For each of the 5Es:

(1) learn the definition,
(2) understand examples, and
(3) most importantly, know how they reduce scarcity and help to increase society's satisfaction.

This is where you learn that it may be good when the price of plywood increases greatly as the result of a hurricane. And why it might be good when Coca-Cola lays of one fifth of its workforce. Or, that the price of gasoline may be too low. Really!

In this MACROeconomics course we will focus on Economic Growth and Full Employment. Efficiency, efficiency, and equity are the focus of my MICROeconomics classes and few economists study "Reducing Wants". The overall goal of economics is to REDUCE the SCARCITY of goods and services. Economic growth and full employment are two (of five) ways to do this.

Pay close attention to the new definition of economic growth presented in the online reading. It is different from what you might hear in a news report. Also, pay attention to HOW such economic growth is achieved:

- finding more resources,
- getting better resources,
- and inventing better technology.

This type of economic growth involves INCREASING THE POTENTIAL of the economy to produce goods and services.

Full employment helps an economy ACHIEVE ITS POTENTIAL by using all of its resources. Again, notice the slightly different definition than is commonly used for full employment. We are not just talking about labor, but ALL available resources.

There are three issues that macroeconomics studies: (1) unemployment - UE, (2) inflation - IN, and (3) economic growth - EG, (UE, IN, and EG).

1b Something Interesting - Why are we studying this?*

When a hurricane hits the coast of Florida, prices of many necessities like food, water, hotel rooms, gasoline, and even plywood, tend to increase. Some governments try to prevent such price increases and call them "price-gouging".

See: http://www.csmonitor.com/1992/0910/10083.html

But economists think that such price increases are GOOD for the people ravaged by the hurricane. WHY? Why is it GOOD when the prices of products (like plywood) increase during a natural disaster?

See: https://www.masterresource.org/price-gouging-law/defense-price-gouging/

ANSWER: Allocative Efficiency

*NOTE: There will be a short case study for each lesson. The case study does not include everything from the lesson but it will highlight an interesting and important topic. The case studies are meant to grab your attention and help you APPLY a concept from the lesson to a real world issue. At first the case study may not make sense. In fact, many will appear contrary to common sense, (like why are high prices GOOD for the people suffering from a natural disaster), but after finishing the lesson you should have a better understanding of the case study or ask for help in class or on the Blackboard discussion board.

1b Assignments: Readings

Syllabus

The 5Es of Economics (VERY IMPORTANT!)

Ch. 3, pp. 64-65 (19th, 58-59) "Efficient Allocation"

Ch. 3, p. 55 (19th, 49) "Diminishing Marginal Utility"

Ch.1, Appendix on Graphing

Lecture Outline

1b Assignments: Video Lectures

Macroeconomics Unit 1 Intro: Basic Economic Concepts (AP Macro) (YouTube ACDCLeadership 1:38) [MyNotes]

Scarcity and Exchange - EconMovies #1: Star Wars (YouTube ACDCLeadership 6:39)

1b Outcomes - What you should learn

TOPICS

OUTCOMES

1b Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

scarcity, economic growth, allocative efficiency, productive efficiency, equity, full employment, marginal, law of diminishing marginal utility, President Trump example

1b Key Problems

How EQUITY Increases Society's Satisfaction

Since it is difficult for us to agree on a definition of "fairness", let me see if I can come up with an extreme example on which we can all agree. What if President Trump owned everything? I mean EVERYTHING - all the land, all the buildings, all the food, all the clothes all the cars, -- everything in the country. Therefore, the rest of us own nothing. We are homeless, starving, and naked. Not a pretty picture, but can we all agree that this is not fair (not equitable)?

Now, let's say that President Trump gives us each a pair of pants. We should be able to agree that this is more fair, more equitable, right? So what happens to society's satisfaction? By "society" I mean all of us including President Trump. We who received the pants are more satisfied since each of us has a pair of pants, but President Trump is less satisfied because he has 300 million fewer pairs of pants.

So what happens to society's (us and Trump) TOTAL satisfaction? It depends on HOW MUCH happier we are and HOW MUCH less happy President Trump is. This brings us to the Law of Diminishing Marginal Utility (you may wan to look this up in the index of your textbook).

Utility is the reason we consume a goods or services. You might call it the satisfaction that we get when we consume something. I get satisfaction (utility) when I drive my boat. I get utility (satisfaction?) when I go to the dentist.

"Marginal" means EXTRA or ADDITIONAL. so if I drive my boat a second time I get some additional (marginal) utility.

According to the law of diminishing marginal utility the EXTRA (not the total) utility diminishes for each additional unit consumed. The first time I drive my boat in the spring I really enjoy it. But after a few weekends of boating it doesn't give me as much additional satisfaction as the first time. I still go boating. My total utility still goes up. But the MARGINAL (extra) utility I get from one more day goes down.

Back to the President Trump Example. Since we start with no pants, the first pair we get from President Trump gives us A LOT of utility (satisfaction). But, since President Trump still has millions (or billions) of pairs of pants left, giving us 300 million causes his utility (satisfaction) to go down only A LITTLE. OVERALL the society's utility (all of us including President Trump ) increases. From the same amount of resources we (include Trump) are receiving more satisfaction.

1b Key Figures / Graphs

The 5Es of Economics

1b Review Quiz

1b Review Videos

What Is Economics?
[2:45 YouTube jodieecongirl]

 NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 1: Economics and Globalization

Lesson 1c: Making Choices: Production Possibilities Curve (PPC) and Benefit Cost Analysis

1c Introduction

In the 5Es lesson we learned that economics is about making choices. Choices are forced upon us as a result of scarcity. Here we will study a graphical model, the Production Possibilities Curve (PPC) that shows us that we MUST MAKE choices and it highlights some of the consequences of making choices. Then we will look at HOW to make good choices by using Benefit Cost Analysis (BCA).

The production possibilities curve will show us that all decisions have costs. Economists call these "opportunity costs". ALL COSTS IN ECONOMICS ARE OPPORTUNITY COSTS. Whenever we discuss the "costs" of doing something we will mean the complete opportunity cost.

What is the connection between the PPC and BCA? Well, when studying the PPC you will learn the important concept of "opportunity cost". Learn the definition well. Since all costs in economics are opportunity costs, then when using BCA, "marginal costs" means the additional opportunity costs.

Also, since economic growth is one of the three macroeconomic issues. We will use the PPC to demonstrate the two types of "economic growth":

- an economy ACHIEVING ITS POTENTIAL
- and an economy INCREASING ITS POTENTIAL

Achieving the potential is caused by reducing unemployment or achieving productive efficiency. On the graph it is moving from a point inside the PPC to a point on the SAME CURVE. Increasing the potential, or what we will call economic growth, is shown on the PPC as the whole curve shifting out to a NEW CURVE. We will see this again in chapter 8.

1c Something Interesting - Why are we studying this?

Why would airbags in cars cause more accidents (see the link below)? After studying this lesson you should be able to use Benefit Cost Analysis (MB=MC) to answer this question.

Drivers with airbags may take more risks

A similar question for skiers is why did the invention of avalanche airbags cause more people to become caught in avalanches (see below)? After studying this lesson you should be able to use Benefit Cost Analysis (MB=MC) to answer this question.

In a March 2013 blog post written by Utah Avalanche Center Director Bruce Tremper . . . Tremper says airbags are providing a false sense of security, leading more skiers into high-consequence terrain, and thus decreasing the effectiveness of said airbag.
"Each gizmo we buy to increase our safety usually cause us to increase our level of risk at the same time. For instance, when we added seat belts and airbags to cars, yes fatalities decreased, but it also allowed us to drive faster, farther, crazier and talk on our mobile phones at the same time. So safety measures usually work but not nearly as well as we would hope because people just increase their risk (and “utility”) at the same time. In avalanche airbag case, we will also get more powder, more fun, and more risk in the bargain . . . . people will increase their exposure to risk because of the perception of increased safety, which will cancel out some, but not all, of the effectiveness of avalanche airbag"

What are avalanche airbags?
https://www.youtube.com/watch?v=h7QFRXc0R8M

1c Assignments: Readings

Ch 1, pp. 11-20 (19th,10-21), "Society's Economizing Problem", "Production Possibilities Model"

Ch. 1, pp. 6-7 (19th p. 5), "Marginal Analysis: Comparing Benefits and Costs"

Ch. 1, pp. 14-15 (19th,13-14), "Optimal Allocation" (especially Fig 1.3),

Drivers with airbags may take more risks

Ch 1, p. 15 (19th, 14), "Consider This . . . The Economics of War"

Lecture Outline

1c Assignments: Video Lectures

PRODUCTION POSSIBILITIES

1.4.1 Understanding the Concept of Production Possibilities Frontiers 24:46 [MyNotes]

1.4.2 Understanding How a Change in Technology Affects the PPF 10:10 [MyNotes]

MAKING CHOICES: THE ECONOMIC WAY OF THINKING -- BENEFIT-COST ANALYSIS (also called Marginal Analysis or Cost-Benefit Analysis)

EconMovies- Episode 2: Monty Python and the Holy Grail - Marginal Analysis (YouTube ACDCLeadership 5:27)

Thinking at the Margin (YouTube LearnLiberty 4:32) [MyNotes]

Incentives and Marginal Analysis (YouTube MrHurdleHistory 8:54) [MyNotes]

OTHER

Micro 1.1 The BIG Picture- AP Economics Overview (with links to playlists) (YouTube ACDCLeadership 12:49)

ECONMOVIES Episode 3: Monsters Inc. and the Production Possibilities Curve

KEY PROBLEM

Using Benefit Cost Analysis (BCA)
http://www.harpercollege.edu/mhealy/eco211f/videos/1bprobbca.mp4

1c Outcomes - What you should learn

TOPICS

OUTCOMES

Production Possibilities

Benefit Cost Analysis

1c Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

PPC:

production possibilities, necessity of choice, law of increasing costs, concave to the origin, opportunity cost, constant cost, benefit cost analysis (marginal analysis), economic growth, consumer goods, capital goods, shrinking PPC, nonproportional growth

BCA:

marginal costs (MC), marginal benefits (MB), MB=MC Rule, sunk (fixed) costs

1c Key Problems

Production Possibilities Curve (PPC) - Click Here

Using Benefit Cost Analysis (BCA) - Click Here

 

Click here to see PPC questions

Using Benefit Cost Analysis (BCA) Question:

Use the above information on four different highway programs of increasing scope to decide which program the government should do.
All numbers are in billions of dollars.

Use Benefit Cost Analysis to answer the question.

1c Key Formulas

MB = MC

MB = change in Total Benefits / change in Quantity

MB = TB / Q

MC = change in Total Costs / change in Quantity

MC = TC / Q

Notice that I will use a triangle () to mean "change in"

1c Key Graphs

Production Possibilities Schedule and Curve

PPC: Achieving Full Employment and Achieving Productive Efficiency
(Achieving the Potential)

PPC: Economic Growth (Increasing the Potential)

Benefit Cost Analysis

1c Review Quiz

1c Review Videos

- Production Possibilities Curve- Econ 1.1
[3:56 YouTube ACDC Leadership]

- Shifting the Production Possibilities Curve (PPC)- Econ 1.2
[5:35 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 1: Economics and Globalization

Lesson 2a: Economic Systems and Globalization

2a Introduction

Because of scarcity we must make choices. An "economic system" is the way that societies make economic choices. Because of scarcity all countries must decide (1) what to produce, (2) how to produce, and (3) who get what is being produced. Economic systems answer these fundamental questions.

All over the world economies are undergoing a process that I like to call "structural adjustment", but it is more commonly called "globalization". That is, countries are moving away from a command economy with government central planning to a laissez-faire market economy or capitalism. In this process the economic role of government is decreasing all over the world (well, almost).

In order to understand why this is happening we have to study unit 1, chapters 1, 2, 3 and 20, which are really MICROeconomic chapters. Strangely our Tomlinson videos do not discuss in depth the characteristics of market economies but our textbook does (chapter 2). Our textbook does not spend much time discussing command economies (planned economies), or economies in transition from planned to market (from command to capitalism), but the video lectures do!

When studying chapter 2, both the textbook and the videos, try to understand the following: (1) What are the characteristics of market and command economies? (2) What are their benefits and problems? and, (3) Why are countries moving away from a command economy toward a market economy?

In lesson 2a we will examine those questions. Then, in lesson 2b, we will look at what the role of government should play in a market economy. All over the world the economic role of government is decreasing, but it is not disappearing. So, what IS the economic role of government in market economies?

2a Something Interesting - Why are we studying this?

Structural adjustment, or globalization, has helped take nearly 1 billion people out of extreme poverty in 20 years. How? Read the short article below.
http://www.economist.com/news/leaders/21578665-nearly-1-billion-people-have-been-taken-out-extreme-poverty-20-years-world-should-aim/

In the fifth paragraph the article says:

"Most of the credit [for poverty reduction in the last twenty years] must go to capitalism and free trade, for they enable economies to grow - and it was growth principally that eased destitution."

We will take a look at the country of Venezuela which has the world's largest oil reserves and was once the richest country in South America. But now Venezuela has severe food and gasoline shortages and the world's highest inflation rate at over 15,000%. "[B]asic goods such as coffee, sugar, rice, milk, pasta, toilet paper, hand soap, and detergent remain impossible to find". Hospitals are without medicine, food is rationed, and people are fleeing the country. What happened? In the last two decades in order to help the poor, the government took control of the economy, nationalizing industries and controlling prices. And the economy has collapsed.

