ECON 2013 (Macro) Notes Week 5
ECON 2013 (Macro) Notes Week 5 ECON 2013
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This 7 page Class Notes was uploaded by Winston on Thursday September 22, 2016. The Class Notes belongs to ECON 2013 at University of Arkansas taught by Stapp in Fall 2016. Since its upload, it has received 3 views.
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Date Created: 09/22/16
1. The stock market is NOT our economy 2. The stock market does show how people feel 3. IMF a. International monetary fund i. Where countries go to get bailouts 1. Loans 4. Insolvency a. Bank cannot pay back its insuring obligations 5. Solvency a. Bank can pay back its insuring obligations 6. Cash a. Sterile asset b. Bank won't make money by just accepting deposit 7. Bank panic a. Main cause of economic downturn in 1800s b. Bank can't pay off the people who have deposits i. Everyone freaks out 8. When a bank runs out of money they go to the Federal Reserve a. Get a loan 9. When Venezuela runs out of money they go to the IMF a. Inflation rate (expected) in Venezuela for the next year is 720% i. 1 dozen eggs are $150 10.Since 1930’s a. Banks have had to pay FDIC (deposit insurance) 11.FED is supposed to be a bank’s bank a. 15 years in they had a big catastrophe i. 5500 banks had to close 1. Great Depression a. FED has been putting money into the economy. Afraid to take it out because it might cause recession 12.Human’s first instinct when they see economic troubles is to save a. Causes the economy to go down 13.We have never had triple digit inflation in the U.S. a. Not even high double digit i. Worst ever was about 25% 14.Stagflation a. Economy is not growing i. And we have high inflation 15.Dual mandate a. Fed would try to promote high employment (low unemployment) and “acceptable” interest rates 16.Business Cycle a. Recurring fluctuations of economic activity 17.Inventory turnover a. How long it takes to sell one’s inventory i. Want a high ratio 18.o/p = output 19.(o/p) / worker = productivity 20.Increase in (o/p)/worker = increase in productivity = consistent goal 21. Week Five 22.Crisis level interest rates a. Very, very low interest rates i. Trying to keep ir low to stimulate the economy 23.Nominal ir a. Real interest + inflation rate i. Paid on loan 24.Inflation a. Steady rise in price index over time 25.Nominal rate a. What the Fed is trying to control 26.People expect the Fed to keep ir the same for the rest of year 27.Normalized ir a. Interest rates in normal time 28.Keeping ir low a. Deteriorates what people can earn off savings b. Deteriorates what banks earn on loans 29.Increasing ir a. Banks pay more on savings i. Stock prices go down 30.Average car in 1960’s a. $2000-$3000 31.Taper tantrum a. Stocks fell because of ir increase, so Fed stopped increasing ir i. term used to refer to the 2013 surge in U.S. Treasury yields, which resulted from the Federal Reserve's use of tapering to gradually reduce the amount of money it was feeding into the economy 32.Long term interest rate in U.S. a. Should be about 4% i. Is currently about 3% 33.Increasing ir a. Increases the cost of business 34.Risk on a. Money in stocks 35.Risk off a. Money in bank savings 36.As everyone sells a stock its price falls a. If everyone starts selling every stock, all the prices will fall i. Makes for a good opportunity for someone with a lot of capital to purchase 1. This starts the recovery process 37.“We have nothing to fear but fear itself” a. FDR i. Speaking on bank panics 38.Stock market at all time high a. Dow b. S&P 500 i. People are investing in high yield stocks 1. Pay large percentage dividends 39.What was the last car to sell for less than $3000? a. Volkswagen Beetle i. “Peoples car” 40.Most Volkswagen Beetles sold in the U.S. are made where? a. Brazil 41.Average cost of a wedding a. 1960’s i. $1,000 b. Now i. $30,000 42.Durable Goods a. Can wait it out, use for a few more years b. As ir increases people get ‘priced out’ i. Can’t afford to borrow 43.What’s the most expensive real estate in America? a. San Francisco i. 1-bedroom house (if you can find one, most are apartments) 1. About $864,000 a. 20x20 i. $550k 44.Goldilocks a. Expanding, full employment, no inflation 45.Average House a. 1960’s i. $25,000 b. Now i. $250,000 46.One observation does not a trend make 47.As the economy begins to fall (phase 3), employers try to hold on to employees for as long as possible a. Eliminate overtime b. Cut back on hours i. Close on Friday ii. Work 8 hours Monday - Thursday c. If it keeps getting worse i. Fire a few ii. Try to