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Macro 25
- 5. Exam 3 Review Chapters 17-21
- 6. Finals
- 7. Chapter 17 The Government Budget Taxes and Spending
- 9. Monetary Central Bank Tools Reserve Ratio Discount Rate Open Market Excess Reserve Rate Fiscal Government Tools Taxes Spending Aggregate Demand Aggregate Demand Aggregate Supply
- 10. Tax Revenues Income Taxes Social Security Taxes Other
- 12. Progressive The more you earn, the higher the rate
- 13. Deficits and Debt Government Spending and Revenue
- 16. Why would you want government to go into debt? Don’t have to pay Future larger economy
- 17. Debt Investment Only if the return is higher than the interest rate
- 18. How to reduce deficits Higher taxes Lower spending
- 19. Solution to Debt Economic Growth
- 21. Spending Taxes Aggregate Demand Expand Increase Decrease Right Contract Decrease Increase Left Fiscal Policies
- 22. 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
- 23. 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
- 26. More Borrowing Crowding Out Increase interest rates
- 27. Lower Taxes People may just save more and not spend
- 28. More Spending Now get free stuff. No new spending
- 29. Where does government get the money?
- 30. GDP = C + I + G + X - M
- 31. If there are inactive capitals Output will increase If all capitals are active Prices will increase
- 32. 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%
- 33. Supply Side Tax Changes Lower marginal tax rates incentivize people to work more and firms to create more.
- 34. 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
- 35. 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
- 36. Time Lags Do you really know? Congress approve Effect lag Take 1- 3 years Counterproductive
- 37. Multiplier May not be as large as Keynes calculated
- 38. Automatic Stabilizers Job Unemployed Job Taxes Insurance Taxes
- 40. $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
- 41. 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
- 42. $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 Tariff $2 x 2 = $4 $1 x 2 = $2
- 44. Chapter 20 Exchange Rates Arbitrage Law of One Price
- 46. one unit of this will buy ___ units of that
- 47. Why buy Dollars? Buy American Stuff Invest in America Hold and Hope
- 48. Demand Dollars Yuan Per Dollar Supply Higher U.S. Interest Rate 6.44 6.50 Depreciating Cost more to buy a dollar Losing Value
- 49. Demand Dollars Yuan Per Dollar Supply Lower U.S. Interest Rate 6.44 6.25 Appreciating Cost Less to buy a Dollar Gaining Value
- 50. Arbitrage Buy low and sell high Buy here and sell there Buy today and sell tomorrow
- 51. Arbitrage Are the price differences different than the exchange rate? If so, buy low and sell high
- 52. The Law of One Price Arbitrage closes price gaps Bid up the low price - Demand Bid down the high price - Supply
- 53. 1. Dollar to Won (KRW) rate is 1 to 1,176 2. Cell Phone in U.S. is $600 3. Same Cell Phone in South Korea is 600,000 4. Cost to ship is $5 5. What should you do and how much will you make? Dollars and percent?
- 54. Chapter 21 Personalize the benefits Socialize the costs
- 55. Benefits of Learning vs. Costs of Learning Rational Ignorance
- 56. Finals
- 57. Economics The study of how human beings create value for one another
- 58. Economics The study of how human beings solve each another’s problems