2a Assignments: Readings

Online

- A Comparison of Command Economies and Market Economies

- Globalization and Structural Adjustment: http://www.economist.com/news/leaders/21578665-nearly-1-billion-people-have-been-taken-out-extreme-poverty-20-years-world-should-aim/

- Venezuela and Government Control of Economy: https://foreignpolicy.com/2016/06/19/venezuela-maduro-food-shortages-price-controls-political-unrest/

- OPTIONAL - Cuba Examines Asian Model For Economic Reforms (NPR Morning Edition)

- Lecture Outline

Textbook:

Chapter 2 ALL (19th Ch. 2 ALL)

Ch. 2, p. 47, (19th, 42), "Last Word: Shuffling the Deck"

Ch. 8, p. 186 (19th, 164), "Global Competition"

Chapter 23W of the 16th edition of our textbook, pages 2-13, found on our Blackboard site

- State Ownership and Central Planning: pp. 23W-2 to 23W-3
- Problems with Central Planning pp. 23W-3 to 23W-5
- The Collapse of the Soviet Economy pp. 23W-5 to 23W-6
- The Russian Transition to a Market System pp. 23W-6 to 23W-9
- Market Reforms in China pp. 23W-10 to 23W-11
- Outcome and Prospects pp. 23W-11 to 23W-13
- Conclusion pp. 23W-13

2a Assignments: Video Lectures

ECONOMIC SYSTEMS

10.1.2 The Circular Flow Model 9:38 [MyNotes]

1.1.4 An Overview of Economic Systems 10:50 [MyNotes]

Power of the Market (YouTube LibertyPen) 1:14 [MyNotes]

1.1.5 Case Study: The Work of Adam Smith 8:57 [MyNotes]

TRANSITION ECONOMIES

17.5.1 Centrally Planned Economies 10:57 [MyNotes]

17.5.2 Policies to Change to Market Systems 11:18 [MyNotes]

17.5.3 Comparative Economic Performance 12:16 [MyNotes]

OPTIONAL (but interesting) Paul Solman Video: Capitalism vs. Socialism - The Cuban Quandary (YouTube PBS NewsHour) 13:56

GLOBALIZATION

Why Venezuela is in crisis CNN Money 1:49

OPTIONAL: Economic Systems and Macroeconomics: Crash Course Economics #3 [10:18]

OPTIONAL: Globalization and Trade and Poverty: Crash Course Economics #16 [9:01]

 

2a Outcomes - What you should learn

TOPICS

OUTCOMES

2a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

structural adjustment, economic system, command system (centrally planned, socialism, command economy), market system (captialism, laissez-faire, market economy), mixed economic system, Bolshevik revolution, self interest, private property, freedom of enterprise and choice, competition, market, specialization, consumer sovereignty, dollar votes, invisible hand, creative destruction, coordination problem, incentive problem, circular flow diagram, product market, resource market, privatization, nationalization, central planning, shock therapy, import substitution

2a Key Graphs

World Decrease in Poverty - mostly caused by Structural Adjustment

Circular Flow Model

2a Review Quizzes: Capitalism / Command Economies

2a Review Videos

-
Econ 1.6- Economic Systems: Why is Communist China doing so well?
[4:13 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 1: Economics and Globalization

Lesson 2b: The Economic Role of Government and Government Finance

2b Introduction

Now, you should have a good idea of the characteristics, benefits, and problems of the two main types of economic systems and understand how, and why, countries seem to be moving toward a market, or more laissez-faire, system. Here we will examine the economic functions of government in a market economy.

Most economists, and politicians, agree on these general principles, BUT they may disagree strongly on the degree of involvement the government should have in the economy. I think, most people agree on WHAT the government should do, but they disagree on HOW MUCH.

We learned in lesson 2a that market economies are efficient and that centrally (government) planned command economies are inefficient. So whenever there is government involvement in a market economy we should ask WHY? If market economies are efficient and efficiency reduces scarcity, why would the government get involved? We will learn that sometimes the government is needed to ASSIST a market economy to be efficient and sometimes a market economy is inefficient and the government is needed to FIX it.

After looking at the economic functions of government we will look at government finance in the United States. Latter in this course we will discuss how the goverment uses spending and taxation to affect the economy. Here we learn what the government spends its money on and where governments get their revenue (taxes).

2b Something Interesting - Why are we studying this?

Skim the news articles below about raising taxes on gasoline and putting taxes on soda and junk food. After studying this lesson you should understand why many people support these taxes.

Why might gasoline prices be too low?
http://www.npr.org/templates/story/story.php?storyId=4858826

Why are several cities and states considering a tax on sodas?

http://www.stltoday.com/news/local/illinois/buying-soft-drinks-in-illinois-would-cost-more-under-tax/article_5eccc299-6c48-5b44-9643-95bce5365dee.html

http://www.sfgate.com/bayarea/article/Tax-on-soda-to-be-floated-in-San-Francisco-4932025.php

Why did Mexico tax junk food and soda?
http://www.politico.com/story/2014/01/mexico-soda-tax-101645

2b Assignments: Readings

Economic Functions of Goverment

Ch. 4, pp. 90-94, 96-100, (19th, 99-102, 104-108) "Public Goods", "Externalities"

Microeconomics Chapter 16 (found on our Blackboard site): pp 338-346

- Government Finance;
- Federal Finance;
- State and Local Finance;
- Local, State, and Federal Employment;
- Apportioning the Tax Burden;
- The VAT

Tax Brackets (Marginal Tax Rates) (audio or reading only)

Lecture Outline

2b Assignments: Video Lectures

Role of Government in a Mixed Economy (YouTube - Daniel Mares15:53) [MyNotes]

When is a Potato Chip Not Just a Potato Chip (YouTube-LearnLiberty 4:46)

Public Goods and Asteroid Protection (MRUniversity 2:30)

EconMovies 7: Anchorman (Efficiency and Market Failures)

A Deeper Look at Public Goods (MRUniversity 7:55)

Where do your tax dollars go? (YouTube - Test Tube News 3:44)

8.2.2 Analyzing the Tax System (8:19) [MyNotes]

OPTIONAL: Tax Brackets and Progressive Taxation Khan Academy (4:14)

2b Outcomes - What you should learn

TOPICS

OUTCOMES

2b Key Terms

Key Terms Flash Cards - Role of Government - Click Here

Key Terms Flash Cards - Government Finance - Click Here

Key Terms:

Role of Government:
consumer sovereignty, monopoly, natural monopoly, antitrust, transfer payments, market intervention, market failure, negative externality, positive externality, public goods, private goods, rivalry, nonrival, excludability, nonexcludability, free-rider problem, macroeconomic stability, fiscal policy, monetary policy, expansionary fiscal policy, easy money policy, contractionary fiscal policy, tight money policy,

Government Finance:

government purchases, exhaustive, transfer payment, nonexhaustive, deficit spending, personal income tax, payroll tax, benefits received principle, ability-to-pay principle, average tax rates, marginal tax rates, progressive tax, proportional tax, regressive tax, value added tax (VAT)

2b Key Problems

Calculate tax owed, marginal tax rate, and average tax rate

2017 Tax Schedule - Individual Taxpayer

If Taxable Income is Between:

The Tax Due is:

0 - $9,325
10% of taxable income
$9,326 - $37, 950
$932.50 + 15% of the amount over $9,325
$37,951 - $91,900
$5,226.25 + 25% of the amount over $37.950
$91,901 - $191,650
$18,713.75 + 28% of the amount over $91,000
$191,651 - $416,700
$46,643.75+ 33% of the amount over $191,650
$416,701 - $418, 400
$120,910.25 + 35% of the amount over $416,700
$418,401 +
$121,505.25 + 39.6% of the amount over $418,400

Given the Tax Rate Schedule above, calculate the following:

If taxable income is $9,325:

The amount of tax owed:

__________________

The marginal tax rate:

__________________

The average tax rate:

__________________

If taxable income is $10,325:

The amount of tax owed:

__________________

The marginal tax rate:

__________________

The average tax rate:

__________________

2b Key Formulas

Average Tax Rate = taxes paid / income

Marginal Tax Rate = change in taxes paid / change in income

Marginal Tax Rate = taxes / income

 

Notice that I will use a triangle () to signify "change in"

2b Review Quizzes: Market Failures / Gov't Finance

2b Review Videos

Micro Unit 6 Intro- Market Failures and the Government
[2:31 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 1: Economics and Globalization

Lesson 3a: Demand

3a Introduction

If the price of pizza goes up, what happens to the demand for pizza?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

 

NOTHING! Nothing happens to the demand for pizza if the price changes!

 

The next three lessons introduce the demand and supply model for explaining how prices arise and change in a market economy. Learn these lessons well. Do the assigned problems. Draw the graphs in the Yellow Pages and while you are reading and studying. DRAW GRAPHS! Get used to using the graphs to help you answer questions. If you are avoiding drawing the graphs you will do poorly and not get the practice that you need to learn the concept.

So why doesn't the demand for pizza change if the price changes? Because economists have a different definition of "demand". Demand is NOT the quantity that we buy. If the price of pizza goes up we will buy less, but that is not what "demand" means in economics.

Economists tend to be precise with their definitions and sometimes their definitions are different than the more commonly used definitions. Things like "scarcity", "investment", "cost", "demand", and "supply", have different definitions in economics than what you may already know. Learn our definitions! Demand is not how much we buy. Demand has a different definition in economics. "Demand" means the "demand graph".

Economists use models (like the supply and demand model) to simplify the real world. They do this by isolating certain variables from all the clutter found in reality. Then by changing one variable at a time economists can see what effect it will have.

In this lesson we will learn the economic definition of DEMAND and plot the demand graph. Then, we will look at one variable at a time to see what effect they have on the demand curve. We call these variables the "non-price determinants of demand". They are: Pe, Pog, I, Npot, T or "PPINT". LEARN THEM! LEARN THEM WELL! Know how each one affects the demand curve. Be sure to do the Yellow Pages and other Practice Activities until you understand the concept well.

3a Something Interesting - Why are we studying this?

See the picture below. VanCamp's Pork and Beans are on sale (price is lower). Notice that there is a can of Campbell's Pork and Beans on the sale display.

What is that Campbell's Pork and Beans can doing on the display for VanCamp's Pork and Beans?

After studying this lesson you will be able to draw a graph illustrating what happened to the demand for Campbell's Pork and Beans when a customer took a can out of their shopping cart and placed it on this display of VanCamp's beans that were on sale.

3a Assignments: Readings

Ch 3, pp. 53-59, (19th 47-53) "Demand"

Optional, but very useful

Lecture Outline

3a Assignments: Video Lectures

2.1.1
Understanding the Determinants of Demand 11:58 [MyNotes]

2.1.2 Understanding the Basics of Demand 11:54 [MyNotes]

2.1.3 Analyzing Shifts in the Demand Curve 8:13 [MyNotes]

2.1.4 Changing Other Demand Variables 10:43 [MyNotes]

2.1.5 Deriving a Market Demand Curve 9:16 [MyNotes]

OPTIONAL:

The Law of Demand (econclassroom.com 11:24)

Changes in Demand versus Changes in Quantity Demanded (econclassroom.com 5:52)

The Determinants of Demand (econclassroom.com 11:07)

3a Outcomes - What you should learn

TOPICS

OUTCOMES

 

3a Non-Price Determinants of Demand and Supply

Non-Price Determinants of Demand (PPINT)

Pe -- expected price
Pog -- price of other goods
1) substitute goods
2) complementary goods
3) independent goods

I -- income

1) normal goods
2) inferior goods

N -- number of POTENTIAL consumers
T -- tastes and preferences

Non-Price Determinants of Supply (PPPTTN)

Pe -- expected price
Pog -- price of other goods produced by same firm
Pres -- price of resources
T --technology
T --taxes and subsidies
N -- number of producers/sellers

 

NON-PRICE DETERMINANTS OF DEMAND

Pe -- expected price

Pe in the future D today
Pe in the future D today

Pog -- price of other goods

1) substitute goods
P Maxwell House coffee D Folgers coffee
P of one product D of its substitute

2) complementary goods
P of wieners D of buns
P of one product D of its compliment

I -- income

1) normal goods
Income D for normal goods
Income D for normal goods

2) inferior goods
Income D for inferior goods
Income D for inferior goods

Npot -- number of POTENTIAL consumers

Npot D
Npot D

T -- tastes and preferences

Tastes for a product D for that product
Tastes for a product D for that product

 

NON-PRICE DETERMINANTS OF SUPPLY

Pe -- expected price

Pe in the future S today
Pe in the future S today

Pog -- price of other goods also produced by the same firm

P soybeans S corn
P soybeans S corn

Pres -- price of resources

worker's wages cost of making cars S cars
Pres costs S
Pres costs S

Tech --technology

Improved technology costs S

Tax --taxes and subsidies

Taxes costs S
Taxes costs S

Subsidies costs S
Subsidies costs S

N -- number of producers/sellers

Nproducers S
Nproducers S

3a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

demand, quantity demanded, law of demand, market demand, horizontal summation, income effect, substituion effect, diminishing marginal utility, change in demand, change in quantity demanded, increase in demand, decrease in demand, non-price determinants of demand, normal good, inferior good, substitute good, complementary good (complement), independent goods

3a Key Graphs

Demand Schedule and Curve

Change in Quantity Demanded

Change in Demand: Increase

Change in Demand: Decrease

Market Demand

3a Review Videos

-
Demand and Supply Explained- Econ 2.1
[6:20 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments. .

 

 


 

Unit 1: Economics and Globalization

Lesson 3b: Supply

3b Introduction

If the price of pizza goes up what happens to the SUPPLY of pizza? NOTHING!

A change in the price of a product does not affect its supply, or its demand. When the price goes up the QUANTITY SUPPLIED will increase, but the supply does not change. Learn the difference between "supply" and "quantity supplied". "Supply" does NOT MEAN the quantity available for sale. Supply has a different definition in economics. "Supply" means the "Supply graph".

So what would cause the supply graph, or supply itself, to change? Those things that cause supply to change are called the "non-price determinants of supply". They are: Pe, Pog, Pres, Tech, Tax, Nprod or "PPPTTN". See the Yellow Pages.

Remember, the goal of chapter 3 is to learn a model that will help us understand why prices are what they are and why they change. In the next lesson we will put demand and supply together and use the model (graph) to find the prices of products. Then, and more importantly, we will see what causes prices to change.

After completing this chapter, if you hear on the news, or read in your news app, that the price of gasoline is going down, we will be able to explain WHY. The causes of changes in prices of products are the five non-price determinants of demand (Pe, Pog, I, Npot, T) and/or the six non-price determinants of supply (Pe, Pog, Pres, Tech, Tax, Nprod.). Whenever you hear that the price of something is changing think of these 11 possible causes.

3b Something Interesting - Why are we studying this?

Read the short news article below on the declining price of gasoline (Dec. 2015). Paragraph 10 states "Plunging oil prices are the main factor driving down the price at the pump. "

Gas falls below $2 a gallon

After studying this lesson you should be able to (1) list the non-price determinants of supply, (2) select the determinant that is the cause of the decline in gasoline prices discussed in the news article above, and (3) graph the effect that the change in the determinant will have on the supply curve for gasoline.

3b Assignments: Readings

Ch. 3, pp. 59-62, (19th, 53-56) "Supply"

Where Is All That Excess Oil Going?
[Why are they storing oil? What is happening to supply? Which determinant has caused the supply to change?]

