Macroeconomics Notes for Kaplan's Class April 25th, 27th, and 29th
Macroeconomics Notes for Kaplan's Class April 25th, 27th, and 29th Econ 2020
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This 3 page Class Notes was uploaded by Robin Silk on Friday April 29, 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 11 views. For similar materials see Principles of Macroeconomics in Economcs at University of Colorado at Boulder.
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Date Created: 04/29/16
Monday April 25th 1. US Euro 2. Population 323m 338m 3. Central Govt Yes No (18 Countries) 4. Central Bank Fed ECB 5. Common Language Yes No 6. Common Culture Yes No 7. Free Trade Yes Yes 8. Open Borders (labor) Yes Yes 9. Automatic Stabilizers Yes No 10. Considerations a. Eurozone i. Common currency leads to increased trade ii. Elimination of tariffs and quotas iii. No currency conversion or risk iv. Encourages the movement of labor v. Not a political union; doesn’t have to be 1. Super beneficial for all involved vi. Interest rates targeted by ECB b. Stability Criteria i. Stability criteria limits deficits and debt from a country that would require other countries to bail them out ii. Eurozone country’s domestic budget deficit may not exceed 3% of that nation’s GDP c. Germany & The Eurozone i. Reunification of Germany in 1990 1. West Germany: Known for high quality goods, high productivity 2. East Germany: Known for low cost labor (still high education though) a. German unification allows for the production of high quality products at a lower cost ii. Greece and Germany 1. Before the Euro a. Greece ~ Drachma b. Germany ~ Mark 2. Equal prices of German and Greek goods to Greek consumers a. Greek consumers prefer higher quality German imports b. Greece has a current account deficit with Germany i. Value of imports > Value of exports c. Exchange Rate Effect d. i. Supply of the Drachma in foreign markets is getting high, which causes Drachma depreciation ii. This Drachma depreciation leads to increased price of imports from Germany, This counter balances German quality advantage (high price for good German quality) Wednesday April 27th 1. Greece a. Govt issues debt to finance deficit + debt b. In the past, govt had defaulted on debt obligations i. This leads to poor credit quality; high cost for Greek govt to borrow c. Greece joined the Eurozone i. This makes govt debt seem high quality; since Greece is in the Euro family it has the Euro family’s backing this lowers the cost for the Greek gov't to borrow d. Early/mid 2000s in Greece i. Increased govt spending & ineffective tax collection ii. Leads to increased deficits, govt borrowing decreased by stability criteria 2. Gross Currency Swaps a. Greek govt debt in euros was accounted for in the SC and the Eurozone i. Debts in other currencies ($, yen, etc) off the books b. Late 2000s i. Greek govt is insolent ii. Doesn’t have the revenues to meet interest payments on Euro debts, USD debts c. Possible Options i. Greece could leave the Eurozone 1. This would lead to the Drachma defaulting, Europe seeing this and pulling out of Greece. This would lead to capital flight and a banking crisis 2. The Drachma would depreciate, the price of imports would rise. 3. Since the Greek Govt is unable to borrow, and the fact that they continue to print more Drachma, this would end in hyperinflation ii. Greece cuts spending incomes and benefit programs 1. The entire country could collapse iii. Greece stayed in the Eurozone and got bailed out by the ECB 1. Austerity measures a. Feb 2010: decrease govt spending, benefit programs b. Aug 2015: reform tax system enforcement c. Wage and income cuts have been implemented d. The unemployment rate for Greece is 2 4.5% Friday April 29th Class was cancelled; no review session.
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