Macro 17.pdf
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Macro 17
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Macro 17.pdf
- 4. Exam 2 Review Chapters 10-16
- 6. Chapter 10 Stock Market and Personal Finance
- 7. What is a Market? Where buyers and sellers can discover value
- 8. money put at risk over time money is time savers and borrowers (1+r)n insurance limited liability corporations double entry accounting Financial Capital
- 9. Income Statement Revenue - Expenses = Net Income What happened between two dates?
- 10. Balance Sheet What I own What is the status on a speci fi c date? What I owe What I am worth = Assets Liabilities Net Worth Must balance
- 11. Accounting Pro fi t Explicit Costs Explicit + Implicit Costs Economic Pro fi t
- 13. Finance Time - t or n Risk - r or i
- 14. Foundation Finance Formula (1 + r ) n r = risk rate n = time periods
- 15. number of periods Value r = 5% r = 10% r = 15% Value = (1 + r)n r = rate n = number of periods
- 16. number of periods Value r = 15% Value = (1 + r)n r = rate n = number of periods Future Value Present Value
- 17. Present Future x Factor ? ÷ Factor ? Factor Formula = (1 + r ) n
- 19. Culture Human Beings Ideas Physical Human Intellectual Financial Inventions Entrepreneurs Free Markets Innovations The Capitals of Innovation
- 23. Frictional Unemployment Time to find a new job
- 25. Structural Unemployment Too many workers Change in Demand
- 26. Unemployment Rate Labor Force Participation Rate Rate are Ratios
- 27. Population 330 Adults 254 Labor Force 160 Employed 152 Under 16 76 Not in Labor Force 94 8 Unemployed Employed 152 8 Unemployed Not in Labor Force 94 Under 16 76 Labor Force Participation Rate = Labor Force ÷ Adults Unemployment Rate = Unemployed ÷ Labor Force Rates
- 28. Men Women
- 29. $0 $5 $10 $15 $20 0 10 20 30 40 50 60 Supply Demand Wage Workers Equilibrium Wage 30 workers 30 jobs no unemployment Minimum Wage 40 workers 20 jobs 20 unemployed workers Minimum Wage 20 workers get a raise 10 workers lose job 10 new unemployed workers Minimum Wage
- 30. 3,000 people live in Pooleynesia. There are 250 people under 16. 450 people are not in the labor force. 230 people are unemployed. 1. What is the Labor Force Participation Rate? 2. What is the Unemployment Rate?
- 31. Calculating Unemployment Rates Employed + Unemployed = Labor Force # % 100% The unemployment rate is 10% and there are 4,500 people employed. What is the number unemployed? 10% 90% 4,500 5,000 500 4,500 ÷ .90 = 5,000
- 32. Calculating Unemployment Rates Employed + Unemployed = Labor Force # % 100% The unemployment rate is 5% and there are 2,500 people unemployed. What is the number employed? 5% 95% 47,500 50,000 2,500 2,500 ÷ .05 = 50,000
- 33. Calculating Unemployment Rates Employed + Unemployed = Labor Force # % 100% The unemployment rate is 3% and there are 19,400 people employed. There are 30,000 adults. What is labor force participation rate? 3% 97% 19,400 20,000 600 19,400 ÷ .97 = 20,000 20,000 ÷ 30,000 = .67 or 67%
- 34. Chapter 12 In fl ation and the Quantity Theory of Money
- 36. In fl ation Cause: Printing money faster than making goods and services Effect: Rising prices
- 37. Nominal vs. Real
- 38. P2 - P1 P1 In fl ation Rate
- 41. Quantity Theory of Money M = Money Supply v = velocity P = Price Level YR = Real GDP
- 42. v = velocity The average number of times a dollar is used to purchase fi nal goods and services within a year
- 43. Mv = PYR Assume v andYR are constant M = P
- 44. M = P In fl ation is everywhere and always a monetary phenomenon Milton Friedman
- 46. Chapter 13 Aggregate Demand Aggregate Supply Model AD-AS Model
- 47. Model A way to understand how things work Models change Reality doesn't
- 48. Chart A way to illustrate logic and data
- 49. Aggregate Demand Why do people want to buy things?