Read this online lecture: Demand and Supply

Lecture Outline

3b Assignments: Video Lectures

2.2.1
Understanding the Determinants of Supply 7:25 [MyNotes]

2.2.2 Deriving a Supply Curve 9:49 [MyNotes]

2.2.3 Understanding a Change in Supply versus a Change in Quantity Supplied 6:52 [MyNotes]

2.2.4 Analyzing Changes in Other Supply Variables 8:47 [MyNotes]

2.2.5 Deriving a Market Supply Curve from Individual Supply Curves 7:16 [MyNotes]

OPTIONAL

AC Econ 2.2 Demand and Supply Explained (2 of 2) (4:54 but just watch up to 2:45)

EP AP Macro-Economics - Determinants of Supply [YouTube - ExamPop]

KA Factors affecting supply (6:57) NOTE : It looks like the supply graph is labelled "D", but that is just point D (A, B, C, D) on the supply curve.

3b Outcomes - What you should learn

TOPICS

OUTCOMES

 

3b Non-Price Determinants of Demand and Supply

Non-Price Determinants of Demand (PPINT)

Pe -- expected price
Pog -- price of other goods
1) substitute goods
2) complementary goods
3) independent goods

I -- income

1) normal goods
2) inferior goods

N -- number of POTENTIAL consumers
T -- tastes and preferences

Non-Price Determinants of Supply (PPPTTN)

Pe -- expected price
Pog -- price of other goods produced by same firm
Pres -- price of resources
T --technology
T --taxes and subsidies
N -- number of producers/sellers

 

NON-PRICE DETERMINANTS OF DEMAND

Pe -- expected price

Pe in the future D today
Pe in the future D today

Pog -- price of other goods

1) substitute goods
P Maxwell House coffee D Folgers coffee
P of one product D of its substitute

2) complementary goods
P of wieners D of buns
P of one product D of its compliment

I -- income

1) normal goods
Income D for normal goods
Income D for normal goods

2) inferior goods
Income D for inferior goods
Income D for inferior goods

Npot -- number of POTENTIAL consumers

Npot D
Npot D

T -- tastes and preferences

Tastes for a product D for that product
Tastes for a product D for that product

 

NON-PRICE DETERMINANTS OF SUPPLY

Pe -- expected price

Pe in the future S today
Pe in the future S today

Pog -- price of other goods also produced by the same firm

P soybeans S corn
P soybeans S corn

Pres -- price of resources

worker's wages cost of making cars S cars
Pres costs S
Pres costs S

Tech --technology

Improved technology costs S

Tax --taxes and subsidies

Taxes costs S
Taxes costs S

Subsidies costs S
Subsidies costs S

N -- number of producers/sellers

Nproducers S
Nproducers S

3b Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

supply, quantity supplied, market supply, horizontal summation, law of supply, change in supply, change in quantity supplied, increase in supply, decrease in supply, non-price determinants of supply

3b Key Graphs

Supply Table and Curve

Increase in Supply

Decrease in Supply

3b Review Videos

- Demand and Supply Explained (2 of 2) - Econ 2.2
[4:54 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 1: Economics and Globalization

Lesson 3c: Market Equilibrium and Efficiency - So, what happens to Price and Quantity?

3c Introduction

We are going to learn two very important things in this lesson.

First, we will put demand and supply together and learn how to use the model to to see why products have the prices that they do. Then, and more importantly, we will see what causes prices to change.

If you hear on the news or read in your news app, that the price of gasoline is going down, we will be able to explain WHY. The causes of changes in prices of products are the five non-price determinants of demand (Pe, Pog, I, Npot, T) and/or the six non-price determinants of supply (Pe, Pog, Pres, Tech, Tax, Nprod.). Whenever you hear that the price of something is changing think of which of these 11 possible causes have changed, draw the graph and shift the appropriate demand and/or supply graph, and the graph will show the price changing.

Second, after we learn that in a competitive market economy the interaction of demand and supply will determine what the prices of products will be and how much people will buy at that price, we will ask: Is this the allocatively efficient quantity and price? Our goal is to show that in a competitive market the price will change until allocative efficiency is achieved. In chapter 2 we learned that markets are allocatively efficient. This means they will produce the quantity of goods that maximizes the society's satisfaction. After studying chapter 3 we will bew able to show the allocatively efficient price and quantity on a graph.

Competitive markets are efficient.

3c Something Interesting - Why are we studying this?

Read the first few paragraphs of
Hybrid Car Prices Increasing Due To High Gas Prices.

In lesson 3a you learned how the non-price determinants of demand (Pe, Pog, I, N, T) affect the demand curve. In lesson 3b you learned how the non-price determinants of supply (Pe, Pog, Pres, Tech, Tax, Nprod) affect the supply curve.

After studying this lesson you will be able to use these determinants and graphs to explain why prices change. For example you will understand why: "It's becoming almost an annual tradition: As fuel prices rise in the spring, so do the prices of hybrid cars. "

3c Assignments: Readings

Ch. 3, pp. 62-70, 75-80, (19th, 56-64, 69-74), "Market Equilibrium", "Additional Examples of Supply and Demand"

Ch. 4, pp. 85- 90, (19th, 93-99), "Efficiently Functioning Markets"

Supply, Demand, and Economic Efficiency

Optional, but very useful

Lecture Outline

3c Assignments: Video Lectures

PUTTING SUPPLY AND DEMAND TOGETHER

2.3.1 Determining a Competitive Equilibrium 11:04 [MyNotes]

2.3.2 Defining Comparative Statics 7:02 [MyNotes]

2.3.3 Classifying Comparative Statics 11:54 [MyNotes]

AC Micro 2.4 Double Shifts in Supply and Demand: Econ Concepts in 60 Seconds (2:34)

EconMovies: Episode 4: Indiana Jones (Demand, Supply, Equilibrium, Shifts) (7:02)

MARKETS AND EFFICIENCY

Efficiency and Equilibrium in Competitive Markets (econclassroom.com 11:48) [begin at 7:27 and stop at 8:44, we will not cover consumer and producer surplus] [MyNotes]

3c Outcomes - What you should learn

TOPICS

OUTCOMES

Market Equilibrium

Markets and Efficiency

3c Non-Price Determinants of Demand and Supply

Non-Price Determinants of Demand (PPINT)

Pe -- expected price
Pog -- price of other goods
1) substitute goods
2) complementary goods
3) independent goods

I -- income

1) normal goods
2) inferior goods

N -- number of POTENTIAL consumers
T -- tastes and preferences

Non-Price Determinants of Supply (PPPTTN)

Pe -- expected price
Pog -- price of other goods produced by same firm
Pres -- price of resources
T --technology
T --taxes and subsidies
N -- number of producers/sellers

 

NON-PRICE DETERMINANTS OF DEMAND

Pe -- expected price

Pe in the future D today
Pe in the future D today

Pog -- price of other goods

1) substitute goods
P Maxwell House coffee D Folgers coffee
P of one product D of its substitute

2) complementary goods
P of wieners D of buns
P of one product D of its compliment

I -- income

1) normal goods
Income D for normal goods
Income D for normal goods

2) inferior goods
Income D for inferior goods
Income D for inferior goods

Npot -- number of POTENTIAL consumers

Npot D
Npot D

T -- tastes and preferences

Tastes for a product D for that product
Tastes for a product D for that product

 

NON-PRICE DETERMINANTS OF SUPPLY

Pe -- expected price

Pe in the future S today
Pe in the future S today

Pog -- price of other goods also produced by the same firm

P soybeans S corn
P soybeans S corn

Pres -- price of resources

worker's wages cost of making cars S cars
Pres costs S
Pres costs S

Tech --technology

Improved technology costs S

Tax --taxes and subsidies

Taxes costs S
Taxes costs S

Subsidies costs S
Subsidies costs S

N -- number of producers/sellers

Nproducers S
Nproducers S

3c Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

equilibrium, market equilibrium, bidding mechanism, surplus, shortage, scalping, productive efficiency, allocative efficiency, marginal social benefits, marginal social costs, "what we get", "what we want", profit maximizing quantity, underallocation of resources, overallocation of resources, price ceiling, price floor

3c Key Problems

Beef and Chicken

Almonds

McDonald's

Click on the links above to learn how to use a supply and demand graph to show why prices and quantities change. The exam 1 extra credit question will be similar to these problems.  

Use the four-step process to explain what happens to PRICE (P) and QUANTITY (Q) of the following goods using the information provided in the short news articles below.

Four Step Process
1. Which determinant has changed?
2. Will it affect Supply (S) or Demand (D)?
3. Will S or D increase or decrease?
4. GRAPH IT and show what happens to P and Q.

Non--Price Determinants of Demand (PPINT)

Pe -- expected price
Pog -- price of other goods (subs and Complw)
I - income (normal and inferior goods)
N -- number of POTENTIAL consumers
T -- tastes and preferences

Non-Price Determinants of Supply (PPPTTN)

Pe -- expected price
Pog -- price of other goods PRODUCED. BY THE SAME FIRM
Pres -- price of resources
T - technology of production
T -- taxes and subsidies
N -- number of sellers

Product: Beef. What happens to P and Q? Circle and label determinants. Show effects on a graph.
http://www.bloomberg.com/news/articles/2014-11-18/us-beef-supply-will-fall-again-in-2015-chicken-demand-will-rise

Domestic beef production has been waning [decreasing] for years because of rising feed and energy prices. A drought in 2012 caused feed prices to spike and, in response, farmers thinned their herds.

Product: Chicken. What happens to P and Q? Circle and label determinants. Show effects on a graph.
http://www.bloomberg.com/news/articles/2014-11-18/us-beef-supply-will-fall-again-in-2015-chicken-demand-will-rise

It's been an expensive year to eat beef, and 2015 doesn't look any cheaper. . . . Consumers have traded down to less expensive meats such as chicken.

Product: Almonds. What happens to P and Q? Circle and label determinants. Show effects on a graph.
http://www.cnbc.com/2016/08/29/california-almond-harvest-may-break-records-despite-drought.html

With the drought easing in parts of California, this year's almond harvest is shaping up to be a record haul …. Consumers have already taken an interest in almond products because of their "heart health" benefits.

Product: McDonald's meals. What happens to P and Q? Circle and label determinants. Show effects on a graph.
http://www.bloomberg.com/news/articles/2014-10-20/mcdonald-s-costly-burgers-send-diners-to-fancier-rivals

Mike Hiner used to take his grandsons to McDonald's when they wanted a treat. With higher wage and food costs pushing up prices at the Golden Arches, he's increasingly taking them to IHOP, Denny's and Chili's instead . . . . The chain's diminishing appeal among budget diners -- coupled with rising meat costs -- are projected to take a bite out of third-quarter earnings due to be reported tomorrow.

 

.

3c Key Graphs

Market Equilibrium

Changes in Demand And Supply

Price Ceiling

Price Floor

3c Review Quiz - Lessons 3a, 3b, and 3c

3c Review Videos

-
Shifting Demand and Supply- Econ 2.3
[4:49 YouTube ACDC Leadership]

- Double Shifts- Econ 2.5 (Technical Tuesday)
[3:26 YouTube ACDC Leadership]

- Price Ceilings and Floors- Economics 2.6
[4:34 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


 

Unit 1: Economics and Globalization

Lesson 20a: Why we Trade: Comparative Advantage

20a Introduction

In Lesson 2a we learned about the following Structural Adjustment Policies and the following characteristics of capitalist economies:

Structural Adjustment Policies:
- Privatization
- Promotion of Competition
- Reduced Role of Government
- Removing Price Controls
- FREER TRADE and Convertible Currency
- Foreign Investment

Characteristics of Capitalist Economies:
- private property
- freedom of enterprise and choice
- role of self interest
- competition -
- markets and prices
- limited role for government

In this lesson we will study trade.Trade increases competition and helps the world's economies achieve PRODUCTIVE EFFICIENCY (producing at a minimum cost by using resources where they are best suited). Therefore it is an important concept to study in any introductory economics course.

We will learn that trade based on COMPARATIVE ADVANTAGE can help the world PRODUCE MORE from the same amount of resources. Trade allows all countries to consume beyond their production possibilities (point E on the graph below).

How is that possible?

We will also learn that even if a country is better at producing all products, it is still possible for it to come out ahead if it specializes and trades with other (less productive) countries.

How is that possible?

That is why there has been a trend over several decades of the world moving to ward freer and freer trade.

20a Something Interesting - Why are we studying this?

Read the first four paragraphs of
The Mystical Power of Free Trade.

After studying this lesson you should understand:

- why "society benefits from allowing its citizens to buy what they wish--even from foreigners." (i.e. the gains from trade),

- and why "people resist this conclusion, sometimes violently"

20a Assignments: Readings

Ch. 20, pp. 442-452 (19th, 398-407), "Some Key Trade Facts", "The Economic Basis for Trade", "Comparative Advantage"

"The Mystical Power of Free Trade"
http://www.cnn.com/ALLPOLITICS/time/1999/12/06/free.trade.html

VERY USEFUL: Lecture Outline

20a Assignments: Video Lectures

1.5.1
Defining Comparative Advantage with the Production Possibilities Frontier 22:10 [MyNotes]

1.5.2 Understanding Why Specialization Increases Total Output 6:46 [MyNotes]

1.5.3 Analyzing International Trade Using Comparative Advantage 25:35 [MyNotes]

1.5.4 Outsourcing 8:54 [MyNotes]

17.4.3 Hot Topic: Winners and Losers in NAFTA 4:20 [MyNotes]

KEY PROBLEM: The gains from trade

OPTIONAL

KA Comparative advantage specialization and gains from trade (8:55)

EC Determining Comparative Advantage using PPCs – Worked solutions to AP Free Response Questions (8:27)

20a Outcomes - What you should learn

TOPICS

OUTCOMES

20a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

opportunity cost, constant costs, increasing costs, absolute advantage, comparative advantage, gains from trade, free trade, terms of trade, minimum and maximum terms of trade

20a Key Problems

The Gains from Trade - Click Here

Click on the link above to learn how to do this problem.

Assume that prior to specialization and trade, Japan produced at point D and Switzerland produced at point E. Calculate the possible gains from specialization and trade.

20a Key Graphs

Comparative Advantage and the Gains from Trade

20a Review Quiz

20a Review Videos

-
Comparative advantage specialization and gains from trade | Microeconomics | Khan Academy
[8:55 YouTube Khan Academy]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


 

Unit 1: Economics and Globalization

Lesson 20b: International Trade and Foreign Exchange Markets

20b Introduction

Everything discussed in Lesson 20a about trade (specialization and exchange) can be applied to trade between individuals, cities, counties, states, and countries. In this lesson we will focus specifically on INTERNATIONAL trade (trade between countries).

