PRIN OF MACROECON
PRIN OF MACROECON ECON 2105
Popular in Course
Popular in Economcs
This 65 page Class Notes was uploaded by Eloise Smitham on Saturday September 12, 2015. The Class Notes belongs to ECON 2105 at University of Georgia taught by Staff in Fall. Since its upload, it has received 23 views. For similar materials see /class/202513/econ-2105-university-of-georgia in Economcs at University of Georgia.
Reviews for PRIN OF MACROECON
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 09/12/15
CHAPTER 13 Saving Investment and the Financial System n Is cgaper look for the answers to these questions Financial Institutions The financial system Financial markets Financial Institutions Financial intermediaries of labor force 00 A O I CD I CD G 122007 39 39 39 39 39 39 012008 022008 032008 042008 052008 062008 072008 072008 082008 092008 102008 112008 122008 012009 022009 032009 042009 052009 062009 072009 082009 092009 102009 112009 122009 O I The Financial Crisis of 2008 2009 UK and around the world A few unemployment rates USA France a A financial crisis led to a deep recession in the US Canada U E D D D 5 FYI Elements of Financial Crises FYI Elements of Financial Crises Different Kinds of Saving Private saving Public saving National Saving National saving Saving and Investment Recall the national income accounting identity Budget Deficits and Surpluses Budget surplus Budget deficit A Calculations Suppose GDP equals 10 trillion consumption equals 65 trillion the government spends 2 trillion and has a budget deficit of 300 billion Find public saving taxes private saving national saving and investment A Answers Given Y100 C65 G20 G TO3 B How a tax cut affects saving Use the numbers from the preceding exercise but suppose now that the government cuts taxes by 200 billion In each of the following two scenarios determine what happens to public saving private saving national saving and investment 1 Consumers save the full proceeds of the tax cut 2 Consumers save 14 of the tax cut and spend the other 34 B Answers C Discussion Questions The two scenarios from this exercise were 1 Consumers save the full proceeds of the tax cut 2 Consumers save 14 of the tax cut and spend the other 34 Which of these two scenarios do you think is more realistic Why is this question important The Meaning of Saving and Investment Private saving Examples of what households do with saving The Meaning of Saving and Investment Investment The Market for Loanable Funds The Market for Loanable Funds The Market for Loanable Funds The Slope of the Supply Curve Interest Rate Supply 6 A quot 3 60 80 Loanable Funds billions The Market for Loanable Funds The Slope of the Demand Curve nte rest Rate 7 139 4 I I I i Demand l N 50 8390 Loanable Funds billions Equilibrium Interest Rate Supply 5 Demand 6O Loanable Funds billions Policy 1 Saving Incentives nte rest Rate 5 4 Loanable Funds billions Policy 2 Investment Incentives nte rest Rate 6 5 60 7O Loanable Funds billions Budget Deficits Use the loanable funds model to analyze the effects of a government budget deficit Draw the diagram showing the initial equilibrium Determine which curve shifts when the government runs a budget deficit Draw the new curve on your diagram What happens to the equilibrium values of the interest rate and investment A n s w e r 5 Interest Rate 6 5 Loanable Funds billions W and LongRun Growth The US Government Debt 120 100 80 60 40 20 0 Revolutionary War Civil War J I I I I I I I I I gt k I I I I I I I I I I I I I I I I I I I I 1790 1810 1830 1850 870 VWV2 636 in 2010 WW1 1890 1910 1930 1950 1970 1990 CONCLUSION SUMMARY L WK ECONZlGS Ch THA PTE R 7 PRODUCTION AND GROWTH Let s begin with some de nitions n r n came 1 Per baplta income POPU3g4Ja A 2 Per Capita GDP 3 3 Growth Rate of GDP GDP W xloo 600 J t 4 where we multiply the expression in brackets by 1 0 0 to express the