This document provides information about reviewing for an exam covering chapters 17-21, including details about the exam date and times. It also summarizes key concepts from each chapter, such as fiscal and monetary policy tools, government budgets, tax systems, international trade dynamics like comparative advantage and tariffs, exchange rates and currency arbitrage, and rational ignorance.

2. Exam 3 Review
Chapters 17-21

3. Finals
Section 1 8:00am
Tue. Dec 10 8:00am - 10:50am
Section 2 9:30am
Thur. Dec 12 11:00am - 1:50pm
Section 3 12:00pm
Tue. Dec 10 11:00am - 1:50pm

4. Chapter 17
The Government Budget
Taxes and Spending

5. Two Objectives
Unemployment
Inflation

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

7. Tax Revenues
Income Taxes
Social Security Taxes
Other

8. Types
Per Head
Flat
Progressive

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

10. Deficits and Debt
Government
Spending and
Revenue

11. Deficit
Spending greater
than revenue

12. Debt
Accumulated deficits

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

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

15. How to reduce deficits
Higher taxes
Lower spending

16. Solution to Debt
Economic Growth

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

18. Chapter 18
Fiscal Policy

19. 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

20. 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

21. Where does
government get
money?
Crowding Out

22. More Taxes
Cancel
No effect

23. More Borrowing
Crowding Out
Increase interest
rates

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

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

26. Where does
government get
the money?

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

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

29. 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%

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

31. 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

32. 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

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

34. Multiplier
May not be as large as
Keynes calculated

35. Automatic Stabilizers
Job Unemployed Job
Taxes
Insurance
Taxes

36. Chapter 19
International
Trade

37. $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

38. 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

39. $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

40. Chapter 20
International
Finance

41. Chapter 20
Exchange Rates
Arbitrage
Law of One Price

42. 100+ Currencies
https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/

43. Arbitrage
Buy Low Sell High
Time
Geography

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

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

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

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

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

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

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

51. 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?

52. Chapter 21
Personalize the benefits
Socialize the costs

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

54. Finals
Section 1 8:00am
Tue. Dec 10 8:00am - 10:50am
Section 2 9:30am
Thur. Dec 12 11:00am - 1:50pm
Section 3 12:00pm
Tue. Dec 10 11:00am - 1:50pm

55. Economics
The study of how human
beings create value for one
another