Comparative advantage still applies, but there are some differences between INTERnational trade (trade between countries) and INTRAnational trade (trade within a country). These differences include greater distances, politics, and the use of different currencies.

Lesson 20b begins with a review of the FACTS of international trade (see: Lecture Outline). Then we will look at what happens when politicians restrict trade (and therefore cause inefficiency). And we will finish up with learning how to use a supply and demand graph to understand why exchange rates change.

Concerning exchange rates: students often believe that a strong dollar is good and a weak dollar is bad. This is not always true. If the U.S. dollar appreciates (increases in value) it is often called a "strong dollar". What a strong dollar does is make it cheaper for Americans to buy foreign imports (or make it cheaper to take a ski trip in Canada). A strong dollar also makes it more expensive for foreigners to purchase U.S. exports. Therefore, a strong dollar may be good for consumers because of cheap imports, but bad for workers because of less exports, fewer jobs, and more unemployment).

20b Something Interesting - Why are we studying this?

The link below goes to a LIST of articles on the international trade agreements, including the Trans Pacific Partnership (TPP), found on the Huffington Post news site. President Trump took the US out of the TPP soon after he became president. The Huffington Post tends to be a more liberal news site, that is less supportive of free trade. Scroll down just looking at the titles of the news articles over the last few months. You will see that many of them appear to oppose the free trade agreements.

Trans Pacific Partnership
http://www.huffingtonpost.com/news/trans-pacific-partnership/

After studying this lesson you will have a better understanding of why many people oppose such trade agreements BUT most economists say that such agreements benefit the US economy and the world economy.

20b Assignments: Readings

Ch. 20, pp. 443-465 (19th, 398-418), "Some Key Trade Facts", "Trade Barriers and Export Subsidies", "The Case for Protection", "Multilateral Trade Agreements and Free-Trade Zones"

Ch. 20, p. 464 (19th, 419), "The Last Word - Petition of the Candlemakers, 1845"

Ch. 21, 475-78 (19th, 429-432), "Flexible Exchange Rates"

Ch. 21, 484-488 (19th, 438-439) "Recent U.S. Trade Deficits"

Trans-Pacific Partnership

- http://www.nytimes.com/2015/05/12/business/unpacking-the-trans-pacific-partnership-trade-deal.html

- http://www.nytimes.com/2015/06/13/upshot/what-you-should-know-about-the-trans-pacific-partnership.html

- http://www.usnews.com/news/business/articles/2015/08/11/q-a-what-yuan-devaluation-means-for-china-other-countries

VERY USEFUL: Lecture Outline

20b Assignments: Video Lectures

17.4.2
Trade Policy 7:17 [MyNotes]

17.1.1 Determining the Difference between a Closed Economy and an Open Economy 8:55 [MyNotes]

Why do Countries Restrict Trade? (8:34) [MyNotes]

Types of Trade Restrictions (9:43) [MyNotes]

17.1.2 Understanding Exports in an Open Economy 5:22 [MyNotes]

17.3.1 Nominal Exchange Rates 11:32 [MyNotes]

17.3.4 Determination of Exchange Rates 12:31 [MyNotes]

17.3.5 Floating and Fixed Systems 13:18 [MyNotes]

20b Outcomes - What you should learn

TOPICS

OUTCOMES

20b Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

imports, exports, trade barriers, tariff, revenue tariff, protective tariff, import quota, nontariff barrier, export subsidies, special interest effect, infant industry, dumping, WTO, NAFTA, TPP, offshoring, exchange rate, strong dollar, weak dollar, appreciation, depreciation, trade deficit, trade surplus

20b Key Problems

Using Demand and Supply Graphs to Show Why Exchange Rates Change

DETERMINANTS of EXCHANGE RATES: The Foreign Exchange Market

When Americans buy foreign products or make financial investments overseas we demand foreign currency and supply dollars

When foreigners buy American products or make financial investments in the U.S. they demand dollars and supply their currency

DETERMINANTS: Why would Americans demand foreign currency and supply dollars?

To buy more foreign products: PPINT
  • Lower prices overseas, higher prices in the US (Pog subs)
  • Increase in US incomes (I = Income)
  • Increase in tastes for foreign goods (T = tastes)

To invest financially overseas:

  • Higher interest rates overseas, lower interest rates in the US

DETERMINANTS: Why would foreigners demand dollars and supply their currency?

To buy more US products: PPINT
  • Lower prices in US, higher prices in their country (Pog subs)
  • Increase in their incomes (I - Income)
  • Increase in tastes for US goods (T=tastes))

To invest financially in the US:

  • Higher interest rates in US, lower interest rates in their country

REMEMBER:

- The demand for $ by Mexicans is the same as the supply of pesos. They supply pesos when they buy $.

- The demand for pesos by Americans is the same as the supply of $. We supply $ when we buy pesos.

 

20b Key Graphs

Graph used to show the effects of a tariff (trade restriction):

Exchange Rates:

20b Review Videos

-
Episode 35: Why do countries restrict trade?
[8:34 YouTube mjmfoodie]

- Foreign Exchange (FOREX)- Macro 5.2
[8:34 YouTube ACDC Leadership ]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 



Unit 2: Introduction to Macroeconomics

Lesson 12a: The AD/AS Model - The AD Graph and Determinants

12a Introduction

In chapter 12 we develop a model of the macroeconomy, the Aggregate Demand / Aggregate Supply model (AS/AD), that we will use throughout the remainder of the course. Remember from chapter 1 that the three macroeconomics issues are unemployment (UE), inflation (IN), and economic growth (EG). The AD/AS model will help us understand changes in UE, IN, and EG.

In lesson 12a we briefly introduce UE, IN, and EG and then develop the aggregate demand curve (AD). In lesson 12b we will develop the aggregate supply (AS) curve and then put them together to find a macroeconomic equilibrium. Then, similar to what we did in chapter 3, we will see that changes in the determinants of AD or AS cause the curves to shift resulting in changes in UE, IN, and EG. LEARN THE DETERMINANTS! See the Yellow Pages for lists of the determinants and many practice exercises.

One last thing, even though the AS/AD graph looks very similar to the supply and demand graph from chapter 3, THEY ARE VERY DIFFERENT. Whereas in chapter 3 we looked at the price and quantity of a SINGLE PRODUCT, in macroeconomics we look at the price level and the aggregate output in the WHOLE ECONOMY. We are not just looking at one product, we are looking at the average prices of ALL products and the quantities of ALL products produced in an economy.

12a Something Interesting - Why are we studying this?

Read the first 5 paragraphs and and paragraph 10 in the link below where Joseph Stiglitz explains how the lack of Aggregate Demand (AD) can cause slow or no economic growth around the world.

Why the Great Malaise of the World Economy Continues in 2016,
Joseph E. Stiglitz
http://www.huffingtonpost.com/joseph-e-stiglitz/world-economy-2016_b_8908560.html

From Wikipedia: "Joseph Eugene Stiglitz . . . is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences . . . . He is a former senior vice president and chief economist of the World Bank and is a former member and chairman of the Council of Economic Advisers, [under president Clinton]. . . . Based on academic citations, Stiglitz is the 4th most influential economist in the world today, and in 2011 he was named by Time magazine as one of the 100 most influential people in the world."

12a Assignments: Readings

Ch. 6, pp. 135-140, (19th, 116-120), "Performance and Policy", "The Miracle of Modern Economic Growth",

Ch. 9, pp. (19th, 171-173) "The Business Cycle"

Ch.12, pp. 263-268, (19th, 233-238), "Aggregate Demand", "Changes in Aggregate Demand"

Lecture Outline

12a Assignments: Video Lectures

BUSINESS CYCLES

11.1.1 The Business Cycle Recessions, Depressions, and Booms 2:59 [MyNotes]

11.1.2 Theoretical Explanations for Cycles 10:09 [MyNotes]

Recessions and Fiscal Policy- EconMovies #5: Cars

AGGREGATE DEMAND

14.1.1 Deriving the Aggregate Demand Curve 7:26 [MyNotes]

14.1.2 Movement along the Aggregate Demand Curve 9:15 [MyNotes]

14.1.3 Shifts in Aggregate Demand 6:03 [MyNotes]

12a Outcomes - What you should learn

TOPICS

OUTCOMES

 

12a Determinants of AD and AS

DETERMINANTS of AD

__________ AD__________
__________ AD___________

C AD

C AD

I AD

I AD

G AD

G AD

Xn AD

Xn AD

MS Int. Rt. I AD

MS Int. Rt. I AD

T C AD

T C AD

S C AD

S C AD

DETERMINANTS of AD

Consumption (C)

C AD
C AD

Investment (I)

I AD
I AD

Government Purchases (G)

G AD
G AD

Net Exports (Xn)

Xn AD
Xn AD

Money Supply (MS)

MS Interest Rates I AD
MS Interest Rates I AD

Taxes (T)

T C AD
T C AD

Saving (S)

S C AD
S C AD

 

DETERMINANTS of AD

C = consumer spending (and saving)

1. consumer wealth
Wealth C AD
Wealth C AD

2. consumer expectations

Expected future Income C today AD today
Expected future Income C today AD today

3. consumer indebtedness

Consumer Debt C AD
Consumer Debt C AD

4. taxes

T C AD
T C AD

I = investment spending

1. interest rates (money supply)
MS Interest Rates I AD (memorize this)
MS Interest Rates I AD

2. profit expectations on investment projects

profit expectations I AD
profit expectations I AD

3. business taxes

Business Taxes I AD
Business Taxes I AD

4. technology

technology improves I AD

5. degree of excess capacity

excess (unused) plant capacity I AD
excess (unused) plant capacity I AD

G = government purchases (no determinants)

Xn = net export spending

1. net income abroad
Income in Foreign Countries Xn AD
Income in Foreign Countries Xn AD

2. exchange rates

value of the US dollar Xn AD
value of the US dollar Xn AD

 

DETERMINANTS of AS
__________ AS__________
__________ AS__________

price of resources AS

price of resources AS

productivity AS

productivity AS

business taxes and gov't red tape AS

business taxes and gov't red tape AS

DETERMINANTS of AS

Price of Resources
price of resources AS
price of resources AS

Productivity of Resources

productivity AS
productivity AS

Business Taxes and Gov't Regulations

business taxes and gov't red tape A S
business taxes and gov't red tape AS

12a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

real GDP, unemployment, inflation, modern economic growth, saving, economic investment, financial investment, business cycle, peak, recession, trough, expansion (recovery), growth trend (secular trend), aggregate demand (AD), real-balances effect, interest-rate effect, foreign-purchases effect, determinants of aggregate demand, wealth vs. income, investment (investment spending)

12a Key Formulas

GDP = C + Ig + G + Xn

12a Key Graphs

The 5Es and Macroeconomic Issues

The Business Cycle

 

 Aggregate Demand (AD)

Increase in AD / Decrease in AD

12a Review Videos

-
Macro 2.7- Business Cycle Unit Summary

[1:32 YouTube ACDC Leadership]

- Macro 3.1- Aggregate Demand Practice
[3:21 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 2: Introduction to Macroeconomics

Lesson 12b: The AD/AS Model - AS and Equilibrium in the Macro-Economy
(UE, IN, EG)

12b Introduction

Almost everyday we can find news about unemployment (UE), inflation (IN), and economic growth (EG). People discuss these issues over coffee and presidential candidates discuss them during debates. Our elected leaders consider them in pieces of legislation. How can we gain a better understanding of the causes of unemployment, inflation, and economic growth so that we can better understand these discussions? To economists the answer is the Aggregate Demand / Aggregate Supply model of the macroeconomy.

In this lesson we will add aggregate supply to our aggregate demand graph (lesson 12a) and use the combined graphs to find the equilibrium level of real GDP (output) and price level. We will see what causes the equilibrium level of real GDP (output) and price level of an economy to change (the determinants of AD and AS), and we will use such changes to gain a better understanding of the causes of UE, IN, and EG.

So the next time you hear a politician discuss what they plan to do about UE, IN, and EG, you will have a much better understanding of what the are saying.

12b Something Interesting - Why are we studying this?

Low oil prices boost economic growth:

"Sinking prices have implications for economies across the globe. Important oil exporters, such as the OPEC countries, bear the brunt of negative impacts, while oil importers benefit. Overall economic activity in the U.S. will benefit, although lower oil prices will depress activity in many producing states, such as Texas and North Dakota..... Depending on which economic model is used, a 50 percent oil price decline yields a 0.3 to 1 percent increase in U.S. GDP. The traditional rule of thumb has been that a sustained 50 percent lower crude oil price raises the growth rate by about 1 percentage point. However, since the U.S. produces more oil and uses it more efficiently nowadays, the traditional rule of thumb should probably be halved—the reduction should boost U.S. growth 0.5 percentage point for a year or so."

From: Dallas Fed Vol. 10 No. 3, April 2015, "Economic Letter - Plunging Oil Prices: A Boost for the U.S. Economy, a Jolt for Texas" by Anthony Murphy, Michael Plante and Mine Yücel

https://www.dallasfed.org/assets/documents/research/eclett/2015/el1503.pdf

After this lesson you should be able to use an AS/AD graph to illustrate the effects of low oil prices on the US economy and use the graph to explan what should happen to UE, IN, and EG.

