Module 2 Study Guide- Ag Econ 217
Module 2 Study Guide- Ag Econ 217 AGEC21700
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This 4 page Bundle was uploaded by Abby Shepherd on Tuesday October 13, 2015. The Bundle belongs to AGEC21700 at Purdue University taught by DeBoer in Summer 2015. Since its upload, it has received 123 views. For similar materials see Economics in Economcs at Purdue University.
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Date Created: 10/13/15
httpsstudysoupcompurdueuniversityagec21700oneweekof noteslecturenotesfrom922and924id45053 Ag Econ Lecture Notes 922 and 924 922 The Macro Model Looking at the goods market and money market and how they are related Measurement Real GDP The price level and in ation o All item GDP is more variable because of things like oil 0 Core without foodenergy more stable Unemployment rate 0 Unemployment rates going down 0 Reached a high during 2009 recession Corporate BAAAAA spread o BAA interest rate is always higher because it is more rislq 0 During recessions the spread becomes greater because less people want to get bonds for riskier businesses so they risky businesses have to raise their interest rates to get buyers 0 The spread peaked during 2009 recessions since the 193039s How did real GDP change in 2009 Real GDP growth went down by 28 from 2009 to 2008 0 When the GDP moves to the right there is an expansion to the left is a recession Price Index went down by 4 from 2009 to 2008 0 When the price index moves up there is in ation downward is de ann Aggregate supply and aggregate demand show equilibrium at 2008 0 Aggregate demand has to go down for 2009 to get the new equilibrium Aggregate Demand Agg re 0 Means SPENDING o By households for consumption goods 0 By businesses for investment 0 NOT stocks and bonds in this context 0 Means buildings equipment inventories technology etc o By governments for government purchases 0 By the world for exports o By Americans for imports AD spending C l G X M gate Supply Means PRODUCTION o By businesses 0 Which buy inputs 0 Use technology 0 Under natural conditions 0 To produce output on which consumers other businesses government and the world want to spend 0 AS production Business investment depends on the real interest rate 0 Examples Housing developments office buildings shopping malls factories equipment inventories o If the rate of return is greater than the interest rate you are paying then you quotmake the investmentquot 0 Lower interest rates mean more investment projects go on because the pro t made is most likely greater 0 I rexp real interest rate expected return Money Markey o X quantity of money y real interest rate 0 Money demand and money supply 0 For interest rate to go up there would need to be an increase in money demand or a decrease in money supply 0 Money supply decreases when it moves backward on the x axis Second shifts 2 a Money market to goods market When the changes in the money market change the real interest rate aggregate demand shifts in the goods market Spending increases and output increases forever but 0 There is not enough supplies limited supplies 0 Potential output the output that can be produced with existing resources and technology 0 5 unemployment rate at potential output Qp 924 What happens to an economy during wartime 0 Pre war revenues and expenditures were about the same 0 Once the war started the expenditures increases 15 fold and were way higher than the revenues The economy experiences expansion and in ation o The quotGquot in the equation government spending increases aggregate demand which increases the quantity demanded expansion and the price in ation How is equilibrium quotpushed pastquot the Qp potential output 0 Resources are used with extraordinary intensity 0 As aggregate demand raises and the price raises aggregate supply begins to decrease which pushes it back to the potential output How to shift resources from civilian to military production Raise taxes create income taxes invented to create more spending for the government 0 The government put in these taxes so that people could not afford the things that the government wanted to buy instead 0 The government borrows lots of money from the banks before civilians can borrow it In ation was created when they put out a lot of paper money into the economy the value of the money being printed went way down The government increased the amount of money in the economy so they could buy war supplies so the value of money went down Too much money chasing too few goods causes in ation Summary 0 Raise taxes gt no in ation Ability to pay shifted from civilians to government directly 0 Borrow gt no in ation Ability to pay shifted from civilians to government through lenders 0 Print money gt in ation Government outbids civilians and higher prices shift resources to government Why did the South have more in ation than the North 0 The North increased government spending BUT also 0 increased taxes which reduced the amount of consumption of civilians 0 And borrowed money which reduced private investment 0 The South39s prices rose much more because they shifted resources in a much different way 0 The South could not borrow as much money because they were a riskier investment and they could not tax so they printed a lot more money a Hyperin ation an incredible amount of in ation Arbitrage when there are differences in ratios or prices in different markets for the same good Why did the US leave the gold standard during the war and how was the gold standard resumed One ounce of gold in the Treasury for each 2067 in circulating currency 0 There was not enough gold to quotbackquot the newly printed money 0 So they closed the gold standard Getting back to the gold standard because Great Britain is 0 Gold price as of 1865 40 per ounce 0 Choice 1 open the gold standard window at prewar standard 2067 per ounce In ation had pushed up the price of gold so arbitrage was taking place 0 Gold drains from the treasury 0 Choice 2 retire the paper money by running a budget surplus Leave taxes high reduce government purchases 0 Post war recession takes place 0 Choice 3 let the economy quotgrow into its monetary coatquot 0 Certain amount of money in economy but more supplies so prices go down as technology improves de ation Potential output goes up and pushes price level down 0 Industrial revolution de ation takes place
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