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Macroeconomics Notes for Kaplan's Class April 25th, 27th, and 29th

by: Robin Silk

Macroeconomics Notes for Kaplan's Class April 25th, 27th, and 29th Econ 2020

Marketplace > University of Colorado at Boulder > Economcs > Econ 2020 > Macroeconomics Notes for Kaplan s Class April 25th 27th and 29th
Robin Silk

GPA 3.871

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About this Document

These notes cover topics including the Eurozone vs the US, Germany's economy, the collapse of Greece and the Drachma, stability criteria, and possible bailout options.
Principles of Macroeconomics
Jay Kaplan
Class Notes
Greece, Germany, Drachma, Macro, macroecon, Macroeconomics, Kaplan, CU, Boulder, Colorado, April, 26th, 25th, 27th, 29th, review, final
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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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