- 50. In fl ation Rate P π AD Real GDP Growth Rate Y Shift Left - Decreasing Demand Slower Money Supply Growth (higher interest rates) Fear Reduced Wealth Higher Personal Taxes Lower Government Spending Decreased Export Growth Increased Import Growth Shift Right - Increasing Demand Faster Money Supply Growth (lower interest rates) Con fi dence Increased Wealth Lower Personal Taxes Higher Government Spending Increased Export Growth Decreased Import Growth
- 51. Aggregate Supply a function of all of your capitals
- 52. What is capital? anything you can use to create value
- 53. Supply No matter the price you can only produce so much
- 54. Real GDP Growth Rate In fl ation Rate π LRAS Shift Left - Losing Capitals Bad weather Higher oil price Tech slump Higher business taxes or regulations War, Earthquake, Pandemic Shift Right - Gaining Capitals Good weather Lower Oil Price Tech boom Lower business taxes or regulation Smooth production
- 55. Real GDP Growth Rate In fl ation Rate π LRAS AD
- 56. Real GDP Growth Rate In fl ation Rate π AD LRAS SRAS
- 57. Father of Macroeconomics John Maynard Keynes (1883 - 1946) The GeneralTheory of Employment, Interest and Money The ideas of economists and political philosophers are more powerful than commonly understood; indeed the world is ruled by little else.
- 58. Aggregate Supply Shift Left - Decreasing Demand Slower Money Supply Growth Fear Reduced Wealth Higher Personal Taxes Lower Government Spending Decreased Export Growth Increased Import Growth Shift Right - Increasing Demand Faster Money Supply Growth Con fi dence Increased Wealth Lower Personal Taxes Higher Government Spending Increased Export Growth Decreased Import Growth Left Shift Left - Losing Capitals Bad weather Higher oil price Tech slump Higher business taxes or regulations War, Earthquake, Pandemic Shift Right - Gaining Capitals Good weather Lower Oil Price Tech boom Lower business taxes or regulation Smooth production Aggregate Demand Right
- 59. π Y Quiz ADAS Modeling In fl ation Output Curve Direction Level Level 1. Good Weather 2. Slower Money Growth Rate 3. Lower Business Taxes 4. Decrease in Exports 5. New innovation 6. Lower electricity prices 7. Higher Personal Taxes 8. Earthquake AD Real GDP Growth Rate In fl ation Rate π LRAS SRAS
- 61. Transmission and Ampli fi cations Intertemporal Substitution Uncertainty and Irreversible Investments Labor Adjustment Costs Time Bunching Collateral Damage
- 62. Uncertainty and Irreversible Investments Bad news creates uncertainty uncertainty makes you wait Sunk Costs Cannot reverse
- 64. Who is the chairman of the central bank in your country?
- 65. AD Real GDP Growth Rate In fl ation Rate π LRAS SRAS Recession In fl ation
- 68. Reserve Ratio Fractional Reserve Banking Money Multiplier
- 70. Reserve Ratio Fraction of deposits that must be held in reserve
- 71. Reserve Ratio RR = 1÷ MM Money Multiplier MM = 1÷ RR
- 72. Discount Rate Rate the FED charges member banks
- 74. 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time to Maturity Interest Rate FED Changes Discount Rate Other Rates Follow
- 75. Open Market Operations Buying and Selling Financial Instruments
- 76. Banks now have more cash to loan Central Bank Public Banks Increase Money Supply? Buy bonds for cash
- 77. Banks now have less cash to loan Central Bank Public Banks Decrease Money Supply? Sell bonds for cash
- 78. What do banks do with extra money? Excess Reserves The FED will pay them interest
- 79. Excess Reserves Interest If the rate is high enough you will leave it in the bank. Sets a fl oor
- 82. AD Real GDP Growth Rate In fl ation Rate π LRAS SRAS Recession In fl ation
- 83. Problem Money Supply Interest Rate AD Shift Reserve Ratio Discount Rate Open Market Operations Excess Reserve Rate In fl ation Unemployment Stag fl ation Left Increase Increase Sell Bonds Increase Right Decrease Decrease Decrease Buy Bonds Increase Decrease Increase Decrease
- 84. Disin fl ation Slower growth in in fl ation rate 8% to 3% De fl ation Negative in fl ation 8% to -3%
- 85. Illiquid No cash Net worth to pay debt, but can’t sell quick and without loss Insolvent No cash No net worth to pay debt
- 87. Quantitive Easing Buying lots of other fi nancial instruments. Lots of illiquid assets