Economics for Journalists    Week 3: Circles & Cycles: How economies work    Jeffrey TimmermansMonday, 6 February, 12
Review: Supply    & Demand             ✤    Demand is based on the                                                 Price  ...
Review: Supply    & Demand             ✤    Demand is based on the                                                    Pric...
What kind of product is this?                          Price                                           Supply             ...
What kind of product is this?                            Price                                                   Supply   ...
What kind of product is this?                          Price                                                Supply        ...
What kind of product is this?                            Price                                                    Supply  ...
Government Policy: Rent control                          Price                                  Supply                    ...
Government Policy: Rent control                           Price                                                           ...
Types of economies                         Command      Free-market                         Economy         Economy       ...
Circular Flow ModelMonday, 6 February, 12
Circular Flow with SavingsMonday, 6 February, 12
Circular Flow with InventoryMonday, 6 February, 12
The Business Cycle    Real output                                                 Peak                                    ...
U.S. Economic Growth    (1940-2010)                         Source: St. Louis Federal Reserve BankMonday, 6 February, 12
U.S. Business Cycle (1970-1980)                         Source: St. Louis Federal Reserve BankMonday, 6 February, 12
Why do economies grow over    time?Monday, 6 February, 12
Why do economies grow over    time?    ✤    Population growth    ✤    Investment    ✤    Accumulated knowledge    ✤    Imp...
What’s a recession?Monday, 6 February, 12
What’s a recession?    ✤    Two consecutive quarters of declining economic outputMonday, 6 February, 12
What’s a recession?    ✤    Two consecutive quarters of declining economic output    ✤    In the U.S., whatever the Nation...
The Regulatory Cycle                                                  Crisis in un- or under-                    Recession...
Market Cycles:    Dow Theory    ✤    Charles Dow (1851-1902)         founded Dow Jones & The Wall         Street Journal  ...
Dow Theory: key assumptions    ✤    The theory assumes the price of an asset traded on a market reflects         all availa...
Remember...    ✤    Journalists can provide perspective and context:          ✤    A recession isn’t the end of the world ...
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Class3

  1. 1. Economics for Journalists Week 3: Circles & Cycles: How economies work Jeffrey TimmermansMonday, 6 February, 12
  2. 2. Review: Supply & Demand ✤ Demand is based on the Price value consumers attach to Supply goods & services as well as their income & substitute goods Market Price ✤ Supply is determined by suppliers’ costs Demand ✤ The market price is a Quantity summary of the supply & demand in the marketMonday, 6 February, 12
  3. 3. Review: Supply & Demand ✤ Demand is based on the Price value consumers attach to Supply goods & services as well as their income & substitute New Price goods { Market Add’l Price Suppliers ✤ Supply is determined by New Demand suppliers’ costs Demand ✤ The market price is a Quantity summary of the supply & demand in the marketMonday, 6 February, 12
  4. 4. What kind of product is this? Price Supply Market Price Demand QuantityMonday, 6 February, 12
  5. 5. What kind of product is this? Price Supply New Price Market Price Demand Q1 QuantityMonday, 6 February, 12
  6. 6. What kind of product is this? Price Supply Market Price Demand Q1 QuantityMonday, 6 February, 12
  7. 7. What kind of product is this? Price Supply Market Price New Price Demand Q1 Quantity Q2Monday, 6 February, 12
  8. 8. Government Policy: Rent control Price Supply Market Price Demand QuantityMonday, 6 February, 12
  9. 9. Government Policy: Rent control Price Supply Market Price Mandated Price { Supply Gap Demand Quantity Quantity Quantity Supplied DemandedMonday, 6 February, 12
  10. 10. Types of economies Command Free-market Economy Economy Total No gov’t intervention intervention U.S. Hong Kong N. Korea SwedenMonday, 6 February, 12
  11. 11. Circular Flow ModelMonday, 6 February, 12
  12. 12. Circular Flow with SavingsMonday, 6 February, 12
  13. 13. Circular Flow with InventoryMonday, 6 February, 12
  14. 14. The Business Cycle Real output Peak Trend line ry Re ce ove ss io Rec n Re ry ce ove ss io n Rec Re ce ss io n Trough TimeMonday, 6 February, 12
  15. 15. U.S. Economic Growth (1940-2010) Source: St. Louis Federal Reserve BankMonday, 6 February, 12
  16. 16. U.S. Business Cycle (1970-1980) Source: St. Louis Federal Reserve BankMonday, 6 February, 12
  17. 17. Why do economies grow over time?Monday, 6 February, 12
  18. 18. Why do economies grow over time? ✤ Population growth ✤ Investment ✤ Accumulated knowledge ✤ Improved productivity ✤ Better technologyMonday, 6 February, 12
  19. 19. What’s a recession?Monday, 6 February, 12
  20. 20. What’s a recession? ✤ Two consecutive quarters of declining economic outputMonday, 6 February, 12
  21. 21. What’s a recession? ✤ Two consecutive quarters of declining economic output ✤ In the U.S., whatever the National Bureau of Economic Research (NBER) says it is!Monday, 6 February, 12
  22. 22. The Regulatory Cycle Crisis in un- or under- Recession regulated area Deregulation Politicians respond to Politicians respond to people’s anger companies Regulation, followed by quiet period Lobbyists/companies Growth seek deregulationMonday, 6 February, 12
  23. 23. Market Cycles: Dow Theory ✤ Charles Dow (1851-1902) founded Dow Jones & The Wall Street Journal ✤ Dow noticed that prices on markets follow both long-term and short-term trends ✤ Short-term trends are reactionary and won’t necessarily derail long-term trend Source: Library of CongressMonday, 6 February, 12
  24. 24. Dow Theory: key assumptions ✤ The theory assumes the price of an asset traded on a market reflects all available information ✤ A market price is the sum of all fears and the sum of all hopes ✤ Because a market price reflects everything market participants expect will happen, prices are forward looking ✤ Prices are news!Monday, 6 February, 12
  25. 25. Remember... ✤ Journalists can provide perspective and context: ✤ A recession isn’t the end of the world ✤ A growth & recovery phase won’t go on forever ✤ This time isn’t different! ✤ Regulatory response isn’t always appropriate and is influenced by political considerationsMonday, 6 February, 12

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