growth rate as a percentage Examples 1 Real GDP in Macroland in 2000 was 100000 Its population was 100 Calculate its per capita real GDP 9 a 03quot quotoc La39ao PW Palun 2 In the year 2001 per capita real GDP in Ma roland was 1050 Use this infm39mation and your calculation from the rst example to calculate the growth rate of real GDP 95quot01 1090 xao 5 la Per capita income and per capita real GDP give an estimate of the standard of living or the material wellbeing of a typical citizen in a country The growth rate in the above variables is an estimate of the progress that an economy is making Data suggest that 1 Living standards V0quot MA 5 was amen 2 due to different growth rates rankings of nations by per capita income or per capita real GDP change over time a Late 18003 E 5 39am A was the richest nation b quotroday l Us W gammy Japan all have higher per capita real GDP c Set Pa n probably had the fastest grov39vth rate since 1890 Recall that a country s standard of living depends on 3 8 abquot is F ho 43ku good 6 SQvic CS A ma W q How did Tom Hanks character in the lm Slaipweeeleed get goods and services his Sci F frodudn39ua de Rimmed his LL33 swam In economies with more people the living standard still depends on t be Viki fa PWMCLR awsd Muse s But with at least two people in the economy 3 W M FM spec gd Eel exist Most if not all economies produce more and enjoy higher living standards as a result by having each worker bgeciame 3A one o r iv Wifhis increases productivity PRODUCTIVITY De nition GEM o F 5004 at gelwade gauged For CK W a F w rm MM PUBLIC POLICY AND ECONOMIC GROWTH 1 Investing in Ca p Hi AWllows an economy to produce more by e XPMJU 3 i P PF B The opportunity cost of investment is H WM at W unmphan we give u C Countries with high investment rates tend to have high growth rates But Lot cm cuSc U M ck u qrrcej w H m5 39 quot0quot C39 O 9 ultra Lead 9 have 3 AVLSMMC D Some policies to stimulate investment 1 or 139 39 V M Tw C 39439 3 reduce the cost of building new factories or buying new machines i ii Ubk Co UCa FIGA improves human capital iii Cott Subsidies a Carouni promote research and development iv Patents copyrights property rights and political stability increase the expected reward for investments Less chance of loss due to but V Promoting saving to make it easier for rms to borrow if needed to invest Example Taiwan Taiwan designed economic policies to offer L a b a i a lens r ates h Ciwml va 1 Policies also gave businesses Law 54 1quot 6 Cquot t 34 to reduce costs of borrowing to invest s Growth rate in Taiwan increased A possible drawback that Taiwan was forced to 39LXPM Mam 3 wits H 3 quotbecause the high mm 6 quot jaws slowed the growth rate of consumption If the demand for goods made in Taiwan decreases that could slow growth vi Attracting investment from 9 EM CQVA tn 3 vii ED H A 5 M j W reduces the threat of losing investments 2 Free trade can enable an economy to grow through 1w 39 3 Win Lire 11 me even with its existing capital stock 3 Diminishing Marginal Returns 239 Traditional growth theory also called we CW5 l 3 H1143 assumes that as an economy adds to its capital stock each additional unit of capital will lead to w a w inc we m 9 squirm seal capthan the previous unit of capital The above assumption is similar to the microeconomic principle that as one rm adds to its capital stock each additional unit adds less to its output than the previous unit This is called the Law of 6L7 quot quot9 quot 3 quot 73 quot4 Pixle H1quot quot3 This helps explain why two countries ie the United States and South Korea can have J nearly equal ratios of investment to GDP yet one of the two South Korea had a per w 0953 Hip amp 839ng A I L L T eLr ai Mij3uc mick 2 n sH tk 2fm3 a f1cf c3vgt red 539 v mm P mm l we m V M 3 a r a F kiwi h kiwi AihlAiht Mlhr I by ec xwfw kr 93 1 At 1 r er L994 Hi ram