12b Assignments: Readings

Ch. 12, pp. 268- 281, (19th, 238-250), "Aggregate Supply", "Changes in Aggregagte Supply", "Equilibrium in the AD-AS Model", "Changes in Equilibrium"

Ch. 9, pp. 205-206, (19th, 179-180), "Types of Inflation"

Review Ch. 1, pp. 17-19, (19th, 16-18), "Present Choices, Future Possibilities"

Lecture Outline

12b Assignments: Video Lectures

AGGREGATE SUPPLY

14.2.1 The Short-Run Aggregate Supply Curve 9:03 [MyNotes]

14.2.2 The Labor Market 7:20 [MyNotes]

EQUILIBRIUM

14.3.2 Equilibrium in the Short Run 12:10 [MyNotes]

14.3.7 Hot Topic: Oil Shocks 4:52 [MyNotes]

12b Outcomes - What you should learn

TOPICS

OUTCOMES

 

12b Determinants of AD and AS

DETERMNANTS of AD

__________ AD__________
__________ AD___________

C AD

C AD

I AD

I AD

G AD

G AD

Xn AD

Xn AD

MS Int. Rt. I AD

MS Int. Rt. I AD

T C AD

T C AD

S C AD

S C AD

DETERMNANTS of AD

Consumption (C)

C AD
C AD

Investment (I)

I AD
I AD

Government Purchases (G)

G AD
G AD

Net Exports (Xn)

Xn AD
Xn AD

Money Supply (MS)

MS Interest Rates I AD
MS Interest Rates I AD

Taxes (T)

T C AD
T C AD

Saving (S)

S C AD
S C AD

 

DETERMINANTS of AD

C = consumer spending (and saving)

1. consumer wealth
Wealth C AD
Wealth C AD

2. consumer expectations

Expected future Income C today AD today
Expected future Income C today AD today

3. consumer indebtedness

Consumer Debt C AD
Consumer Debt C AD

4. taxes

T C AD
T C AD

I = investment spending

1. interest rates (money supply)
MS Interest Rates I AD (memorize this)
MS Interest Rates I AD

2. profit expectations on investment projects

profit expectations I AD
profit expectations I AD

3. business taxes

Business Taxes I AD
Business Taxes I AD

4. technology

technology improves I AD

5. degree of excess capacity

excess (unused) plant capacity I AD
excess (unused) plant capacity I AD

G = government purchases (no determinants)

Xn = net export spending

1. net income abroad
Income in Foreign Countries Xn AD
Income in Foreign Countries Xn AD

2. exchange rates

value of the US dollar Xn AD
value of the US dollar Xn AD

 

Determinants of AS
__________ AS__________
__________ AS__________

price of resources AS

price of resources AS

productivity AS

productivity AS

business taxes and gov't red tape AS

business taxes and gov't red tape AS

DETERMINANTS OF AS

Price of Resources
price of resources AS
price of resources AS

Productivity of Resources

productivity AS
productivity AS

Business Taxes and Gov't Regulations

business taxes and gov't red tape A S
business taxes and gov't red tape AS

12b Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

AS, immediate-short-run AS, short-run AS, long-run AS, Keynesian range, Intermediate range, Classical range, equilibrium price level, equilibrium real output (RDO), demand-pull inflation, cost-push inflation, efficiency wages, ratchet effect, stagflation, OPEC

12b Key Problems

Article 1 - Red Flag

Article 2 - The US Economy has Reached a Turning Point

Article 3 - Economy is Bad, but 1982 was worse

Article 4 - Early 1980s Recession

Article 5 - The Roosevelt Recession

Article 6 - Post Korean War

Read the following very short news articles, then for each article:

1. Find and CIRCLE the determinants of Aggregate Demand (AD) and/or Aggregate Supply (AS) that have changed.
2. Show the effects of these changes on an AS/AD graph.
3. Show the effects on the equilibrium Price Level (PL) and Real Domestic Output (RDO).
4. State what happens to UE, IN, and EG.


Red Flag: U.S. economy may have hit the pause button, by Patrick Gillespie, April 6, 2016
http://money.cnn.com/2016/04/06/news/economy/us-economy-growth-forecast-first-quarter/index.html?category=economy

Economists have dramatically cut their forecasts for U.S. economic growth in the first quarter of 2016. Falling car sales, equipment purchases by businesses and a downward revision to consumer spending have darkened the view.


The US Economy Has Reached A Turning Point, The Economist, Oct. 5, 2014
http://www.businessinsider.com/the-us-economy-has-reached-a-turning-point-2014-10

The economy powered ahead. . . . [G]rowth was boosted by improvements across all sectors, including consumer spending, residential and non-residential fixed investment, net exports and government spending. . . . Lower energy prices will also provide a lift, reducing business costs. . . .


The Economy Is Bad, but 1982 Was Worse, By DAVID LEONHARDT, JAN. 20, 2009
http://www.nytimes.com/2009/01/21/business/economy/21leonhardt.html

So suffice it to say that the serious recent declines in retail sales, business spending and employment make it highly unusual that the economy will improve anytime soon. . . . [I]t is hard to judge the staggering stimulus numbers being thrown around Washington whether [the Obama administration is] running the risk of being too timid or too aggressive.


1980-82 Early 1980s Recession
http://vm136.lib.berkeley.edu/BANC/ROHO/projects/debt/1980srecession.html

Between 1980 and 1982 the U.S. economy experienced a deep recession, the primary cause of which was the disinflationary monetary policy adopted by the Federal Reserve. The recession coincided with U.S. President Ronald Reagan's steep cuts in domestic spending. [Another] cause of the early 1980s recession was the Iranian Revolution of 1979, which sparked a second large round of oil price increases.


The Roosevelt Recession: (May 1937 - June 1938).
A Review Of Past Recessions By Dan Barufaldi
http://www.investopedia.com/articles/economics/08/past-recessions.asp

Reasons and Causes: The stock market crashed in late 1937.


The Post-Korean War Recession: (July 1953 - May 1954)
A Review Of Past Recessions By Dan Barufaldi
http://www.investopedia.com/articles/economics/08/past-recessions.asp

Reasons and causes: After an inflationary period that followed the Korean War, more dollars were directed at national security. The Federal Reserve tightened monetary policy to curb inflation in 1952.

12b Key Formulas

GDP = C + Ig + G + Xn

12b Key Graphs

Aggregate (AS) Supply

Increase in AS / Decrease in AS

Macroeconomic Equilibrium

Change (Increase) in AD

Change (Increase) in AS

12b Review Quiz - Lessons 12a and 12b

12b Review Videos

-
Macro 3.2- Aggregate Supply Practice
[2:10 YouTube ACDC Leadership]

- Macro 3.3- Long Run Aggregate Supply, Recession, and Inflation (LRAS)
[Beginning to 1:50 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 2: Introduction to Macroeconomics

Lesson 12c: Stabilization Policies and AS/AD in the Long Run

12c Introduction

Now that we have a tool to use to better understand what causes changes in UE, IN, and EG, let's look at what the government can do to reduce high UE and high IN. What are the government POLICIES that can reduce UE and reduce IN?

Luckily, this is one concept where the terminology used by economists is also used by everybody else. So when you read about "fiscal policy" and "monetary policy" in your textbook and in the newspaper, they mean the same thing!

We will finish this lesson with a review of the economic history of United States. You have all heard about the "Great Depression" (1929-1939). Let's see if we can use what we have learned (the AD/AS model) to better understand its causes and why it ended.

12c Something Interesting - Why are we studying this?

Between December 2007 and June 2009 output in the United States declined during what became known as "The Great Recession" . This was followed by a very slow, multi-year, recovery. Economists disagreed on what should have been done to quicken the recovery:

ON THE ONE HAND: "The basic issue, says Krugman, is a lack of demand. American consumers and businesses, aren't spending enough, and efforts to get them to open their wallets have gone nowhere. Krugman's solution: The federal government needs to step in and spend. A lot."
May 2, 2012
http://www.rollingstone.com/politics/news/paul-krugman-on-how-to-fix-the-economy-and-why-its-easier-than-you-think-20120502

ON THE OTHER HAND: "Is government’s role to fix economy? NO! Just get out of the way and it will fix itself" (The Investment Watchdog Blog).
Sept. 12, 2011
http://investmentwatchblog.com/analysis-is-governments-role-to-fix-economy-no-just-get-out-of-the-way-and-it-will-fix-itself/

President Harry S Truman once said: "I want a one-armed economist, that way he cannot say, 'on the other hand'.

12c Assignments: Readings

Ch. 13, pp. (288-293, (19th, 258-261), "Fiscal Policy and the AD-AS Model"

Ch. 18, pp. 416-420, (19th, 374-378), "Taxation and Aggregate Supply" (Supply-Side Economics)

Ch. 18, pp. 404-410, (19th, 362-368), "From Short Run to Long Run", "Applying the Extended AS-AS Model"

Ch. 18, pp. 411-416, (19th, 368-374, " The Inflation-Unemployment Relationship" (The Phillips Curve)

Summary of Macroeconomic Policy

Lecture Outline

12c Assignments: Video Lectures

Fiscal Policy and Economic History of the U.S.

Historical circumstances explained by AD/AS: Demand-pull inflation under Johnson (Khan Academy 9:18)

Historical circumstances explained by AD/AS: Real GDP driving price (Khan Academy 6:15)

Historical circumstances explained by AD/AS : Cost-push inflation (Khan Academy 5:45)

Long-Run AS

14.2.3 The Long-Run Aggregate Supply Curve 11:17 [MyNotes]

14.3.3 Equilibrium in the Long Run 7:32

14.3.4 Expectations in the Long Run and the Short Run 14:36 [MyNotes]

14.3.5 Long-Run Macroeconomic Equilibrium 16:55 [MyNotes]

Phillips Curve

14.4.1 The Phillips Curve: Definitions and the Historical Record 13:38 [MyNotes]

14.4.2 Expectations and the Phillips Curve 9:15 [MyNotes]

12c Outcomes - What you should learn

TOPICS

OUTCOMES

 

12c Determinants of AD and AS

DETERMNANTS of AD

__________ AD__________
__________ AD___________

C AD

C AD

I AD

I AD

G AD

G AD

Xn AD

Xn AD

MS Int. Rt. I AD

MS Int. Rt. I AD

T C AD

T C AD

S C AD

S C AD

DETERMNANTS of AD

Consumption (C)

C AD
C AD

Investment (I)

I AD
I AD

Government Purchases (G)

G AD
G AD

Net Exports (Xn)

Xn AD
Xn AD

Money Supply (MS)

MS Interest Rates I AD
MS Interest Rates I AD

Taxes (T)

T C AD
T C AD

Saving (S)

S C AD
S C AD

 

DETERMINANTS of AD

C = consumer spending (and saving)

1. consumer wealth
Wealth C AD
Wealth C AD

2. consumer expectations

Expected future Income C today AD today
Expected future Income C today AD today

3. consumer indebtedness

Consumer Debt C AD
Consumer Debt C AD

4. taxes

T C AD
T C AD

I = investment spending

1. interest rates (money supply)
MS Interest Rates I AD (memorize this)
MS Interest Rates I AD

2. profit expectations on investment projects

profit expectations I AD
profit expectations I AD

3. business taxes

Business Taxes I AD
Business Taxes I AD

4. technology

technology improves I AD

5. degree of excess capacity

excess (unused) plant capacity I AD
excess (unused) plant capacity I AD

G = government purchases (no determinants)

Xn = net export spending

1. net income abroad
Income in Foreign Countries Xn AD
Income in Foreign Countries Xn AD

2. exchange rates

value of the US dollar Xn AD
value of the US dollar Xn AD

 

Determinants of AS
__________ AS__________
__________ AS__________

price of resources AS

price of resources AS

productivity AS

productivity AS

business taxes and gov't red tape AS

business taxes and gov't red tape AS

DETERMINANTS OF AS

Price of Resources
price of resources AS
price of resources AS

Productivity of Resources

productivity AS
productivity AS

Business Taxes and Gov't Regulations

business taxes and gov't red tape A S
business taxes and gov't red tape AS

12c Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

stabilization policies, demand management, fiscal policy (FP), expansionary FP, contractionary FP, monetary policy (MP), easy (expansionary) MP, tight (contractionary) MP, supply-side policy, Laffer curve, stagflation, aggregate supply shocks, short run, long run, long-run AS, Phillips curve, long-run Phillips Curve, the Great Depression, disinflation

 

12c Macroeconomic Policies

12c Key Graphs

Laffer Curve

Long Run AS

Long Run AS - Adjusting to an increase in AD

Long Run AS - Adjusting to a decrease in AD

Philips Curve

12c Review Videos

 -
Fiscal & Monetary Policy Review- AP Macroeconomics 3:58
[YouTube ACDC Leadership]

- Macro 3.3- Long Run Aggregate Supply, Recession, and Inflation (LRAS)
[1:50 to end YouTube ACDC Leadership]

- The Phillips Curve (Macro Review) Macro 3.4
[3:15 to end YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 

 


Unit 2: Introduction to Macroeconomics

Lesson 9a: Unemployment (UE)

9a Introduction

Most economists will say that the U.S. economy achieves full employment at an UE rate of about 5%. Five percent unemployment in the U.S. is about eight million people unemployed and THAT is called full employment. How can 8 million unemployed people be called "full employment"? How is the unemployment rate calculated? Who is employed? Who is unemployed? What is "full" employment? What is "unemployment"?

We will try to understand the answers to these questions by returning to the 5Es of economics from lesson 1b. We learned there that the 5 Es were five ways to reduce scarcity and achieve the maximum level of satisfaction for a society. In the U.S. we can produce the maximum amount of output when there is about 5% unemployment. Confusing? Yes. It should be - - - now, but after studing this lesson it will be much more clear.

9a Something Interesting - Why are we studying this?

205,000 jobs created in March, 2016, but the unemployment rate increases. WHY?.

"The American economy continues its march upward. The monthly jobs report released Friday by the Bureau of Labor Statistics showed that the economy created 215,000 jobs in March, slightly higher than the 205,000 expected. The unemployment rate ticked up to 5 percent from 4.9 percent. U.S. job growth has continued for a record 73 months in a row."

The Huffington Post 04/01/2016 09:58 am ET.

How can there be both more jobs and more unemployment ?

This news article linked below also says: "the increase in the unemployment rate is actually a good thing". How can that be?

Read the first five paragraphs of the article linked below to find out.

http://www.huffingtonpost.com/entry/march-jobs-report_us_56fe6c5de4b0a06d58056916

Most economists will say that when the U.S. economy achieves an UE rate of about 4 to 5%, then we have achieved full employment. Four to Five percent unemployment in the U.S. is about six and a half to eight million people unemployed and THAT is full employment. How can that be?

Who is counted when they calculate the unemployment rate? And who is not counted?

Watch the short YouTube video linked below.

