2020 Macroeconomics Notes For February 15th, 17th, and 19th
2020 Macroeconomics Notes For February 15th, 17th, and 19th Econ 2020
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This 8 page Class Notes was uploaded by Robin Silk on Friday February 19, 2016. The Class Notes belongs to Econ 2020 at University of Colorado at Boulder taught by Jay Kaplan in Spring 2016. Since its upload, it has received 22 views. For similar materials see Principles of Macroeconomics in Economcs at University of Colorado at Boulder.
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Date Created: 02/19/16
Monday February 15th GDP 1. Current Events: Negative Labor Force Growth a. Japan i. Japan observes a negative labor force growth. Workers are retiring and not being replaced ii. This causes sensitivity to things like worker productivity 1. If this decreases, the country will lose a lot of economic strength 2. Supply Side a. Long Run Growth i. The trend of expansion in economic capacity to produce goods and services caused by: 1. Labor Force Growth 2. Gains in worker productivity 3. Demand Side a. GDP i. Supply side growth is in regards to potential output ii. A short run growth that follows supply side growth in the long run iii. Supply side growth is not affected by real GDP growth b. GDP Equation i. GDP = C(yT)+I(r)+G+NX 4. Changes in the Growth Rate of Real GDP a. 1. Recession a. Have negative real GDP growth b. Decrease in consumption & business investment c. Firms decrease output, lay off workers, and unemployment rises d. Decrease in capacity utilization in manufacturing e. Prices of commodities fall f. Lower production costs; low inflation rate i. Fiscal Policy Response to Recession 1. Taxes decrease; increases yT, increases C 2. Increase in G ii. Monetary Policy Response to Recession 1. Lower interest rates; increases investment 2. Recovery a. Positive real GDP growth (This growth may be larger than the supply side growth) b. Increased consumption and investments, government spending c. Firms see increased demand d. Demand for labor increases, unemployment falls (but minimal wage pressures) e. Minimal increase in input prices for typical firms (labor costs, commodity prices) f. Low inflation rate (key difference between 2 and 3) 3. Peak a. Unemployment rate at or below full employment (really low) b. Labor is scarce, but firms still want to increase outputs i. This leads to an increase in wages and labor costs c. Prices of commodities rise d. Strong consumer and investment demand so firms pass along cost increases in the form of increased prices i. Peak: Increased input costs = increased prices e. Inflation rate is high i. Moving to Fed’s threshold (23%) ii. Fed increases interest rates in response iii. This slows economic growth (I and r are inverse) 4. Downturn a. GDP growth is still positive but slowing down 5. Applications a. Best time to purchase stock shares: Lowest point in area 1 (Recession) b. The Fed’s role: Slow growth rates to decrease inflation rates (better in the long term) c. Is there a better way to manage the economy? Limit GDP growth rate to match that of the supply side Wednesday February 17th Applications to the Business Cycle 1. Globalization a. Goldilocks Economy ( ?) b. Reduce inflationary pressures i. As domestic prices increase, imports are substituted for domestic goods ii. With Increases in labor and domestic production costs, production is outsourced c. Dealing with a recession causes currency depreciation 2. Effects of Depreciation a. As the prices of imports go up, less goods are imported b. As the prices of exports go down, more goods are exported i. Both of these are related to net exports ii. Net Exports = exports imports 1. This is a big part of the GDP 3. Goldilocks Economy Characteristics a. Minimal Inflation Rate (<2%) b. Low unemployment rate; aiming for whole employment (Y ) F c. Aggregate Demand Growth = Aggregate Supply Growth 4. Macroeconomic Equilibrium a. Where aggregate demand = aggregate supply b. Aggregate Supply (AS) i. Related to the supply side ii. Potential output AKA capacity; not our actual output 1. Increases with labor force growth 2. Increases with growth in worker productivity c. Aggregate Demand (AD) i. GDP, this is the actual output ii. a. Recession, Recovery. There is an excess in capacity (<Y F i. It is possible to increase the GDP without increasing the inflation rate (along A) b. Output level has increased to a level where unemployment rate has reached Y F c. Peak. Huge inflation. As output and GDP rise, the inflation rate rises too 5. Macroeconomic Equilibrium Permutations a. Friday February 19th Recession 1. January 2008 a. Recession begins in December 2007 i. Economic growth slowed down ii. Worst recession since the Great Depression b. c. d. January 2010 i. The recession ends in June 2009; weak recovery e. 2. Today’s Economy a. a b.
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