Macro 21

2. Lecture 21 Macroeconomics

3. Final Exam Chapters 17 - 21 8:00am Class: Wednesday 7:00am - 9:50am 9:30am Class: Friday 10:00am - 12:50pm

4. Final Exam Review

5. Final Exam Review Chapters 17-21

7. Chapter 17

8. Chapter 17 The Government Budget

9. Chapter 17 The Government Budget Taxes and Spending

10. Two Objectives

11. Two Objectives Unemployment

12. Two Objectives Unemployment Inflation

14. Monetary Tools

15. Monetary Tools Central Bank

16. Monetary Tools Central Bank Discount Rate

17. Monetary Tools Central Bank Discount Rate Reserve Ratio

18. Monetary Tools Central Bank Discount Rate Reserve Ratio Open Market

19. Monetary Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate

20. Monetary Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate Aggregate Demand

21. Monetary Tools Fiscal Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate Aggregate Demand

22. Monetary Tools Fiscal Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate Central Government Aggregate Demand

23. Monetary Tools Fiscal Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate Central Government Taxes Aggregate Demand

24. Monetary Tools Fiscal Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate Central Government Taxes Spending Aggregate Demand

25. Monetary Tools Fiscal Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate Central Government Taxes Spending Aggregate Demand Aggregate Demand

26. Monetary Tools Fiscal Tools Central Bank Discount Rate Reserve Ratio Open Market Excess Reserve Rate Central Government Taxes Spending Aggregate Demand Aggregate Demand Aggregate Supply

27. Tax Revenues Income Taxes Social Security Taxes Other

28. Types Per Head Flat Regressive Progressive

29. Progressive The more you earn, the higher the rate

30. Deﬁcits and Debt

31. Deﬁcits and Debt Government Spending and Revenue

32. Deﬁcit

33. Deﬁcit Spending greater than revenue

34. Balanced Budget

35. Balanced Budget Spending exactly equals revenues

36. Surplus

37. Surplus Revenue greater than spending

38. Debt

39. Debt Accumulated deficits

41. Why would you want government to go into debt?

42. Why would you want government to go into debt? Don’t have to pay

43. Why would you want government to go into debt? Don’t have to pay Future larger economy

44. Debt Investment

45. Debt Investment Only if the return is higher than the interest rate

46. How to reduce deﬁcits

47. How to reduce deﬁcits Higher taxes

48. How to reduce deﬁcits Higher taxes Lower spending

49. Entitlements

50. Entitlements Guaranteed benefits

51. Entitlements Guaranteed benefits 1960 - 20%

52. Entitlements Guaranteed benefits 1960 - 20% 2017 - 60%

53. Solution to Debt

54. Solution to Debt Economic Growth

56. Chapter 18

57. Chapter 18 Fiscal Policy

58. GDP

59. GDP = C + I + G + X - M

60. P2 Price Level Real GDP orY 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17

61. P2 Price Level Real GDP orY 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Unemployment

62. P2 Price Level Real GDP orY Increase Aggregate Demand 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Unemployment

63. P2 Price Level Real GDP orY Increase Aggregate Demand Lower Taxes and/or Increase Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Unemployment

64. P2 Price Level Real GDP orY Increase Aggregate Demand Lower Taxes and/or Increase Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Unemployment

65. P2 Price Level Real GDP orY Increase Aggregate Demand Lower Taxes and/or Increase Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 Unemployment

66. P2 Price Level Real GDP orY Increase Aggregate Demand Lower Taxes and/or Increase Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17

67. P3 Price Level Real GDP orY 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17

68. P3 Price Level Real GDP orY 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Inﬂation

69. P3 Price Level Real GDP orY Decrease Aggregate Demand 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Inﬂation

70. P3 Price Level Real GDP orY Decrease Aggregate Demand Raise Taxes and/or Decrease Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Inﬂation

71. P3 Price Level Real GDP orY Decrease Aggregate Demand Raise Taxes and/or Decrease Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 Aggregate Demand 17 Inﬂation

72. P3 Price Level Real GDP orY Decrease Aggregate Demand Raise Taxes and/or Decrease Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 Inﬂation

73. P3 Price Level Real GDP orY Decrease Aggregate Demand Raise Taxes and/or Decrease Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17