The Unemployment Game Show: Are You *Really* Unemployed? from Mint.com 2:10

9a Assignments: Readings

Ch. 9, pp. 198-204, (19th, 173-179), "Unemployment"

Unemployment Rate in the United States

Lecture Outline

9a Assignments: Video Lectures

11.2.1
Measuring the Labor Force and Unemployment 5:48 [MyNotes]

The Unemployment Game Show: Are You *Really* Unemployed? from Mint.com 2:10

11.2.2 Types of Unemployment 4:18 [MyNotes]

11.3.1 Understanding the Natural Rate of Unemployment 4:05 [MyNotes]

9a Outcomes - What you should learn

TOPICS

OUTCOMES

9a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

unemployment rate, unemployed, employed, labor force, underemployed, discouraged worker, "natural rate of UE" or "full employment rate of UE", "real rate of UE", frictional UE, structural UE, cyclical UE, potential output, GDP gap, labor force participation rate

9a Key Formulas

Unemployment Rate = (# UE / # labor force) x 100

9a Key Graphs

Point D represents unemployment (or productive inefficiency)

AS/AD Graph representing an economy with unemployment

 

9a Review Videos

 -
Macro 2.3- Unemployment and Natural Rate of Unemployment- AP Macro
[1:54 YouTube ACDC Leadership]

- Unemployment Game Show - Are you Officially Unemployed?
[2:09 YouTube Mint.com]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 


Unit 2: Introduction to Macroeconomics

Lesson 9b: Inflation (IN)

9b Introduction

The THREE ISSUES of Macroeconomics are: UE, IN, and EG. In chapter 12 we learned a tool (the AS/AD model) that helped us understand what causes UE, IN, and EG. Chapter 9 discusses the issues of UE and IN in greater detail. And in chapters 7, 8 and 22W we study EG.

We have already learned two causes of inflation (lesson 12b), demand-pull and cost-push inflation, but we really did not define inflation. Inflation (IN) is the rate of increase in the price level, i.e. how fast it is increasing. Here we will learn how the price level is measured by using a price index, how inflation is calculated, and the economic effects of inflation.

9b Something Interesting - Why are we studying this?

Read "Fact 1 Adjusted for inflation, the federal minimum wage peaked in 1968" in the short 2017 news article below about the effects of inflation on the minimum wage.

http://www.pewresearch.org/fact-tank/2017/01/04/5-facts-about-the-minimum-wage/

After reading the article you should be wondering "What causes inflation and what can be done about it?". After studying this lesson you should have a better answer to that question.

OPTIONAL, but interesting:

9b Assignments: Readings

Ch. 9, pp. 204-213, (19th, 179-187), "Inflation", "Redistribution Effects of Inflation", Does inflatin Affect Output?"

Ch. 12, p. 277 (19th, 247) "disinflation" at the bottom of the first column

Ch. 7, pp. 163-164, (19th, 141-142), "GDP Price Index"

Ch. 14, pp. 319-320, (19th, 285-286), "Money and Prices", "Stabilizing Money's Purchasing Power"

Lecture Outline

9b Assignments: Video Lectures

11.5.1
Inflation, Deflation, Stagflation, and Hyperinflation 4:54 [MyNotes]

10.3.1 Changes in the Cost of Living and the CPI 4:47 [MyNotes]

10.3.2 Calculating the Rate of Inflation 7:33 [MyNotes]

10.3.3 Comparing the CPI and the GDP Deflator 6:02 [MyNotes]

11.5.2 Inflation and Purchasing Power 7:45 [MyNotes]

11.5.3 Short-Run Causes: Demand-Pull and Cost-Push Inflation 9:59 [MyNotes]

11.5.5 The Costs of Inflation 9:23 [MyNotes]

11.5.6 Case Study: Behavior during Hyperinflation 6:14 [MyNotes]

9b Outcomes - What you should learn

TOPICS

OUTCOMES

9b Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

inflation, inflation rate, deflation, disinflation, price index, CPI, purchasing power, rule of 70, cost-push inflation, demand-pull inflation, redistributive effects, output effects, hyperinflation, nominal income, real income, COLAs, menu costs

9b Key Formulas

To measure inflation, subtract last year's price index from this year's price index and divide by last year's index; then multiply by 100 to express as a percentage.

Inflation Rate = [ (Price Index this year - Price Index last year) / Price Index last year ] x 100
IN rate 2015 = [ (PI 2015 - PI 2014) / PI 2014 ] x 100

9b Key Graphs

Demand-Pull Inflation

Cost-Push Inflation

9b Review Quiz Lessons 9a and 9b - UE and IN

9b Review Videos

-
Inflation- Cost-push & Demand-pull- Macro 3.6
[5:35 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 2: Introduction to Macroeconomics

Lesson 7a: Measuring the Economy - GDP

7a Introduction

Now we begin a three chapter (7, 8, and 22W)
discussion of economic growth (EG).

Defining EG can be a little complicated and we will study that in the next chapter, but EG usually means "an increase in real domestic output (RDO)". In chapter 7 we learn how real domestic output (RDO) is measured.

We have been using the AS/AD model for several lessons now but we do not know what numbers actually go on the axes of the graph. What numbers do we use to measure RDO on the horizontal axis of the AS/AD graph.? Well, we use real GDP to measure RDO and here we learn how it is calculated. In lesson 9b we learned how a price index (CPI or GDP Index) measures the price level. We use price index numbers on the vertical axis of the AS/AD graph.

7a Something Interesting - Why are we studying this?

Watch this short four minute video from MRuniversity.com

Basic Facts of Wealth

Interesting video but there is a MAJOR ERROR. It should be called "Basic Facts of INCOME", not WEALTH. The video discusses differences in annual income measured by GDP per capita. Income is not the same as wealth. Income measures how much is produced, or earned, over a period of time, usually one year. That is what the video is talking about. Wealth measures the net worth of a person, the total value of assets minus liabilities (what is owned minus what is owed). The video demonstrates that income is very unequally distributed, but the distribution of wealth is much more unequal.

But how is GDP (or income) measured? Study this lesson to find out.

7a Assignments: Readings

Ch. 7 - ALL 

Lecture Outline

7a Assignments: Video Lectures

AGGREGATE OUTPUT AND INCOME

10.1.1 The Production Possibilities Frontier: Macroeconomic Applications 18:18 [MyNotes]

REVIEW (2a): 10.1.2 The Circular Flow Model 9:38 [MyNotes]

10.1.3 Real GDP 12:01 [MyNotes]

10.1.4 The BEA Procedure for Calculating Real GDP 8:15 [MyNotes]

10.1.5 Limitations of GDP and Alternative Indexes 4:51 [MyNotes]

APPROACHES TO CALCULATING GDP

10.2.1 The Expenditures Approach 4:54 [MyNotes]

10.2.2 The Income Approach 7:02 [MyNotes]

EconMovies- Episode 6: Back to the Future (Nominal vs. Real, Unemployment, Inflation) (6:29)

7a Outcomes - What you should learn

TOPICS

OUTCOMES

7a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

Gross Domestic Product (GDP), intermediate goods, final goods, double counting (multiple counting), non-market transactions, underground economy, GDP per capita, expenditures approach, income approach, national income (NI), proprietor's income, personal income (PI), disposable income (DI), nominal GDP, real GDP, gross private domestic investment, net private domestic investment, net domestic product (NDP), net exports

7a Key Formulas

GDP = C + Ig + G + Xn

NI = wages + rents + interest + corporate profits + proprietor's income

NDP = C + In + G + Xn

NDP = GDP - depreciation

In = Ig - depreciation

Xn = X - M

real GDP = (nominal GDP / price index) x 100

7a Key Graphs

Circular Flow Model

7a Review Quiz

7a Review Videos

-
Macro Unit 2.1- GDP and Economic Growth
[3:37 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


 

Unit 2: Introduction to Macroeconomics

Lesson 8a: Economic Growth (EG)

8a Introduction

In chapter 8 the textbook says that there are TWO DEFINITIONS of EG, but in chapter 1 (Lessons 1b and 1c) we learned another definition. So actually there are THREE DEFINITIONS of EG.

I believe the best way of understanding the difference between them is to discuss whether the growth is ACHIEVING THE POTENTIAL of the economy or INCREASING THE POTENTIAL of the economy. Both of these increase RDO (real domestic output) and it is an increase in RDO that is the COMMON DEFINITION of EG. But this everyday definition of economic growth, the one you hear on the news broadcasts, doesn't tell us if the economy is achieving its potential by producing more OR whether the economy is has increased it potential and therefore is ABLE to produce more.

Why is this distinction important? Why do we care? Well, there are different CAUSES and POLICIES for each approach to growth and both approaches increase output and therefore reduce scarcity and increase society's satisfaction. As we should remember from lesson 1b, reducing scarcity and increasing society's satisfaction is the goal of economics.

8a Something Interesting - Why are we studying this?

The economic growth that we are used to, 1%, 2,% 3%, 4%, maybe even, 7%, 8% or even 9% a year, is a recent phenomonon in the history of the world. Prior to the beginning of the 17th century, (around 1800) all parts of the world had similar living standards and these living standards had not changed much for thousands of years. See graph below.

Now we expect long term economic growth and living standards in different parts of the world to vary significantly.

Why? We will study this and other econmic growth issues in this lesson.

8a Assignments: Readings

Ch. 8 - ALL

Ch. 1, pp. 16-20, (19th, 15-18), "A Growing Economy" and "Present Choices and Future Possibilities"

Lecture Outline

8a Assignments: Video Lectures

16.1.2
The PPF, the AD/AS Model, and Long-Run Growth 7:44 [MyNotes]

16.1.3 The Production Function and Growth 6:49 [MyNotes]

16.1.4 The Definition of Productivity and Factors Affecting It 3:54 [MyNotes]

8a Outcomes - What you should learn

TOPICS

OUTCOMES

8a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

economic growth, increasing the potential, achieving the potential, GDP per capita, rule of 70, productivity, production, productive efficiency, modern economic growth, the great divergence, leader countries, follower countries, property rights, patents and copyrights, simultaneous consumption, network effects, labor force participation, infrastructure, human capital, economies of scale

8a Key Formulas

GDP per capita = GDP / population

8a Key Graphs

Modern Economic Growth

Economic Growth and the 5Es:

Economic Growth is "Increasing the Potential"
Prod. Eff. and Full Emp[loyment is "Achieving the Potential.

 

EG - INCREASING THE POTENTIAL

 

EG - ACHIEVING THE POTENTIAL

 

EG - ACHIEVING THE POTENTIAL

 

EG - INCREASING THE POTENTIAL

EG - INCREASING THE POTENTIAL

8a Review Quiz

8a Review Videos

-
Economic Growth and LRAS- Macro 3.14
[2:58 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 2: Introduction to Macroeconomics

Lesson 22Wa: Economic Growth in the Less Developed Countries (LDCs)

22Wa Introduction

From the United Nations:

- 925 million people do not have enough to eat - more than the combined populations of the USA, Canada, and the European Union; (Source: FAO news release, 14 September 2010)

- Nearly half the world’s population, 2.8 billion people, survive on less than $2 a day.

- About 20 percent of the world’s population, 1.2 billion people, live on less than $1 a day.

- Nearly 1 billion people are illiterate and 1 billion do not have safe water.

- 98 percent of the world's hungry live in developing countries; (Source: FAO news release, 2010)

Source:
http://www.un.org/en/globalissues/briefingpapers/food/vitalstats.shtml

I believe that no discussion of EG is complete without a discussion of the world's poor where EG means more than getting a new car or another vacation -- it is a matter of life and death.

A discussion of the world's less developed countries also allows us to return to the subject of STRUCTURAL ADJUSTMENT (globalization) that we studied in unit 1. This would be a good time to review your notes from lesson 2a. Because of the economic growth that has resulted from Structural Adjustment in the past few decades, millions of people in the less developed countries have been lifted out of poverty.

The figure below shows the great decline in the number of people living on $1.25 a day or less since 1990.

22Wa Something Interesting - Why are we studying this?

Jan. 2014: "The 85 richest people on Earth now have the same amount of wealth as the bottom half of the global population, according to a report released Monday by the British humanitarian group Oxfam International."

From: Oxfam report highlights widening income gap between rich, poor

Jan. 2018: "Inequality gap widens as 42 people hold same wealth as 3.7bn poorest "

From: https://www.theguardian.com/inequality/2018/jan/22/inequality-gap-widens-as-42-people-hold-same-wealth-as-37bn-poorest

42 people's wealth = 3,700,000,000 people's wealth.

And, the gap between the rich and the poor is widening.

Think about it. In this lesson we will begin to understand why.

22Wa Assignments: Readings

Ch. 22W - ALL - found online at: Chapter 22W

Also read: Measures of EconomicDevelopment

Study these maps before class

Oxfam report highlights widening income gap between rich, poor

Lecture Outline

22Wa Assignments: Video Lectures

16.3.1
Growth in Emerging Economies 10:23 [MyNotes]

10.1.6 The Growth of China as a Superpower 2:14 [MyNotes]

16.3.2 Policies to Promote Growth 7:50 [MyNotes]

16.2.2 Other Policies to Encourage Growth 10:40 [MyNotes]

16.3.3 Hot Topic: The Myth of Exploding Populations 8:00 [MyNotes]

16.2.3 Hot Topic: Women's Roles in Rural Economic Growth 4:59 [MyNotes]

22Wa Outcomes - What you should learn

TOPICS

OUTCOMES

22Wa Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

LDCs (DVCs), MDCs (IACs), global south, primary activities, secondary activities, tertiary activities, vicious circle of poverty, brain drain, land reform, microfinance and Grameen Bank, World Bank, foreign direct investment, GDP per capita, capital flight, supply chain, Malthus, green revolution, financial intermediary

22Wa Key Graphs / Figures

Income per capita: Low, Middle, and High Income Countries

 

The True Size of the Continents (yellow) and the Size Seen on Many Maps (black outline)

22Wa Review Quiz

22Wa Review Videos

-
Economic Growth in the Less Developed Countries
[9:45 YouTube Brad Cartwright Economics]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 



Unit 3: Macroeconomic Policy

Lesson 14a: Monetary Policy - Money, The Money Market Model, and the Fed

14a Introduction

We now begin unit 3 where we focus on macroeconomic POLICY. When we say "policy" we mean "government". What can the government do to achieve the three macroeconomic goals of low UE, low IN, and rapid EG? In lesson 12c we introduced stabilization policies: monetary policy and fiscal policy. (This would be a good time to review your notes on lesson 12c.) Here, we will dig deeper, beginning with Monetary Policy (MP).

In lesson 12c we learned that if UE is high we can increase the money supply (MS) which will cause interest rates to go down. We called this an "Easy Money Policy". Lower interest rates will increase investment (I) and therefore increase aggregate demand (AD). When AD increases it will increase real domestic output (RDO or real GDP) and decrease UE. But, it may increase the price level (PL) and therefore increase inflation.

 

We begin monetary policy in lesson 14a by defining money (what is money?) and the money supply (MS). Then we will develop the model (graphs) of the money market that we will use in the next three chapters to show how monetary policy works. We finish the lesson with a discussion of the structure of the Federal Reserve (the Fed). As we know from lesson 12a the Fed controls the money supply (MS). Here we learn that "the Fed" is NOT the federal government in Washington DC.

