ECN 150: Week 6 Notes
ECN 150: Week 6 Notes ECN 150
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This 3 page Class Notes was uploaded by Alexis Ibarra on Friday February 26, 2016. The Class Notes belongs to ECN 150 at La Salle University taught by Francis Thomas Mallon in Summer 2015. Since its upload, it has received 7 views. For similar materials see Macroeconomics in Economcs at La Salle University.
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Date Created: 02/26/16
WEEK 6 2/22/16 Net Exports Net exports are the relationship between exports and imports Exports: goods produced here in the United States and shipped abroad Imports: goods produced abroad and shipped to United States X ¿ Net exports ( n = Exports – Imports Protectionism: When a domestic government takes actions to protect domestic producers from competition coming from foreign producers If the US sold black and white TVs with bad quality, and the foreign companies were able to produce colored TVs with good pictures for about the same price, citizens would buy the foreign products for better quality at the same price. Protectionism would suggest that the government should intervene to make trade barriers so the foreign producer would have to pay higher taxes to sell in the US. Therefore, the price that they are selling the TVs to us for, would be much higher. Who would get hurt from this? The citizens would get hurt because they have to pay more for this better quality tv. The foreign companies would also get hurt because their sales would decrease. Foreign workers would get hurt because they wouldn’t be able to work if sales decrease. Importers/exporters would get hurt because they would have less to import. Who would benefit? American producers would benefit because citizens would be more obligated to buy their product The government would benefit because the taxes would be higher for people who bought the foreign TVs. If the Government does not step in: The United States Company could then try to produce something else visual to sell to the US. Since their TVs aren’t top notch, they could produce something else that’s really good. For example: Hospital monitors There is more of a world benefit if the government does not employ protectionism!! Because now there are higher quality TVs for less (from a foreign company), and also better hospital monitors (from a US company)! People who favor protectionism claim that other countries protect their producers and make it hard for US companies to sell abroad. Therefore, our government needs to do the same and protect our companies. Government Spending (G) (Federal Government: President & Congress) How does the Federal Government divide and spend their money? A budget is established. Each of the operating departments gets allocated a certain amount of money to spend Department of defense Department of Interior Department of education 2/24/16 Each department is responsible for budgeting the money they are allotted. The departments can submit a request to the budget committee for more money. The final proposed total budget (made by the budget committee) is sent to congress for approval If congress deems it unacceptable, it is sent back to budget committee When the congress sees it again and they like it, they approve it Congress has spent time to review it and then sends it to the President for him to review The president doesn’t see the budget until it is reviewed by congress Tax revenues – Government Spending = <deficit> or surplus If the sum is a deficit, the government will then borrow money from either the social security fund or borrow internationally (**The last time that the US had an economy that created a surplus was at the time of the Clinton Administration. However, the US deficit has decreased every year form 20092015.) Deficit National Debt Economic Goals 2014 15 trillion Consistent, growing, satisfying GDP 2015 1 trillion 16 trillion Full employment 2016 .5 trillion 16.5 trillion Stability in value of our money Between 20152016 the deficit has decreased; but the national debt has increased US Social Security Trust Fund The US Social security trust fund is in excess of a trillion dollars. When the social security administration has a base of this magnitude, they could keep all of their money or invest it. They invest their money by distributing US government saving bonds. This trust fund will be exhausted by 2033 if this keeps happening If the economy isn’t reaching its goals (after all the calculations, budgets, etc.) what responsibility does the government have to act and use its tools to correct for the lack of performance? Classical School: The government should not intervene It will naturally return to a level of GDP output that is satisfying. The system of markets and prices will insure that this happens. Say’s Law: Supply creates its own demand and the economy will thereby naturally gravitate to full employment Banks will lower interest rates, borrowers (businesses) will borrow more and expand their productive capacity, and more people would buy from them. 2/26/16 Keynesian School: Keynesians say it’s the obligation of government to act and correct these deficiencies. Spending needs to be stimulated. Government needs to take action to allow spending to be stimulated. Savers and borrowers are two totally different groups with totally different motivations. There is no assurance that borrowers will seek to borrow available funds based only on interest rates. And there is no assurance that borrowers will seek to secure funds based only on interest rates. Example: Our savings are going up because we are saving more, so banks have more money to lend. But since we are saving, then we aren’t spending. So businesses aren’t borrowing because they are going to reduce their production because people aren’t buying. Then the banks lower interest rates to try to entice businesses to borrow money. But those businesses are not going to want to borrow. Because they don’t need to expand their productive capacity because aren’t even using the equipment they already own. Savings increase, interest rates decrease. Classicals say that business owners will rush to borrow. But Keynesians say there is no assurance that these businesses will borrow. We can’t assure that the savings will be borrowed and put back into the economy. What can the government do to stimulate higher levels of spending? Government can lower taxes: If less of our money is being taken out by taxes, we will have more income and will have more to spend The government could spend more themselves: The government could spend money by hiring workers to build roads, bridges, etc. Those workers would then get more money and spend more. Downfall of implementing this Keynesian policy: Greater deficit, national debt will increase
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