Macroeconomics Notes For March 28th, 30th, April 1st Kaplan CU
Macroeconomics Notes For March 28th, 30th, April 1st Kaplan CU Econ 2020
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This 6 page Class Notes was uploaded by Robin Silk on Thursday April 14, 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 17 views. For similar materials see Principles of Macroeconomics in Economcs at University of Colorado at Boulder.
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Date Created: 04/14/16
Monday March 28th Bernie Sanders 1. Current Events: Bernie Sanders’ Tax plan i. Information from the Brookup Institution (independent research group) b. Tax Side i. +$15.3t (20172027) ii. +$25t (20272037) c. Federal Income Tax i. 10%, 15%, 25%, & 28% increase by 2.2% ii. 33% > 39.2%, 35% > 45.2%, 39.6% > 54.2% d. Payroll Tax i. Current Cap is $118,500: Would raise it to $250,000 ii. Rate paid by employee 6.2% > 6.4% iii. Employer paid by 6.2% > 6.4%, + additional 6.2% (Total 12.6%) e. Capital Gains i. Current rate of 20%; Sanders would put capital gains under the ordinary income bracket (subject to a total of 54.2%) ii. Sanders would also add an additional surtax of 10% f. Additional Taxes i. Financial Transactions Tax ii. Carbon Tax g. Overall i. Every American would see an increase in taxes 1. The average annual tax increase would be $9000/household 2. The average aftertax decrease in disposable income would be ~12% 2. Sanders’ Spending Side a. Universal Healthcare i. Free healthcare for all citizens b. Free College c. Increased Infrastructure Spending 3. Monetary Policy a. Restrictive Policy i. In this policy the fed is concerned with increases in inflation rates ii. There is a lag in monetary policy, meaning changes that are implemented don’t have an effect until some time after 1. The fed looks ahead almost a year in advance b. Steps i. The Fed sells US treasury bonds to banks ii. This decreases bank reserves and decreases monetary base iii. Fed funds market: decrease the supply of federal funds 1. This increases the fed funds interest rate c. Increase market interest rates (.5% > 1%; +50 basis points) i. Tenyear Tnote rate 2% > 2.5% 1. Changes in the yield curve 2. 3. GDP = C + I(r) + G + NX a. As r increases, I decreases b. Lowering investment will slow GDP growth d. Macroeconomic Scale i. Aggregate Demand = GDP = C + I(r) + G + NX 1. a. Early 2016: Goldilocks Economy i. Low inflation rate: <2% ii. Low unemployment rate: ~5% iii. AD growth ~= AS Growth, 2% Wednesday March 30th Manufacturing 1. Manufacturing Employment a. 1900s: US is an agricultural economy b. 1950s: Us is a manufacturing economy c. 1994: President Clinton signs NAFTA (North American Free Trade Agreement) i. Outsourcing: Manufacturing jobs were put overseas 1. Low labor costs in places like Mexico 2. Mexico was overtaken by China; China had an even better supply chain and could supply goods for even cheaper ii. Since 1994 4.5mil jobs have been lost in US manufacturing 2. Since 2007, the value of manufactured goods in America has increased by 20% a. Reshoring: Bringing production back locally that had been shipped overseas i. Reasons For Reshoring: 1. Labor costs are rising overseas 2. Supply chain feasibility 3. Lower electricity costs ii. US manufacturing employment has only gone by 5% since 2009 1. This is due to automation of factories 3. Monetary Policy Continued a. Potential Failures on the Fed’s Side i. A change in the federal funds interest rate will have a minimal impact on longer term interest rates 10yr T Note 20yr TBond 1. Jan 2004 1% fed funds rate 4.15% 5.01% 2. Jan 2005 2.25% fed funds rate 4.22% 4.77% 3. Jan 2006 4.5% fed funds rate 4.8% 5% 4. Jan 2007 5.25% fed funds rate 4.68% 4.87% 5. Jan 2008 4% fed funds rate 3.74% 6. Jan 2009 0.15% fed funds rate 2.52% a. The fed funds rate increased, but there was little change in long return rates that aren’t set in markets b. “Global Savings Glut” ii. Link Between r and I 1. As r increases, I decreases 2. As r decreases, I increases i. Nominal GDP Investment 3. Jan 2007 $13.51t $2.12t 4. Jan 2008 $14.15t $2.06t 5. Jan 2009 $13.98t $1.89t a. Look at these numbers compared to the fed funds rates above; here, as r decreased, I decreased. This is not in line with what we have learned 4. Mortgage Backed Securities a. MBS Creation Steps Example i. Someone buys a home for $250,000 with a loan; they have to pay this plus fees back to the bank ii. The homebuyer makes monthly payments iii. Intermediaries such as Fannie Mae, Freddie Mac, & Investment Banks, purchase the loans from the banks. This passes the default risk on. Friday April 1st 1. H 1B Visas a. Skilled foreign workers can come to the US to work and potentially stay b. There is a current cap of 85,000 i. 65,000 are foreign residents ii. 20,000 are students graduating from American universities c. Senator Ted Cruz wants to restrict the visas i. Wants to reduce the supply side of workers in order to help out American workers 1. This reduces supply 2. This policy change does not take demand side into consideration 2. National Foundation for American Policy a. Startup companies i. Young, founder funded ii. Study of 87 US startups with a valuation of $1b+ 1. 44 were started by first generation immigrant entrepreneurs a. These businesses have a value of $168b b. Average job creation ~760 per company c. Companies include Uber, Palantir Tech, Space Exploration Tech 2. These companies create a lot of jobs and a lot of value for the US 3. Financial Crisis a. Mortgage Backed Securities (Continued) i. Home buyers take out a loan from Banks 1. The Banks give them a loan 2. The borrowers make monthly payments 3. This can be a loan of $250,000+, they pay fees on top of this too ii. Financial institutions purchase these loans from banks b. How do the banks make money from this? i. Loan origination fees are the major source of profits ii. The risk of homeowner defaults are passed on by the bank c. Fannie Mae (Financial Intermediary) i. Purchases multiple mortgages and pools them together 1. They are put into “mortgage backed securities” a. The mortgage payment is passed on to these MBS’s b. You can purchase them at $1000 a share at different coupon rates (4% for example) i. At 4% with a $1000 ticket, you get $40 a year till the security matures and then you get your $1000 back c. MBS’s have ratings (from AAA till BB) i. The higher the rating, the less chance of defaults 1. There are companies that rate the MBS’s, they are paid by the financial intermediaries to rate them ii. CDOs are created from poorly rated MBS’s amongst other things and are repackaged as good deals
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