The policy making arm of the Fed is basically the Federal Open Market Committee (FOMC) comprised of 12 people and these 12 people have the power to raise interest rates and put millions of people of work as they did in the early 1980s. Or, the FOMC can lower interest rates causing millions of people to earn less on their financial investments. The chairperson of the Fed (Jerome Powell in 2018) has been called "the second most powerful person in the United States". In this unit we will learn why.

14a Something Interesting - Why are we studying this?

Listen or read the link below.
Planet Money
Episode 421: The Birth Of The Dollar Bill (10:37).

Before the Civil War, there were 8,000 different kinds of money in the United States.

Banks printed their own paper money. And, unlike today, a $1 bill wasn't always worth $1. Sometimes people took the bills at face value. Sometimes they accepted them at a discount (a $1 bill might only be worth 90 cents, say). Sometimes people rejected certain bills altogether.

Pictures of early money:

Pre-Civil War Bank Note

Lincoln Greenback

So, WHAT IS MONEY? Study this lesson for the answer.

14a Assignments: Readings

Ch. 14, ALL

Ch. 10, pp. 226-231, "The Interest Rate-Investment Relationship" (19th, 199-204)

Ch. 16, pp. 351-354, "Interest Rates", (19th, 315-317)

Ch. 16, pp. 365-367, "Cause-Effect Chain" (19th, 329-330)

Planet Money Episode 421: The Birth Of The Dollar Bill (10:37). Audio only. Interesting radio story on early money in the US.

Pictures of early money:

- Pre-Civil War Bank Note

- Lincoln Greenback

Lecture Outline

14a Assignments: Video Lectures

13.1.1
The Money Supply 8:10 [MyNotes]

13.4.2 Case Study: Cigarettes As Money 6:07 [MyNotes]

13.1.2 Determinants of Money Demand 9:00 [MyNotes]

13.1.3 The Money Market 10:02 [MyNotes]

Money Market - Macro Review 3:24 [YouTube ACDCLeadership]

13.3.1 The Federal Reserve System 8:13 [MyNotes]

14a Outcomes - What you should learn

TOPICS

OUTCOMES

14a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

barter, coincidence of wants, money, medium of exchange, unit of account, store of value, commodity money, near money, liquidity, M1, M2, money supply (MS), federal reserve notes, checkable deposits, money demand (total money demand), transactions demand, asset demand, money market model, Federal Reserve System, Board of Governors, FOMC

14a Key Graphs

Money Demand
- D1 is Transactions Demand
- D2 is Asset Demand

 Money Market

Increase in the Money Supply

Decrease in the Money Supply

14a Review Quiz

14a Review Videos

-
Macro 4.2- Functions of Money
[2:01 YouTube ACDC Leadership]

- The Money Market- Macroeconomics 4.6
[3:24 YouTube ACDC Leadership]

- Macro 4.5- The Federal Reserve System- Quick Overview
[1:59 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 3: Macroeconomic Policy

Lesson 15a: Monetary Policy - How Banks Create Money

15a Introduction

Most students are very surprised when they learn that when banks make loans they create money. Yes, banks create money whenever they make a loan. If I get a loan from a bank to buy a new boat, the money I get has been CREATED by the bank. The US government does not create money. The Federal Reserve does not create money. BANKS CREATE MONEY. BUT, the Fed can control how much money banks can create. We will learn how the Fed does this in the next lesson (16a). Here we learn HOW BANKS CREATE MONEY.

15a Something Interesting - Why are we studying this?

Watch this short clip from the Christmas movie It's a Wonderful Life:
It's a Wonderful Life Bank Run

Then read the first two short sections on the webpage linked below: "Definition of a Bank Run" and "How Banks Work: Demand Deposits" (only 8 short paragraphs). You may have to tap "Show Full Article" to see "How Banks Work: Demand Deposits"
What is a Bank Run?

After studying this lesson you should understand how bank runs may occur.

15a Assignments: Readings

Ch. 15, ALL 

Lecture Outline

15a Assignments: Video Lectures

13.4.1
How Goldsmiths Created Money 7:40 [MyNotes]

How banks create money and the money multiplier 4:12 [YouTube ACDCLeadership]

13.4.3 How Banks Create Money 12:09 [MyNotes]

15a Outcomes - What you should learn

TOPICS

OUTCOMES

15a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

fractional reserve banking system, goldsmith banking, balance sheet (T-account), assets, liabilities, assets of a commercial bank, liabilities of a commercial bank, reserves (total reserves or actual reserves), reserve ratio, required reserves, excess reserves (lendable reserves), demand deposit, check clearing, money multiplier (deposit expansion multiplier, monetary multiplier), government securities or bonds, net worth (owner's equity), run on a bank (bank run)

15a Key Problems

Money Creation - Single Bank and Banking System

ASSETS LIABILITIES + NET WORTH

Reserves $ 200 Checkable Deposits $ 600
Loans 100 Stock Shares 700
Securities 500
Property 500

Refer to the above information for a single bank. The required (legal) reserve ratio is 25%. This bank can safely expand its loans by a maximum of:

1. $0
2. $50
3. $100
4. $200

Refer to the above information. The required (legal) reserve ratio is 25%. If the original bank balance sheet was for the commercial banking system, rather than a single bank, loans and deposits could have been expanded by a maximum of:

1. $0
2. $50
3. $100
4. $200

What is your answer to the question above if the Fed lowered the Required Reserve ratio to 20%?

1. $200
2. $250
3. $400
4. $600

 

15a Key Formulas

Money Creation Problem - Single Bank and Banking System

Total Change in Money Supply = Initial excess reserves x Money Multiplier

Total Reserves = Cash in vault + Deposits at Fed

Required Reserves = Reserve Requirement x Liabilities

Excess Reserves = Total Reserves - Required Reserves

Money Multiplier = 1 / Reserve Requirement

15a Key Graphs / Figures

Balance Sheet of Banks

15a Review Quiz

15a Review Videos

-
How Banks Create Money and the Money Multiplier- Macro 4.8
[4:11 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 3: Macroeconomic Policy

Lesson 16a: Monetary Policy

16a Introduction

Get this right: THE FED DOES NOT SET INTEREST RATES. I know you will read in the news that the "Fed has increased interest rates". But the Fed does NOT change interest rates. Banks set their own interest rates, BUT the Fed can cause banks to raise or lower their rates.

Also, the Fed does not change the money supply (MS). As we learned in the previous lesson (15a) banks create money and therefore banks change the money supply, NOT THE FED. But you may ask, didn't we say in lesson 12c that the Fed changes the MS? Yes we did, but we didn't say how they do it. We will do that here.

We will learn that the Fed has three tools to control the MS: open market operations (OMO), the discount rate (DR), and the required reserve ratio (RR). The Fed uses these three tools to change the excess reserves (ER) of banks. And, as we learned in the previous lesson (15a) if banks have more ER they can make more loans and increase the money supply (MS) and if banks have fewer ER they make less loans and decrease the MS.

Finally, as we learned in lesson 12c, when the MS changes this causes interest rates to change. When interest rates change then this causes Investment (I) to change (and also consumption [C]). When Investment (I) changes it causes aggregate demand (AD) to change. When AD changes it causes a change in the price level (PL) and real domestic output (RDO). When the PL changes it causes a change in inflation (IN) and when RDO changes it causes a change in unemployment (UE) and economic growth (EG).

To understand how monetary policy (MP) works you need to get the CAUSE and EFFECT order correct. What CAUSES what? The "" symbol below means CAUSES. Notice that is an arrow pointing only in one direction meaning that what comes before CAUSES what comes after. For example: not studying lower grades.

Memorize the following. Practice writing it until you get it correct.

16a Something Interesting - Why are we studying this?

Listen to the first minute and ten seconds of the podcast below. (The first two minutes are NOT about basketball in Cuba.) Click on "Listen to this story".

PODCAST: Basketball heads to Cuba

After studying this lesson you should be able to use a series of three graphs GRAPHS to explain this podcast. You should be able to explain what is happening in China and how they hope it will affect unemployment, inflation, and economic growth.

16a Assignments: Readings

Ch. 10, pp. 226-231, "The Interest Rate-Investment Relationship" (19th, 199-204)

Ch.16 pp. 355-375, "The Consolidated Balance Sheet of the Federal Reserve Banks", "Tools of Monetary Policy", "Targeting the Federal Funds Rate", "Monetary Policy, Real GDP, and the Price Level", "Monetary Policy: Evaluation and Issues", "The Big Picture"
(19th, 317-336)

Lecture Outline 

16a Assignments: Video Lectures

13.3.3
The Fed's Tools of Monetary Policy 9:46 [MyNotes]

13.4.4 How the Fed Changes the Money Supply 10:06   [MyNotes]

AC Macro 4.1- Money Market and FED Tools (Monetary Policy) 5:20 [YouTube ACDCLeadership] [MyNotes]

AC Macro 4.9- Monetary Policy Practice 3:21 (recessionary gap) [YouTube ACDCLeadership]

AC Macro 4.10- Graphing Monetary Policy Practice (AP Macroeconomics) 2:44 (inflationary gap) [YouTube ACDCLeadership]

15.4.3 Monetary Responses to Changes in the Economy 12:20 [MyNotes]

OPTIONAL 13.3.4 Case Study: The Greenspan Era 3:16 [MyNotes]

16a Outcomes - What you should learn

TOPICS

OUTCOMES

16a Tools of Monetary Policy

Open Market Operations (OMO)

Buy securities ER MS Interest Rates I AD EG, UE, IN
Sell securities ER MS Interest Rates I AD EG, UE, IN

Required Reserve Ratio (RR)

RR ER MS Interest Rates I AD EG, UE, IN
RR ER MS Interest Rates I AD EG, UE, IN

Discount Rate (DR)

DR ER MS Interest Rates I AD EG, UE, IN
DR ER MS Interest Rates I AD EG, UE, IN

16a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

expected rate of return, investment demand, assets of the Federal Reserve banks, liabilities of the Federal Reserve banks, Federal Reserve notes, Open Market Operations (OMO), Discount Rate (DR), Required Reserve Ratio (RR), Federal funds rate (Fed funds)

16a Key Problems

Article 1 - Fed Lowers Interest Rates

Article 2 - Interest rates are going up again as the economy gets hotter

Error: Around the 11 minute 19 sec point in the video I accidently said something like "the equilibrium level of RDO is below the full employment level of RDO". I should have said "the equilibrium level of RDO is beyond the full employment level of RDO".

 

Read the two short news articles below.

Analyze the monetary policy being discussed in each.

 

Article 1 - Fed Lowers Interest Rates

https://abcnews.go.com/Business/story?id=88461&page=1

By ABC News (March 20, 2001)

Moving to keep an increasingly weak U.S. economic expansion from petering out, the Federal Reserve today slashed short-term interest rates by a half-point for the third time this year.

With today's paring (reduction) of the federal funds rate by 50 basis points, to 5 percent, the Fed has now initiated the fastest series of interest rate cuts during Alan Greenspan's 14-year reign as the central bank's chairman.

 

Article 2 - Interest rates are going up again as the economy gets hotter. (June 13, 2018)

https://money.cnn.com/2018/06/13/news/economy/federal-reserve-june-rate-hike/index.html

The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year.
. . . .

The decision reflected an economy that's getting even stronger. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher. The Fed is raising rates gradually to keep the economy from overheating.
. . . .

The Fed lifted the federal funds rate . . . .

 

16a Key Graphs

 

 

 

16a Review Quiz

16a Review Videos

-
Money Supply Shifters- Macroeconomics 4.7
[2:44 YouTube ACDC Leadership]

- Macro 4.9- Monetary Policy Practice (Reduce UE)
[3:20 YouTube ACDC Leadership]

- Macro 4.10- Graphing Monetary Policy Practice (AP Macroeconomics) (Reduce IN)
[2:44 YouTube ACDC Leadership]

- Macro 4.11- Money Multiplier & Reserve Requirement (AP Macro)
[2:43 YouTube ACDC Leadership]

- Macro 4.12- Money Multiplier Practice (AP Macro)
[3:02 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 3: Macroeconomic Policy

Lesson 16b: Monetary Policy - Other Monetary Policy Issues

16b Introduction

Now that we know how monetary policy (MP) works we will examine other issues associated with it.

Economists disagree over the effectiveness and efficacy of monetary policy. Mainstream (New Keynesian) economists believe monetary policy is not very effective but it should be used to accommodate fiscal policy. Monetarists (New Classical) economists believe monetary policy is very effective but should not be used with discretion.

Read those two sentences again.

Mainstream/New Keynesian economists believe MP IS NOT EFFECTIVE BUT IT SHOULD BE USED.

Monetarist/New Classical economists believe MP IS VERY EFFECTIVE BUT DON'T USE IT.

Isn't economics fun?

16b Something Interesting - Why are we studying this?

From our textbook, p. 361:

"During the early years of the Great Depression, many economists suggested that the economy would correct itself in the long run without government intervention. To this line of thinking, economist John Maynard Keynes remarked, “In the long run we are all dead!”"

In this lesson we discuss why economists thought that the economy would achieve full employment in the long run and what Keynes meant when he said "In the long run we are all dead".

16b Assignments: Readings

Ch. 13, pp. 298-299, "Problems of Timing" (19th, 267)

Ch. 16, pp. 369-375, "Monetary Policy: Evaluation and Issues", (19th 332-337)

Ch. 19, pp. 424-427, "What Causes Macro Instability", (19th, 381-384)

Ch. 19, pp. 429-437, "Does the Economy 'Self-Correct'?", "Rules or Discretion?", "Summary of Alternativ e Views", (19th, 386-394)

Lecture Outline

16b Assignments: Video Lectures

OPTIONAL 11.1.2
Theoretical Explanations for Cycles 10:09 [MyNotes]

11.5.4 The Quantity Theory of Money 11:58 [MyNotes]

15.5.1 New Keynesians versus Monetarists 11:23 [MyNotes]

15.5.2 New Classical Macroeconomics 8:31 [MyNotes]

15.5.3 Case Study: Policy in the Great Depression 8:22 [MyNotes]

15.4.5 Hot Topic: Should Monetary Policy Be Made by Rule or Discretion? 5:03 [MyNotes]

MJM 25 Macroeconomic Viewpoints 7:06 [YouTube mjmfoodie] [MyNotes]
Does the economy self-adjust? If so, what is the role for the government if the economy is not where we'd like it to be? This video takes a brief look at two different schools of economic thought.

