Macroeconomic Notes for April 11th, 13th, and 15th for Professor Kaplan
Macroeconomic Notes for April 11th, 13th, and 15th for Professor Kaplan Econ 2020
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This 7 page Class Notes was uploaded by Robin Silk on Friday April 15, 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: 04/15/16
April 11th 1. Exchange Rates a. Value of a currency in terms of another 2. Exchange Rate Types a. Floating Exchange Rates i. The value of a currency is determined in foreign exchange markets b. Pegged Exchange Rate i. The value of a currency is set to another’s, and it doesn’t change c. Dollarization i. Aligning a currency’s value with the US dollar 3. Accounts a. Current Account i. International transactions for goods and services ii. Net exports (NX) = exports imports b. Capital Account i. Financial assets (Stocks, bonds, etc) ii. Direct foreign investments 1. Vestas etc 4. Financial Crisis Key Points a. Wealth on Wall Street b. Housing Bubble i. Housing values spiraled when it popped ii. Homeowners who had borrowed a lot had massive debts they couldn’t pay off iii. The decline in consumption and housing production (I) lead to a recession iv. As more homes are foreclosed, MBS and CDO demand collapsed c. Markets i. Markets went into a panic; many major financial institutions were insolvent or near bankruptcy 1. This indicated a path to a depression d. Financial Crisis Legacy i. Supply side growth is the determinant of GDP growth in the long run ii. Due to a lack of law reform, a similar situation is likely in the future April 13th 1. Exchange Rates a. Jan 2001: $1 E1.06 E1 = $0.94 b. Jan 2002: $1 E1.13 E1 = $0.88 c. Jan 2016: $1 E0.88 E1 = $1.14 i. 2001 to 2002; dollar appreciation & euro depreciation ii. 2002 to 2016; dollar depreciation & euro appreciation 2. $ Depreciation vs. Euro a. Exchange E40,000 GermanMade Car $500 US Made Bike Rate $1 : E1.06 German Price:E40,000 US Price:$37,735 German Price:E530 US Price:$500 $1 : E0.76 G Price: E40,000 US Price: $52,631 G Price: E380 US Price: $500 b. German goods become more expensive for American consumers as the dollar depreciates. US goods become cheaper for Germans as the Euro appreciates. 3. a. Supply of $ in the foreign exchange market (Floating Exchange Rate) b. Current Account i. US purchase of imported goods and services ii. Increased dollar supply as the dollar appreciates iii. When foreign buyers purchase US exports of goods and services c. Capital Account i. US purchase of foreign financial assets is direct foreign investment by USfirms ii. Foreign purchase of US financial assets iii. Foreign direct investment into the US d. e. 4. Pegged Exchange Rate a. f i. Y/$ is the float rate ii. Y/$ p is the desired peg rate 1. To peg a currency, create a higher demand for $ in foreign exchange markets 2. Pegged exchange rates can increase/decrease demand for exports iii. April 15th TEST REVIEW 1. Current Events a. Arizona Immigration Reform i. # of illegal immigrants decreased by 40% 1. This lowered costs for taxpayers by $1b 2. Wages went up 3. Job opportunities went up 4. Decreased state GDP growth b. Bernie Sanders Tax Plan i. Pretty much raise taxes on everything 1. Payroll tax 2. Capital gains tax 3. High income, low income ii. Annual Taxes paid by households increased ~$8000/yr iii. Avg after tax disposable income decreases by ~12% c. Taxes and Tax Policy i. Three different types ii. Bush vs Obama tax systems 1. Bush system favored higher tax brackets 2. Obama d. MPC i. Govt Spending Multiplier 1. ii. Tax Multiplier 1. iii. Beta 1. How a stock moves in relation to the market 2. If Beta = 1 a. When market goes down 1%, stock will go down 1% b. When market goes up 1%, stock will go up 1% c. Moves with market 3. If Beta > 1 a. When market goes up 1%, stock will move up more than 1% 4. If Beta < 1 a. When market goes up 1%, stock will move up less than 1% iv. P/E Ratio 1. Price / (Earnings / Share) v. PEG Ratio 1. PE ratio / % Growth e. Money i. 3 Roles 1. Medium of exchange 2. Unit of account 3. Store of value ii. Fiat Currencies vs. commodity currencies f. Monetary Policy i. Restrictive vs. Expansive policies 1. Restrictive: Fed sells US treasury bonds a. Interest rates go up i. Leads to decrease in investment ii. Leads to decrease in GDP 2. Expansive: Fed buys bonds a. Interest rates go down i. Leads to increased investment ii. Leads to increase in GDP
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