keep most d. Keep decreasing productivity 48.Some criticize capitalism for having ‘boom’/‘bust’ habit 49.Prolonged phase 3 may leave next generation worse off than the last generation 50.Real Savings = (nominal savings) / (prices) 51.Big market collapse a. Golden opportunity for someone i. Got to have: 1. Nerve to do it 2. Money to do it 3. Know how to do it a. Starts phase 4 52. END CLASS NOTES UNIT ONE (9/20/16) Week 4 ESI Read chapters 11-14 in Macro Issues for week four - PART 2 for test (6-14) For Pearson book - if Stapp doesn’t work it out in class then don’t worry 53.Chapter 7 a. NBER i. National bureau of economic research 1. Research on economic trends, how to act to escape recession/avoid inflation/etc. ii. Three D’s 1. Depth a. How bad i. 1,000,000 vs 40,000 2. Duration a. How long has the trend been occurring i. Month to month or half a year/year 3. Dispersion a. What’s relevant i. Unimportant industry doing terrible but important industry doing good is alright 1. Great Depression = manufacturing & banking b. Precise answer i. Expansions between a trough and a peak 1. Norm for most advanced countries a. Trending upwards long term i. Healthy cycle of trough and peak 54.Chapter 8 - Capital Wealth and Inequality a. Karl Marx wrote Das Kapital i. Why is capital abbreviated using a “K” b. Thomas Picketty i. Wrote Capital in the Twenty-First Century c. Poverty rates in America d. Income mobility i. Life-span 1. Younger > less skilled > any unskilled job > after college > stay in a generalish area > don’t switch job every year 2. Luck is a factor 55.Chapter 9 - The Great Stagflation a. Stagflation i. Stagnation ii. Inflation 1. Economy isn’t booming but there is still inflation b. 2001-2006 Housing Bubble i. Growing at such a fast rate that people built A LOT 1. Economy didn’t keep growing as expected c. The deeper the recession the harder it is to recover i. Economic safety net is usually the government 1. Make programs 2. Spend more d. GDP i. Gross domestic product 1. Only concerned about borders a. Only companies that operate within the borders are counted e. GNP i. Gross national product 1. Concerned with nationality of company f. To take net of either GDP or GNP - making NDP or NNP i. Take out net investment g. GDP = C+I+G+(x-m)-NII h. Investment(I) i. Housing ii. Inventory i. Government Spending(G) i. Transfer payments 1. Food stamps 2. Social security 3. Welfare a. Not counted in GNP or GDP j. Earned income tax credit i. People who meet certain requirements can apply to get taxes back 1. Typically, people who have: a. Low incomes b. Big families 56.Chapter 10 - The Case of the Disappearing Workers a. Unemployment Rate i. The percentage of the total labor force that is age 16 or older, but not institutionalized or in school, and actively seeking employment, but has not found it 1. College students looking for job aren’t counted 2. 15 year olds looking for job aren’t counted b. Discouraged Workers i. Not accounted in unemployment rate 1. People give up and stop looking for jobs c. Labor supply curve i. Expect it in class, probably not any time soon Inventories - 25 Durable goods - 700 CCA - 500 Imports from Europe - 800 Transfer Payments - 50 G - 350 Income earned by U.S. firms overseas - 250 Housing - 200 Money Supply - 550 Interest Rate - 4.5% Capital (Capital Expenditures) - 200 Exports to Europe - 400 Income earned by foreign firms in the U.S. - 350 Volunteering - 200 Non-market activities (underground economy) - 400 Nondurable goods - 600 NDP = GDP – CCA 9 times of 10 you WON’T use money supply in calculations Week five ESI 57.40 million in poverty a. Lower % than it used to be 58.38 a. Median age 59.5 things that affect mobility 60.Great Gatsby Curve a. Income mobility is less in areas where there is big income inequality 61.Inflation Tax a. Not a real tax b. As inflation increases, the power of your money goes down i. You can buy less later than you can now with the same amount of money 62.Germany 63.Relative prices, nominal prices, inflation 64.Product quality changes 65.Declining nominal prices 66.Was gas really expensive? a. Not compared to the price vs income in 1960 67.The Business Cycle a. Phase 1 i. AD increase, inventory decrease, o/p increase, productivity increase, increase employment, increase income, increase prices, increase interest b. Phase 2 i. Peak c. Phase 3 i. Recession d. Phase 4 i. Trough 1. During expansionary time - everything except inventories increases 2. During recessionary time - everything except inventories decreases
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