Macro 23

2. Lecture 25
Macroeconomics

3. Opening
Prayer

4. Final Exam
Chapters 17-21
Section 1: Tuesday, Dec. 6: 8:00 am – 10:50 am
Section 2: Thursday, Dec. 8: 11:00 am - 1:50 pm
Section 3: Tuesday, Dec. 6: 11:00 am – 1:50 pm

5. Economics
The study of how human beings
create value for one another by
discovering and creating and
sharing knowledge

6. Chapter 17
The Government Budget
Taxes and Spending

7. Two Objectives
Unemployment
Inflation

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

9. Tax Revenues
Income Taxes
Social Security Taxes
Other

10. Types
Per Head
Flat
Progressive

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

12. Deficits and Debt
Government
Spending and
Revenue

13. Deficit
Spending greater
than revenue

14. Debt
Accumulated deficits

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

16. How to reduce deficits
Higher taxes
Lower spending
Greater economic growth

17. Solution to Debt
Economic Growth

18. Chapter 18
Fiscal Policy

19. Spending Taxes
Aggregate
Demand
Expand Increase Decrease Right
Contract Decrease Increase Left
Fiscal Policies

20. 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

21. 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

22. Where does
government get
money?

23. More Taxes
Cancel
No effect

24. More Borrowing
Crowding Out
Increase interest
rates

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

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

27. Where does
government get
the money?

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

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

30. 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%

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

32. 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

33. 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

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

35. Chapter 19
International
Trade

36. $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

37. 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
Local 3 Foreign 4

38. $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
($12 x 6) ÷ 2
= $36
($8 x 4) ÷ 2 =
$16
Total Surplus
$52
Tariff $2 x 2 = $4
$1 x 2 = $2

39. Chapter 20
International
Finance

40. Chapter 20
Exchange Rates
Arbitrage
Law of One Price

41. 100+ Currencies
https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/

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

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

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

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

46. Arbitrage
Buy low and sell high
Buy here and sell there
Buy today and sell tomorrow

47. Arbitrage
Are the price differences
different than the exchange
rate?
If so, buy low and sell high

48. The Law of One
Price
Arbitrage closes price gaps
Bid up the low price - Demand
Bid down the high price -
Supply

49. 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?

50. Chapter 21
Personalize the benefits
Socialize the costs

51. Benefits of Learning
vs.
Costs of Learning
Rational Ignorance

52. Questions

54. "Happiness is the object and
design of our existence; and will
be the end thereof, if we pursue
the path that leads to it; and this
path is virtue, uprightness,
faithfulness, holiness, and keeping
all the commandments of God.
"In obedience there is joy and
peace . . . and as God has
designed our happiness . . . , He
never has — He never will . . .
give a commandment to His
people that is not calculated in
its nature to promote that
happiness which He has
designed."

55. Economics
and the Gospel

56. For the earth is full, and there is enough and
to spare; yea, I prepared all things, and have
given unto the children of men to be agents
unto themselves.
- D&C 104:17