Macro 22
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This document discusses several economic topics including exchange rates, arbitrage, the law of one price, tariffs, and changes in prices over time. It provides examples of arbitrage opportunities between currencies. It also shows how price differences across locations provide incentives for arbitrage that equalize prices according to the law of one price. Examples are given of how tariffs can impact prices and employment in different industries. The document analyzes changes in prices of goods like cars, computers and textbooks from 1980 to 2018, finding dramatic declines in the number of hours needed to earn those goods.
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Macro 22
- 3. Bonus - 2 points Exchange Rates Arbitrage Law of One Price Due Wed. 11:59pm #econbyuharbitrage
- 4. 1.5 billion hours a day x $2.50 x 365 days = $1,400,000,000,000 = $1.4 trillion dollars 3.5 billion searches a day x $20 x 365 days = $25,000,000,000,000 = $25 trillion dollars
- 6. Quantity Price $1,000 Steel $1,500 Increase local production Price of steel increases Hire local employees With 50% Tariff World Supply Domestic Supply Local 2 Foreign 4 Local 3 Foreign 2 6543210 7
- 8. Demand Quantity Price Supply $30,000 500 Cars 450 $30,300 50 fewer cars Price of steel increases Layoff employees Lower Profits
- 9. Save 1 steel job Lose 23 car jobs Trump Math +600 -14,000 -13,400=
- 11. Big Mac Index
- 12. Big Mac Index Country Currency Price Rate Dollars Phillipines Peso 140 0.019 $2.66 Vietnam Dong 65000 0.000043 $2.80 China Yuan 20.50 0.15 $3.08 Saudi Arabia Riyal 12 0.265 $3.18 Switzerland Franc 6.5 1.0 $6.50
- 13. Arbitrage Buy low and sell high Buy here and sell there Buy today and sell tomorrow
- 14. Arbitrage Are the price differences different than the exchange rate? If so, buy low and sell high
- 15. The Law of One Price Arbitrage closes price gaps Bid up the low price - Demand Bid down the high price - Supply
- 17. Time Price Database 1980 2018
- 18. 1980 2018 $14.99$22.95 Change Reduced by 80% $22.46 Per Hour $6.85 Per Hour 3.35 Hours 0.67 Hours 5x
- 19. 1980 2018 $71.98$459.95 Change Reduced by 95.2% $22.46 Per Hour $6.85 Per Hour 67.1 Hours 3.2 Hours 21x
- 20. 1980 2018 $62.8$459.95 Change Reduced by 95.8% $22.46 Per Hour $6.85 Per Hour 67.1 Hours 2.8 Hours 24x
- 21. 1980 2018 $36.8$399.85 Change Reduced by 97.2% $22.46 Per Hour $6.85 Per Hour 58.4 Hours 1.6 Hours 36x
- 23. 2018 8.3 hours 1 day 1980 196 hours 24 days Reduced 95.8% 187.7 Hours Saved 24x
- 24. 1997 2017 Increased by 200% You only get 1/3 of a textbook Time Price decreased by 96.0% You get 25 TVs TV College Textbooks In the past 20 years textbooks have become 75 times more expensive relative to TVs 25 ÷ .33 = 75