74. Where does government get money?

75. Where does government get money? Crowding Out

76. More Taxes

77. More Taxes Cancel

78. More Taxes Cancel No effect

79. More Borrowing

80. More Borrowing Crowding Out

81. More Borrowing Crowding Out Increase interest rates

82. Lower Taxes

83. Lower Taxes People may just save more and not spend

84. More Spending

85. More Spending Now get free stuff.

86. More Spending Now get free stuff. No new spending

88. Get a free iPhone

89. Get a free iPhone But your taxes will go up to pay for it

90. Get a free iPhone But your taxes will go up to pay for it No change in total spending

91. Where does government get the money?

92. GDP

93. GDP = C + I + G + X - M

94. GDP = C + I + G + X - M

95. GDP = C + I + G + X - M

96. GDP = C + I + G + X - M

98. If there are inactive capitals

99. If there are inactive capitals Output will increase

100. If there are inactive capitals Output will increase If all capitals are active

101. If there are inactive capitals Output will increase If all capitals are active Prices will increase

102. Tax Rate % $ Tax Revenue Laffer Curve 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

116. Tax Rate % $ Tax Revenue Laffer Curve 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dropped Top Marginal Income Tax Rate from 70% to 28%

117. Supply Side Tax Changes

118. Supply Side Tax Changes Lower marginal tax rates incentivize people to work more and firms to create more.

119. Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17

122. Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2

125. Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2 P3

126. Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2 P3

127. P4 Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2 P3

128. P4 Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2 P3 Inﬂation and Recession

129. P4 Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2 P3 Inﬂation and Recession Stagﬂation

130. Price Level Real GDP orY 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17

131. Price Level Real GDP orY Increase Long Run Aggregate Supply 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17

132. Price Level Real GDP orY Increase Long Run Aggregate Supply Lower Marginal Tax Rates 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17

135. P3 Price Level Real GDP orY Increase Long Run Aggregate Supply Lower Marginal Tax Rates 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17

136. P3 Price Level Real GDP orY Increase Long Run Aggregate Supply Lower Marginal Tax Rates 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 Lower Prices

137. P3 Price Level Real GDP orY Increase Long Run Aggregate Supply Lower Marginal Tax Rates 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 Lower Prices Increase Output

138. Time Lags

139. Time Lags Do you really know?

140. Time Lags Do you really know? Congress approve

141. Time Lags Do you really know? Congress approve Effect lag

142. Time Lags Do you really know? Congress approve Effect lag Take 1- 3 years

143. Time Lags Do you really know? Congress approve Effect lag Take 1- 3 years Counterproductive

144. Chapter 19

145. Chapter 19 International Trade

146. Tariffs

147. Tariffs Import Taxes International Trade

149. Trade War

150. Three Stories

151. Three Stories Local Market

152. Three Stories Local Market Open Market

153. Three Stories Local Market Open Market Tariff Market

155. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Quantity

156. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

157. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

158. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

159. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

160. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

161. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Consumer Surplus

162. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Consumer Surplus ($10 x 5) ÷ 2 = $25

163. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Consumer Surplus Producer Surplus ($10 x 5) ÷ 2 = $25

164. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Consumer Surplus Producer Surplus ($10 x 5) ÷ 2 = $25 ($10 x 5) ÷ 2 = $25

165. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Consumer Surplus Producer Surplus ($10 x 5) ÷ 2 = $25 ($10 x 5) ÷ 2 = $25 Total Surplus $50

166. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

167. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

168. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

169. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

170. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

171. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

172. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

173. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

174. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity

175. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand QuantityLocal 3

176. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand QuantityLocal 3 Foreign 4

177. Consumer Surplus $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand QuantityLocal 3 Foreign 4

178. Consumer Surplus $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity ($14 x 7) ÷ 2 = $49 Local 3 Foreign 4

179. Consumer Surplus $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity ($14 x 7) ÷ 2 = $49 Producer Surplus Local 3 Foreign 4

180. Consumer Surplus $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity ($14 x 7) ÷ 2 = $49 ($6 x 3) ÷ 2 = $9 Producer Surplus Local 3 Foreign 4

181. Consumer Surplus $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity ($14 x 7) ÷ 2 = $49 ($6 x 3) ÷ 2 = $9 Total Surplus = $58 Producer Surplus Local 3 Foreign 4

182. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand QuantityLocal 3 Foreign 4

183. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff

184. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff $2 Tariff

187. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff $2 Tariff With Tariff

192. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 $2 Tariff With Tariff

193. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff

194. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Consumer Surplus

195. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Consumer Surplus Producer Surplus

196. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Consumer Surplus Producer Surplus ($12 x 6) ÷ 2 = $36

197. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Consumer Surplus Producer Surplus ($12 x 6) ÷ 2 = $36 ($8 x 4) ÷ 2 = $16

198. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Consumer Surplus Producer Surplus ($12 x 6) ÷ 2 = $36 ($8 x 4) ÷ 2 = $16 Total Surplus $52

199. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff

200. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Tariff

201. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Tariff $2 x 2 = $4

204. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Tariff $2 x 2 = $4 $1 x 2 = $2

205. $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 0 1 2 3 4 5 6 7 8 9 10 Demand Quantity Pizza Tariff Local 4 Foreign 2 $2 Tariff With Tariff Tariff $2 x 2 = $4 $1 x 2 = $2

207. Price Quantity Revenue Consumer Surplus Producer Surplus Total Surplus Tariff Deadweight Loss

208. Price Quantity Revenue Consumer Surplus Producer Surplus Total Surplus Tariff Deadweight Loss Local $10 5 $50 $25 $25 $50 $0 $0

209. Price Quantity Revenue Consumer Surplus Producer Surplus Total Surplus Tariff Deadweight Loss Local $10 5 $50 $25 $25 $50 $0 $0 With World $6 7 $42 $49 $9 $58 $0 $0

210. Price Quantity Revenue Consumer Surplus Producer Surplus Total Surplus Tariff Deadweight Loss Local $10 5 $50 $25 $25 $50 $0 $0 With World $6 7 $42 $49 $9 $58 $0 $0 With Tariff & World $8 6 $48 $36 $16 $52 $4 $2

211. Chapter 20 International Finance

212. Chapter 20 Exchange Rates Arbitrage Law of One Price

213. 100+ Currencies https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/

214. $1.00 = 6.25Yuan 1.00Yuan = $0.16

220. $5.00 Yuan 20

221. $5.00 Yuan 20

222. $5.00 x 6.25 = Yuan 31.25 Yuan 20 ÷ 6.25 = $3.20

223. $5.00 x 6.25 = Yuan 31.25 Yuan 20 ÷ 6.25 = $3.20

224. $5.00 x 6.25 = Yuan 31.25 Yuan 20 ÷ 6.25 = $3.20

225. $5.00 x 6.25 = Yuan 31.25 Yuan 20 ÷ 6.25 = $3.20

226. $5.00 x 6.25 = Yuan 31.25 Yuan 20 ÷ 6.25 = $3.20

227. $5.00 $3.20

228. $5.00 $3.20

230. one unit of this

231. one unit of this will buy ___ units of that

232. Exchange Rates

233. Exchange Rates

234. Exchange Rates Two Trades

235. Why buy Dollars?

236. Why buy Dollars?

237. Why buy Dollars? Buy American Stuff

238. Why buy Dollars? Buy American Stuff Invest in America

239. Why buy Dollars? Buy American Stuff Invest in America Hold and Hope

240. Why buyYuan?

241. Why buyYuan? Buy Chinese Stuff

242. Why buyYuan? Buy Chinese Stuff Invest in China

243. Why buyYuan? Buy Chinese Stuff Invest in China Hold and Hope

246. Dollars

247. Dollars Yuan Per Dollar

248. Demand Dollars Yuan Per Dollar

249. Demand Dollars Yuan Per Dollar Supply

250. Demand Dollars Yuan Per Dollar Supply 6.44

251. Demand Dollars Yuan Per Dollar Supply Higher U.S. Interest Rate 6.44

254. Demand Dollars Yuan Per Dollar Supply Higher U.S. Interest Rate 6.44 6.50

255. Demand Dollars Yuan Per Dollar Supply Higher U.S. Interest Rate 6.44 6.50 Cost more to buy a dollar Losing Value

256. Demand Dollars Yuan Per Dollar Supply Higher U.S. Interest Rate 6.44 6.50 Depreciating Cost more to buy a dollar Losing Value

259. Dollars

260. Dollars Yuan Per Dollar

261. Demand Dollars Yuan Per Dollar

262. Demand Dollars Yuan Per Dollar Supply

263. Demand Dollars Yuan Per Dollar Supply 6.44

264. Demand Dollars Yuan Per Dollar Supply Lower U.S. Interest Rate 6.44

267. Demand Dollars Yuan Per Dollar Supply Lower U.S. Interest Rate 6.44 6.25

268. Demand Dollars Yuan Per Dollar Supply Lower U.S. Interest Rate 6.44 6.25 Cost Less to buy a Dollar Gaining Value

269. Demand Dollars Yuan Per Dollar Supply Lower U.S. Interest Rate 6.44 6.25 Appreciating Cost Less to buy a Dollar Gaining Value

270. Arbitrage Exchange Rates The Law of One Price

271. Time Prices Change in Time Prices over Time Time Price Multiplier

Macro 21

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