16b Outcomes - What you should learn

TOPICS

OUTCOMES

16b Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

recognition lag, administrative lag, operational lag, cyclical asymmetry, liquidity trap, equation of exchange, velocity of money, new classical economics (monetarism), mainstream economics (Keynesian ), efficiency wage, monetary rule, inflation targeting

16b Key Formulas

MV = PQ

M = money supply
V = velocity of money
P = price level
Q = real GDP
PQ = nominal GDP

16b Key Graphs

Long Run Adjustment to a Decrease in AD
(from a to b to c)

Long Run Adjustment to an Increase in AD
(first from a to b, then from b to c)

16b Review Videos

Macro 3.8- Classical vs. Keynesian Aggregate Supply- Macroeconomics
[4:29 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 3: Macroeconomic Policy

Lesson 10a: Fiscal Policy - The Spending Multiplier

10a Introduction

The final two chapters look at fiscal policy (FP). We studied fiscal policy in lesson 12c. There we learned that if we have high unemployment (UE) the government can increase government spending (G) or cut taxes (T) to reduce it. If there is high inflation (IN) then the federal government can decrease spending or increase taxes to reduce it.

"HOW MUCH". That is how chapter 10 differs from chapter 12. In chapter 12 we learned that if government spending (G) increases it will cause an increase in AD which will cause an increase in output (RDO) and help reduce UE. But, HOW MUCH will output increase? In chapter 12 we learned that if taxes increase it will cause a decrease in AD which will cause a decrease in output (RDO) and reduce IN. But, HOW MUCH will output decrease?

We will learn that if government spending increases by let's say $10 billion, then real GDP (RDO) will increase by MUCH MORE than $10. This is called the "multiplier effect". Sounds like magic, but you will soon understand why.

10a Something Interesting - Why are we studying this?

We know that GDP = C + Ig + G + Xn.

Assume GDP is currently $400 billion:
GDP = C + Ig + G + Xn. = $400

If when the economy is at full employment GDP equals $500 billion, then what increase in investment spending (Ig) is needed to achieve full employment?

ANSWER: Much less than $100.

In this lesson you will learn how an increase in spending (like an increase in investment) is MULTIPLIED as it works its way through the economy.

The muliplier can work in reverse as well. A small decrease in spending will cause a big decrease in GDP.

Read: The Multiplier Effect (in reverse)

10a Assignments: Readings

Ch. 10, pp. 219-225, "The Income-Consumption and Income-Saving Relationships", "The Nonincome Determinants of Consumption and Saving", (19th, 191-198)

Ch. 10, pp. 232-235, "The Multiplier Effect", (19th, 204-208)

Ch. 12, pp. 274-281"Equilibrium in the AD-AS Model", "Changes in Equilibrium" (19th, 244-248)

The Spending Multiplier in Reverse

Lecture Outline

10a Assignments: Video Lectures

Good Review: 15.1.1
Unanticipated Changes in Aggregate Demand 12:04 [MyNotes]

Good Review: 15.1.2 Unanticipated Changes in Aggregate Supply 15:43 [MyNotes]

EC Fiscal Policy – the Government Spending Multiplier 20:07 [MyNotes]

AC Macro 3.9- Multiplier Effect, MPC, and MPS 2:17 [MyNotes]

AC Macro 3.10- Calculating the Multiplier 1:50 [MyNotes]

AC Macro 3.11 Multiplier and Spending Practice 2:02 [MyNotes IMPORTANT!!!]

10a Outcomes - What you should learn

TOPICS

OUTCOMES

10a Key Terms

Key Terms Flash Cards - Click Here

Key Terms:

multiplier effect, consumption schedule, saving schedule, Average Propensity to Consume (APC), Average Propensity to Save (APS), Marginal Propensity to Consume (MPC), Marginal Propensity to Save (MPS), leakages from the income = expenditures stream, injections into the income = expenditures stream, simple multiplier, complex (actual) multiplier, multiplier with changes in the price level (inflation)

10a Key Problems

The Simple Multiplier (table)

The Simple Multiplier (graph)

The Simply Multiplier (table)

 

1. Refer to the data above. The marginal propensity to consume (MPC) is:

1. 0.20
2. 0.25
3. 0.70
4. 0.80

2. Refer to the data above. If GDP was $350 we would expect consumption to be:

1. $350
2. $325
3. $305
4. $290

3. Refer to the data above. What is the spending multiplier (simple multiplier)?

1. 1
2. 2
3. 3
4. 4
5. 5

4. Refer to the data above. Assume the equilibrium GDP is $250. If $10 in investment is added to this economy, what would the new equilibrium GDP be?

1. $250
2. $260
3. $275
4. $300
5. $325

The Simply Multiplier (graph)

What increase in Investment will cause GDP to increase by $75 and achieve full employment?

10a Key Formulas

("Y" means "income" or real GDP)

APC = C / Y

MPC = C / Y

APS = S / Y

MPS = S / Y

APC + APS = 1

MPC + MPS = 1

GDP = Initial Spending x Multiplier

Simple Multiplier = 1 / MPS

10a Key Graphs

The Consumption Function

The Saving Function

The Multiplier Effect

10a Review Videos

-
Macro 3.9- Multiplier Effect, MPC, and MPS (AP Macroeconomics)
[2:16 YouTube ACDC Leadership]

- The Multiplier Effect- Macro 3.9B (Technical Tuesday)
[5:34 YouTube ACDC Leadership]

- Macro 3.10- Calculating the Spending Multiplier
[1:49 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 3: Macroeconomic Policy

Lesson 13a: Fiscal Policy

13a Introduction

In lesson 10a we just learned that a small change in spending is multiplied as it works its way through the economy and results in a larger change in total spending. Here we will focus on FISCAL POLICY (FP). What can the federal government do if there is high unemployment or high inflation, and HOW MUCH should they do? (When we say "federal government" we mean the president and congress NOT the Federal Reserve.)

We know that if there is high unemployment (UE) the government can increase spending or cut taxes. Here we study HOW MUCH? We know that if there is high inflation (IN) the government can decrease spending or raise taxes, but HOW MUCH?

So how effective is FP? What is the size of the multiplier? If the multiplier is large then a small change in government spending (G) and taxes (T) will have a big effect on RDO and therefore on UE and IN. If the multiplier is small than a large change in G and T will have a small effect on RDO and therefore on UE and IN.

The size of the multiplier (the effectiveness of FP) depends on many different things. We will study eight different multipliers, 8 different things that affect the size of the multiplier and therefore affect the effectiveness of FP. See the list in the Yellow Pages.

13a Something Interesting - Why are we studying this?

If we increase government spending by $500 million (increases AD) AND if we increase taxes by $500 million (decreases AD) to pay for the additional spending, what will happen to real GDP (AD)?

Answer: AD will increase by $100.

See the "balanced-budget multiplier" in this lesson.

13a Assignments: Readings

Ch. 13 pp. 288- 301, "Fiscal Policy and the AD-AS Model", "Built-In Stability", "Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined", "Recent and Projected U.S. Fiscal Policy", Problems, Criticisms, and Complications of Implementing Fiscal Policy"
(19th, 257-269)

Ch. 18 pp. 416-420, "Taxation and Aggregate Supply", (19th. 374-378)

MULTIPLIERS

Lecture Outline

13a Assignments: Video Lectures

FISCAL POLICY: THE MAINSTREAM

15.2.1 Fiscal Policy Using the AD/AS Model 5:24 [MyNotes]

Fiscal Policy – the Tax Multiplier 13:35 [MyNotes]

Macro 3.12 Multiplier and Taxes Practice 3:20 [MyNotes]

Fiscal Policy – the Crowding-out Effect 14:05 [MyNotes]

15.2.3 Timing Problems and the AD/AS Model 6:58

OPTIONAL Automatic Stabilzers in Fiscal Policy 10:52

15.2.4 Automatic Stabilizers 8:40

15.4.4 Monetary Policy: Accommodation 9:40 [MyNotes]

FISCAL POLICY OTHER

15.2.5 Hot Topic: The Political Business Cycle 3:35 [MyNotes]

15.3.2 Supply-Side Policy 5:26 [MyNotes]

13a Outcomes - What you should learn

TOPICS

OUTCOMES

13a Fiscal Policy Multipliers

Simple Multiplier = 1/MPS = 1/(1-MPC)

Complex Multiplier = 1 / (MPS + MPT + MPM); smaller than the sumple multiplier because there are more leakages

Multiplier with Changes in the Price Level (with Inflation); smaller than the simple multiplier because AS is upward sloping

Gov't Spending Multiplier = 1 / MPS = 1 / (1 - MPC); we will use the simple multiplier

Lump Sum Tax Multiplier = - MPC / MPS; always one less than the simple multiplier and negative

Balanced Budget Multiplier = 1; change G and T by the same amount in the same direction; always equals 1

Multiplier with Crowding Out: smaller than the simple multiplier

Multiplier with Supply-Side Effects: larger than the simple multiplier

13a Key Terms


Key Terms Flash Cards - Click Here

Key Terms:

fiscal policy (FP), discretionary fiscal policy, expansionary FP, contractionary FP, government spending multiplier, lump-sum tax multiplier, "balanced budget" multiplier, built-in stabilizers, tax progressivity, cyclically-adjusted (full employment or standardized) budget, cyclical deficit, crowding-out effect, multiplier with crowding out, monetary policy accommodation, supply-side FP, recognition lag, administrative lag, operational lag, political business cycle, pro-cyclical policy, counter-cyclical policy, Laffer curve

13a Key Problems


Fiscal Policy and the Multipliers: (change in G, T, BB, with inflation)

1. Use the figure above to answer this question. What increase in government purchases (G) is needed to achieve full employment (increase real GDP from 275 to 350)?

1. 10
2. 20
3. 30
4. 50
5. 75

2. Use the figure above to answer this question. What decrease in taxes (T) is needed to achieve full employment (increase real GDP from 275 to 350)?

1. 10
2. 20
3. 30
4. 50
5. 75

3. Use the figure above to answer this question. If we do not want to increase the budget deficit, what increase in government purchases AND increase in taxes (BB) would be needed to achieve full employment (increase real GDP from 275 to 350) ? Increase BOTH G and T by:

1. 10
2. 20
3. 30
4. 50
5. 75

4. The AD-AS graph shows that as AD increases there is no increase in the price level (no inflation). If there was inflation, then what increase in government spending would be needed to achieve full employment (increase GDP by $75)?

1. less than $30
2. $30
3. more than $30
4. we cannot tell

13a Key Formulas


GDP = Initial Spending x Multiplier

Simple Multiplier = 1 / MPS

tax multiplier = simple multiplier - 1

tax multiplier = MPC / MPS

13a Key Graphs


Multiplier Effect

Laffer Curve

 

13a Review Quiz (Lessons 10a and 13a)

13a Review Videos

 
-
Keynesian Economics with Jacob Clifford
[5:15 YouTube ACDC Leadership]

- Macro 3.7- Fiscal Policy: Non-discretionary vs Discretionary "AP Macro"
[2:14 YouTube ACDC Leadership]

- Macro 4.14- Loanable Funds & Crowding Out
[3:07 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.

 

 


Unit 3: Macroeconomic Policy

Lesson 13b: Fiscal Policy - Other Fiscal Policy Issues and Government Debt

13b Introduction

 
We still have a few things to discuss regarding Fiscal Policy (FP):

- Policy in the Great Depression

- New Keynesian and New Classical FP (Does FP work?)

- Government Budget Deficits and Trade

- The Federal Deficits and Debt

13b Something Interesting - Why are we studying this?


See:
http://www.usdebtclock.org/

Should the federal government be forced to balance its budget to help reduce the growing $18 trillion debt?

Dangers of a Balanced Budget Amendment

"A balanced budget amendment . . . is a terrible idea. Although it sounds good in theory, requiring Congress to balance the budget each year would eliminate one of the most effective means we have of ensuring that the economy works as effectively as possible and thereby it would lower growth, increase unemployment, and cause greater levels of poverty and inequality."

13b Assignments: Readings


Ch. 11, pp. 257, "Say's Law, the Great Depression, and Keynes" (19th, 228)

Ch. 13, pp. 301-307, "The U.S. Public Debt", (19th, 269- 275)

Read again:

Ch. 12, p. 278, "Efficiency Wage", (19th, 247-248)

Ch. 19, pp. 424-427, "What Causes Macro instaqbilitiy?" (19th, 381-384)

Ch. 19, pp. 429-437, "Does the Economy 'Self-Correct'?", "rules or Discretion", (19th, 386-392)

Ch. 20, pp. 459-460, "Increased Domestic Employment Argument, The Smoot-Hawley Tariff Act", (19th, 415)

 Lecture Outline

13b Assignments: Video Lectures


Other FP Issues

Review 15.5.3 Case Study: Policy in the Great Depression 8:22 [MyNotes]

15.3.1 New Keynesian and New Classical Approaches to Fiscal Policy 11:03 [MyNotes]

17.4.1 Government Budget Deficits and Trade 5:11 [MyNotes]

The Deficits and Public Debt

14.3.6 Case Study: The U.S. National Debt 8:00 [MyNotes]

DEBATE

- The Debt and the Deficits are Not So Bad
Understanding the National Debt and Budget Deficit (6:33 YouTube vlogbrothers)

- The Debt and Deficits are Really Bad
America's Debt Crisis Explained (5:05 youTube PragerU)

13b Outcomes - What you should learn


TOPICS

OUTCOMES

13b Key Terms


Key Terms Flash Cards - Click Here

Key Terms:

New Keynesian, New Classical, Glass-Steagall, Smoot-Hawley Tarriff Act, U.S. Securities, public deficits, public debt, public debt held by the public, intragovernmental debt, external public debt, crowding out, public investments, public-private complementarity, efficiency wage

13b Key Graphs


New Keynesian

 

New Classical

US Public Debt

13b Review Videos


Macro 3.8- Classical vs. Keynesian Aggregate Supply- Macroeconomics
[4:29 YouTube ACDC Leadership]

Fiscal & Monetary Policy Review- AP Macroeconomics
[3:58 YouTube ACDC Leadership]

MACROeconomics 15 Minute Review
[15:05 YouTube ACDC Leadership]

NOTE: These are REVIEW videos only. In order to learn the material you must read the assigned textbook readings, watch the assigned lecture videos, and do problems. See the MACWEBAPP or the LESSONS link for these assignments.