Day 11
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Day 11

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Day 11 Day 11 Presentation Transcript

  • 1. Write 2+ items that have gotten more expensive in your lifetime 2. Write 3+ items that have gotten less expensive in your lifetime
  • 2012 Comparison Argentina GDP: $476 billion Spain’s GDP: $1.3 trillion United States GDP: $16 trillion Factors: population, resources, education, crime
  • Zimbabwe Population: 13 million GDP: 10 billion GDP/Capita: $700 Unemployment: 66%
  • Your G3 is advising the President of Zimbabwe on how to improve the economy of his country. Situation: Many blacks can not afford goods and food in the markets. Business owners are allowed to charge whatever price they want and since food is hard to find, its very expensive. Local Zimbabwe businesses have a difficult time competing with imports from the USA, South Africa and England. When Zimbabwe businesses fail, people lose their jobs causing more unemployment. 98% of the farm land is owned by white farmers, which was taken in the 1800’s from native Africans. 90% of this country is black and has no access to this farm land. The white farmers pay low wages and often do not hire native blacks. Many people in Zimbabwe do not have much money to buy food with. The Zimbabwe dollar is a strong currency which is difficult to get much of because the central bank doesn’t print very much money for people to use.
  • Zimbabwe 1990’s Fixed prices Banned imports Redistributed land Printed up more money Gov’t solution EFFECT President Robert Mugabe Shortages More shortages Still more shortages inflation Technically “hyperinflation” Problem High food prices Competition from USA & SA Blacks have no land Not enough money
  • What if I told you? • Million dollars? • 25 Billion dollars? • 100 Billion dollars • Fiat currency = value only because we think it does
  • Hyperinflation in Zimbabwe • Start of 2008 – 100 % inflation • End of 2008-2009 – 10,000,000 %!! – 10 X 6th inflation
  • Currency Fiat Currency Advantages? Disadvantages?
  • Why can’t we just print more money? • Quantity theory of inflation Piles of currency in Zimbabwe
  • Currency Representative Currency Advantages? Disadvantages?
  • Inflation • Rise in prices over time • “cost of living” • “The real value of currency” • Deflation
  • GDP • GDP = C + I + G + (Exports – Imports) • Which one is affected by inflation?
  • Inflation • Rise in prices over time • “cost of living” • Calculate using Consumer Price Index • CPI = New Prices – Old Prices Old Prices X 100 Always a percentage, But unlike unemployment rate, It can be more than 100, or a negative 1-3 % inflation = normal Anything higher is bad for consumers
  • 3. Sony PS3 Price change % 4. Gas in 2009: $2.50 2013: $3.12
  • Inflation calculator
  • • 1984
  • • 1994
  • What else causes inflation? • Cost push theory- • For example, increase the cost of gasoline causes and increase in the price of food. • Demand pull theory • For example: fads or hot xmas toys
  • Of the 3 theories of inflation 5. Which one can the government control? 6. McDonalds increases menu prices after minimum wage increase 7. Fry’s increases all prices as gas prices increase 15% in January 8. Nike increases price of football jerseys every Fall 9. Apple increases price of popular mp3 itunes downloads by 5% 10. In state tuition increases for the 10th consecutive year 11. Xbox games increase in price after programmers demand higher wages 12. Make up your own example
  • Non-written bellringer 1. What economic activity does GDP leave out? (multiple answers) 2. What part of the US government printed your money? (look on a $1, $2, $5, $10, $20 bill)
  • Why don’t some people trust banks?
  • What if the bank goes out of business? • $250,000 per US account
  • District Structure
  • Federal Reserve System
  • Who controls “the Fed”?
  • What does “the Fed” do? Supplies Money Controls Money supply Sets Reserve Requirements Supervise Banks Gov’t Accounting Clears Checks THE FED
  • Why is the Chairman of the Federal Reserve sometimes thought of as the “second most powerful person in the US”? • Cause: increases interest rates • Effect: ???? • Cause: lowers interest rate • Effect: ??? 2014 Janet Yellen
  • Bellringer 1. What would you say about a 10% inflation rate? 2. Why are banks important to our economy? 3. What is a recession? 4. If the US GDP grew by 1.7% last year, were we in a recession? 5. What part of our government prints our money?
