This document provides an overview and review of topics covered in chapters 17-21 of a macroeconomics course, including: - Fiscal and monetary policy tools used by governments and central banks to influence aggregate demand and achieve economic goals. - Different types of taxes and how government budgets and deficits are impacted. - International trade concepts like consumer and producer surplus and how tariffs affect trade. - Foreign exchange rates, currency exchange, arbitrage, and the law of one price in international finance. - Rational ignorance when weighing costs and benefits of learning economics concepts.

2. Macroeconomics Winter 2020

3. Opening Prayer

4. Start Recording

5. Exam 3 Review
Chapters 17-21

6. Finals

7. Chapter 17
The Government Budget
Taxes and Spending

8. Two Objectives
Unemployment
Inflation

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

11. Types
Per Head
Flat
Progressive

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

13. Deficits and Debt
Government
Spending and
Revenue

14. Deficit
Spending greater
than revenue

15. Debt
Accumulated deficits

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

20. Chapter 18
Fiscal Policy

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

24. Where does
government get
money?

25. More Taxes
Cancel
No effect

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

39. Chapter 19
International
Trade

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

43. Chapter 20
International
Finance

44. Chapter 20
Exchange Rates
Arbitrage
Law of One Price

45. 100+ Currencies
https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/

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