gap VA CM ha for F1Yoquot 3395 3 gt iHI up 39 U3 Q Saki ION 7 vs 1 quot v iqbe S5 Iq l Sv Hga w 5quot J 3 SV Wu mw 1 H90 3 Vvv39a Wm 00 m Lory 1QML quot e A be 539 9qu Wm He 23 walk smnw AWgtW m 3w wa 5 me h O LMw th a 5 lWAlt LI mr Ln W m I39M m quotW m C 7 C Th N akaH gt274 3 i M ei ur t a vW39 9quot ij yr gt I was 369 g ECO wa 393 ft vh V n L St 1 in 3 p v a I 392 er b zquot 35 In Mr cum 1 f In Vanna L s capita growth rate in real GDP of nearly 7 739 annually but the US had per capita real GDP growth of 2 7 annually from 19601991 pr P15 b r Lbljrw39 t The US had 3th Wquot 0va W 5 4 3 quot han South Korea in 1960 A catchup effect may exist anvewxee a 9bBJar 0391Lquot 5 Theory stating that at some future point all economies will have roughly the same per capita real GDP Draw a graph with per capita real GDP on the vertical axis and time on the horizontal axis This graph shows three economies having per capita real GDP levels that approach each other Decades of data suggest either itch Pug 9132 er Canaljawed fa Cygyir f mg I 1 economies are still v 2 f j 2 CD Wa 7mce 4 b cl SMZFH 6 livv 6 will NOT occur Conditional t 0n V 15 f e C We Cw V fgdnae All economies will converge to one of two or more levels of per capita real GDP depending on an economy s factors of production land labOr and capital and possibly other factors Chapter 1 Ten Principles of Economics Chapter 1 Q Chapter 1 Q Principle 1 People Face Tradeoffs Tradeo Tradeoffs exist due to scarcity Chapter 1 Q Example Efficiency Equality E 39ciency Equality Chapter 1 0 Imagine a tax on labor which is then redistributed among the poor What happens to efficiency Equality Chapter 1 0 Many people want the government to do more of everything to fiX the economy but few realize the tradeoffs of public policy Chapter 1 Principle 2 The cost of something is what you give up to get it Opportunity Cost Chapter 1 0 Example Suppose you have the following preferences 3 Football Video Games 1 Sleep What is the Opportunity cost of taking a nap Chapter 1 Q You pay 15 to see a concert What is included in the 00 Example 2 Chapter 1 Q What is included in the DC of college Books Food Clothes Rent Wages Tuition Chapter 1 Q Principle 3 Rational people think at the margin People weigh marginal costs vs marginal benefits Chapter 1 0 Example An airline with 200 seats has 1 seat left TC 100000 AC 100000200 500 Would the airline sell the last seat for 100 Chapter 1 0 More examples Grocery store marking down food that s near expiration Road trip do you make another stop for something fun or keep on driving Chapter 1 Q Principle 4 rational people respond to incentives Examples Principle 5 Voluntary trade can make society better off Lots of bad press on trade outsourcing etc Consider the alternative autarky r i a lt5 if if Qa gz g Principle 6 Markets are a good way to organize economic activity Markets are how buyers and sellers interact Example Starbucks coffee is 3 What is in that 3 tiquot ghi If buyers want more coffee in the winter we expect price and quantity of coffee to increase Markets react to new information with price changes Can the government central planner do that at Principle 7 Government can sometimes improve market outcomes Market failure There are 3 primary sources of market failure Chapter 1 Q Externalities positive and negative Government can help with Chapter 1 Q Market Power Government can help with Chapter 1 Q Public goods The government can help by Chapter 1 Q Principle 8 A country s standard of living depends on its ability to produce goods and services Chapter 1 Q to Chapter 1 P rimin 9 prices rise when governments print too much money In ation frle A 4 A L q 4 Mb Wm ii 5 W W Principle 10 Society faces a shortrun tradeoff between in ation and unemployment Tradeoff only in SR LR has same U but higher in ation
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'