  • Great Depression 1929-1933 27% drop in GDP 25% Unemployment 36% drop in World trade 43 straight months of declining spending !!!! “Great Recession” Housing Crisis 2007-2009 5 % drop in GDP 10% Unemployment 20% drop in World trade 18 straight months of declining spending Source Yoram Bauman, World Bank
  • Monetary Policy Fed’s Tools Open market operations Reserve Rate (%) Discount Rate (%) Lender of last resort
  • What about other countries?
  • What should The Fed do with interest rates in 1955?
  • What should The Fed do with interest rates in 1921? 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 1914 1915 1916 1917 1918 1919 1920 US CPI 1914-1920
  • What should The Fed do with interest rates in 1982?
  • What should The Fed do with interest rates in 1982? 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 US 1970- 1982 CPI
  • What should The Fed do with interest rates in 1991?
  • What should The Fed do with interest rates in 2010?
  • What should The Fed do with interest rates in 2010?
  • What should The Fed do with interest rates in 2014?
  • Fed Chairman game
  • Trade opener 1. Where was your shirt made? (Have your neighbor check) 2. What type of labor makes t shirts? 3. What type of labor designs cellphones?
  • Comparative Advantage Activity
  • Absolute Advantage Whoever can do the job the fastest • Total hours to finish jobs
  • Comparative Advantage Whoever can do the job with the lowest opportunity cost
  • Another way of looking at Comparative Advantage • Should Jason Terry clean his own house?
  • Another way of looking at Comparative Advantage • Should Lebron James clean his house?
  • Another way of looking at Comparative Advantage • Should Manu Ginobili clean his house?
  • Specialization of labor • Firms & countries figure out more efficient methods of production • Effect on concept of trade?
  • Honduras • 100 tons of sugar/year OR • 100 tons of bananas
  • Cuba • 600 tons of sugar/year OR • 200 tons of bananas
  • Cuba & Honduras • Scarcity of farm land • Who has absolute advantage? • Who has the comparative advantage of trade? • Why is this better? Cuba: 600 tons of sugar/year OR 200 tons of bananas Honduras: 100 tons of sugar/year OR 100 tons of bananas
  • Who has comparative advantage: T shirts, financial, medical services, entertainment, shoes • Land, labor and capital in Honduras • GDP per capita: $2,200 / Population: 8 million • Literacy rate: 85%, 2 universities • Land, labor and capital in USA • GDP per capita: $48,000 / Population: 300 million • Literacy rate: 90%, 800+ universities
  • Trade • Free trade = absence of restrictions of goods/services • List 3 winners & 3 losers if all countries had free trade • Winners: • Losers:
  • Benefits of FREE TRADE • Lower prices for consumers • More competition leading to better products • Job opportunities for producers • Job opportunities in buyer countries • Opportunity costs?
  • Source: World Bank
  • Drawbacks of FREE TRADE • Structural unemployment • Lower union membership • Ethical problems
  • Types barriers to FREE TRADE • Tariffs • Tax on imports • Result: higher price for consumers, job saving – Opportunity cost • Quotas • Limit on imports • Result: high prices, less choice • Examples: Japanese full sized trucks • Lexus, Infinity, etc
  • Other crazy import tariffs • Japan: 700% tax on rice • European Union: orange juice (31%), peanut butter (132%), and tobacco products (350%) • South Korea: 100% automobiles • Canada: 28% leather shoes • United States: 249 % solar panels, Waterproof shoes with a metal toe cap 37.5 % • Brazil: 60% tablet computers
  • Types barriers to FREE TRADE • Embargos • Banning imports • Result: less exports for embargoed country • Subsidies • Gov’t help for industries • Result: higher taxes locally, other countries retaliate
  • Let’s consider some systems • EU, WTO, Trading blocs, NAFTA
  • NAFTA • 1994-present • US, Canada, Mexico • Eliminated thousands of tariffs • Expanded to CAFTA in 2005
  • European Union • 1954- Present • Free movement of goods, services and people • Euro-zone • Contrast with US/Latin Am.
  • World Trade Organization • 1995-present • 152 countries • Goal = Global free trade • Closely related to IMF • controversial
  • Free Trade Assignment • Letter to John McCain • 2-3 paragraphs considering: Should the US expand its free trade zone to include all of the Western Hemisphere? Consider both sides, but choose the better one.
  • 80 M/C questions SCAN TRON 90 MIN, 1 PAGE HANDWRITTEN NOTES