Please read the Specter article, “Capitalizing on Yankee Ingenuity” for class on Wednesday. You can find the article under the tab marked “Readings” above.
Monetary Policy & Monetarism
Sexton, Chapters 28-29
- What is the Federal Reserve?
- The Deposit Expansion Model: M = Bank Reserves x Money Multiplier
- The Fed can change Bank Reserves three ways:
- Changing the RRR
- Changing the Discount Rate
- Open Market Operations
- Demand for Money = f[ interest rates, income ]
- The Money Market consists of Money Demand and Money Supply
- Interest Rates are determined in the Money Market (show)
- Definition of Monetary Policy
- How does monetary policy work to cause changes in economic activity?
- Characteristics of Monetarism:
- Money Matters Most
- Fiscal Policy is NOT Very Effective because of Crowding Out
- The private sector is inherently stable (or self-correcting)
- Government (fine tuning) policy will not help
The Effects of Budget Deficits on the Economy
Sexton, Chapter 27, Section 27.7
- Short term: Deficits stimulate spending and economic activity
- Long term: Deficits reduce the growth rate of the economy
How Do You Tell the State of the Economy?
Sexton, Chapter 22
- Experts assess the state of the economy by looking at a variety of economic statistics such as %change in Real GDP, the Unemployment Rate, the Inflation Rate, Interest Rates, etc.
- Define Inflation, Price Index, Base Year, Misery Index
- Nominal versus Real measurements
- V = P x Q (Nominal = Price Index x Real)
- %Change in Nominal = %Change in Price Index + %Change in Real
Protected: Reading for Friday
Published by December 1st, 2008 in Uncategorized. Enter your password to view commentsA perennial question of concern is the state of the economy, that is, whether current economic conditions are good or not. To answer that question, go online to the 2007 Economic Report of the President. Find and download annual data for the U.S. economy for the period 1970-2006 for three variables:
· the inflation rate,
· the unemployment rate, and
· the growth rate of real GDP.
(Note: You will have some decisions to make about which versions of these variables to select.)
Put the data in a table and examine it to answer the following questions:
· In which decade (1970s, 1980s or 1990s) was inflation highest and lowest?
· In which decade was unemployment highest and lowest?
· In which decade was economic growth highest and lowest?
How do economic conditions in the first decade of the 2000s compare with the three previous decades? Specific conclusions are better than general ones: overall better, worse or about the same.
Here is deposit-expansion-multiplier-process I promised. Let me know if you find any errors.
- SG
Here is the outline I developed for the material since the last exam.
The Role of Government in the Market Economy
Sexton, Chapters 8-9
- Major spending and revenue categories in the Federal and State/Local Budgets
- 6 Functions of Govt: Public goods, externality goods, public enterprises, Income Transfers, Regulation, Macro Stabilization
- Tax incidence: Progressive, proportional, regressive
What Determines the Level of Economic Activity?
Sexton, Section 25.1
- AD & AS Factors
- Factors of Production à Potential Output
- Ep = C + I + G + (EX-IM) à Actual Output
- C = a + mpc*Y Autonomous Consumption = W +i + ability to borrow + Pi
- I = f( i ) and Expected Profitability Invest iff ERoR > i
- Macro Equilibrium: Y = Ep
Economic Growth and Business Cycles
Sexton, Chapter 24
- Def: Economic Growth & Causes of
- Def: Business Cycles & Causes of
- Comparison of business cycles: 1980, 82, 90, 01
- The Expenditure Multiplier
Recessionary & Inflationary Gaps and Fiscal Policy
Sexton, Chapters 23&27
- Classical vs Keynesian Economics vs Supply Side
- Def: Recessionary Gap
- Def: Inflationary Gap
- Def: Fiscal Policy, G vs T (similarities vs differences)
- Expansionary Fiscal Policy as a solution to a recessionary gap
The Role of Money & the Financial System
Sexton, Chapter 28
- What is Money? (3 functions)
- What is Liquidity? Specter article and Deli-$
- Def: Financial Intermediation
- Financing for businesses to operate; financing to expand
- Illiquidity, Insolvency, Bank Run
- 2008 Financial Crisis
Protected: Fourth Formal Homework Assignment: What is money?
Published by October 15th, 2008 in Uncategorized. Enter your password to view commentsTo practice your understanding of how market economies allocate resources, read this recent
article from the Wall Street Journal and try to graph what’s begin described. You should include
the market for automobiles, the market for healthcare, and a production possibilities curve.
U.S. Federal, State & Local Government Budgets
Published by September 22nd, 2008 in Uncategorized. 0 CommentsOne way to assess the role of government in the economy is to look at the size and composition of the government budget. This information is available in the Economic Report of the President.
Please review the following two spreadsheets to identify the major spending categories and the major revenue sources for the U.S. government at the Federal and at the State & Local levels.
Table B-81 Federal Receipts, Outlays, Surplus or Deficit, and Debt
Table B-86 State and Local Government Revenues and Expenditures
One of the results of Hurricane Katrina several years ago was dramatic increases in the prices of most products in Louisiana. This prompted complaints of “price gouging” and demands for government protection of consumers and punishment of the price gougers.
Write a 1-2 page essay using the theory of supply and demand to analyze the impact of Hurricane Katrina on goods prices in Louisiana. (This assignment does not require research. If you don’t remember Hurricane Katrina, think about any hurricane you do remember.) Exactly why did prices increase? Show graphically and explain in detail. In your essay, be sure to consider the following points. Was it appropriate or not for prices to rise? Define “price gouging” in your own words. Explain the extent to which the price increases in Louisiana were examples of price gouging or not. Should government have prevented the price increases? Who would have benefitted and who would have been harmed if the government had prevented those price increases?
HINT: You may find it useful to consider the concepts of equity and efficiency in your answer.
HINT: You may also wish to read Heilbroner, The Making of Economic Society, Sections titled “The Just Price,” “The Disrepute of Gain” and “Adam Smith’s Growth Model,” “The Dynamics of the System, The Market Mechanism”.
Your essay should be emailed to me by Tuesday night, September 16.