week 12 s2013
Post on 14-Apr-2018
219 Views
Preview:
TRANSCRIPT
-
7/29/2019 Week 12 S2013
1/66
Economics for Business and
Management
Week 12
-
7/29/2019 Week 12 S2013
2/66
Review
Name 3 macroeconomic goals
What are some problems associated with
calculating GDP?
Who is included in the labor force? Who is not
included?
What are the four types of unemployment?
What is inflation?
-
7/29/2019 Week 12 S2013
3/66
Review
What is the difference between GDP and GNP?
What makes calculating unemployment
difficult?
What is a business cycle?
-
7/29/2019 Week 12 S2013
4/66
Review
What is AD?
Why is AD downward sloping?
What causes shifts in AD?
What is AS?
Why is AS upward sloping?
What causes changes in long run potential AS? What ONLY shifts short run AS?
What is the macroeconomic equilibrium?
-
7/29/2019 Week 12 S2013
5/66
Assignment #6 Q1
-
7/29/2019 Week 12 S2013
6/66
Assignment #6 Q2
-
7/29/2019 Week 12 S2013
7/66
Review
What is a recessionary gap?
What is an inflationary gap?
-
7/29/2019 Week 12 S2013
8/66
Assignment #6 Q3&Q4
4. Using the AD/AS model, draw the economywhen it is experiencing a recessionary gap
(recession). Remember to label the axis and any
lines you may draw.5. Using the AD/AS model, draw the economy
when it is experiencing an inflationary gap
(inflation). Remember to label the axis and anylines you may draw.
-
7/29/2019 Week 12 S2013
9/66
Course Project Reminder
Final Paper 5% of course due July 23
(TODAY)
Via digital dropbox ONLY
-
7/29/2019 Week 12 S2013
10/66
Schedule
WEEK CLASS DATE TOPICS COVERED
10 9-Jul Chapters 8&9
11 16-Jul Chapter 10/ Quiz #2
12 23-Jul Chapter 11&12
13 30-Jul Chapters 12&13/ Quiz #314 6-Aug Chapter 14 / Review
15 August 12-17 Finals week
-
7/29/2019 Week 12 S2013
11/66
Chapter 11
Automatic Stabilizers
Multiplier Effect
Budget Surplus and Deficits
-
7/29/2019 Week 12 S2013
12/66
What are Automatic Stabilizers?
-
7/29/2019 Week 12 S2013
13/66
Automatic Stabilizers
Automatic stabilizers are built-in measuressuch as taxes and transfer payments to lessenthe effects of the business cycle.
-
7/29/2019 Week 12 S2013
14/66
Automatic Stabilizers
During a recessionary period:
The government earns less revenue
Pays more EI and Welfare
During an expansionary period:
The government earns more tax revenue
Fewer people demand EI or welfare
-
7/29/2019 Week 12 S2013
15/66
What is the multiplier effect?
-
7/29/2019 Week 12 S2013
16/66
The Multiplier Effect
The multiplier effect is the magnified impact
of a spending change on AD.
An initial spending change produces income and
part of this new income becomes new spending.
This process is repeated with each spending round
smaller than the last.
-
7/29/2019 Week 12 S2013
17/66
The Multiplier Effect
Determined by the marginal propensity to
consume (MPC)
The larger the MPC, the larger the multiplier
effect.
What is MPC?
-
7/29/2019 Week 12 S2013
18/66
MPC
Marginal propensity to consume (MPC) is the
fraction of additional disposable income that a
household consumes rather than saves.
-
7/29/2019 Week 12 S2013
19/66
The Multiplier Effect
We can calculate the multiplier and find the
total impact of an initial change by:
multiplier = 1/(1-MPC)
-
7/29/2019 Week 12 S2013
20/66
Ex. Multiplier
Every $1 in government spending results in
$.67 in consumer spending (MPC = .67)
Multiplier = 1/(1-MPC)
Multiplier = 1/(1-.67) = 1/.33 = 3 ~
Meaning: If government spending increased by $100million it would result in a total increase in spending
of $300 million (the initial $100 million resulted in an
additional $200 million in consumer spending)
-
7/29/2019 Week 12 S2013
21/66
The Multiplier Effect
-
7/29/2019 Week 12 S2013
22/66
The Multiplier
The Federal government spends $2 billion to
construct new highways, what would be the
resulting change in AD?
If MPC were 1/3
If MPC were 1/2
If MPC were 2/3
Multiplier = 1/(1-MPC)
-
7/29/2019 Week 12 S2013
23/66
The Multiplier
The Federal government buys $2 billion worth of oil what
would be the resulting change in AD?
If MPC were 1/3
Multiplier = 1/(1- 1/3) = 1.5Change in AD = 2 billion * 1.5 = 3 billion
Increase in consumption = 3 billion 2 billion = 1 billion
If MPC were If MPC were 2/3
-
7/29/2019 Week 12 S2013
24/66
Practice
T/F When the govt increases spending, the
ultimate increase in total purchases (AD) will
be greater than the initial increase.
T/F The multiplier is smaller when the MPC is
smaller.
T/F The multiplier process is instantaneous
T/F Savings and money spent on imports
reduce the size of the multiplier.
-
7/29/2019 Week 12 S2013
25/66
What are Stabilization Policies?
-
7/29/2019 Week 12 S2013
26/66
Stabilization Policies
Stabilization policy is government policy
designed to lessen the effects of the business
cycle.
Can be expansionary or contractionary.
Expansionary policy attempts to reduce unemployment
and stimulate output.
Contractionary policy attempt to stabilize prices and
reduce output.
-
7/29/2019 Week 12 S2013
27/66
Stabilization Policies
Govt can use fiscal or monetary policy.
-
7/29/2019 Week 12 S2013
28/66
Monetary Policy
Government manipulation of the available
money supply within the economy.
Money Supply
Interest Rates
-
7/29/2019 Week 12 S2013
29/66
Fiscal Policy
The use of government spending and/or taxes
to alter AD
/G (
GovtSpending)
/ T (Taxes)
-
7/29/2019 Week 12 S2013
30/66
Fiscal Policy
Fiscal Stimulus
Fiscal Austerity
-
7/29/2019 Week 12 S2013
31/66
Fiscal Policy
Fiscal Stimulus G (Govt Spending)
T (Taxes)
(Keynesian Economics)
Fiscal Austerity G (Govt Spending)
T (Taxes)
Federal deficits
Why would a government follow these
policies?
-
7/29/2019 Week 12 S2013
32/66
Benefits/Drawbacks of Fiscal
Policy?
-
7/29/2019 Week 12 S2013
33/66
Benefits of Fiscal Policy
Regional focus target affected areas
Straight-forward impact on output
-
7/29/2019 Week 12 S2013
34/66
Difficulty with Fiscal Policy
Delays time lags
Political visibility
Public debt
-
7/29/2019 Week 12 S2013
35/66
Political visibility
Politicians must consider voters when making
decisions:
Taxes
Spending
-
7/29/2019 Week 12 S2013
36/66
Practice
What are automatic stabilizers?
What is the multiplier effect?
What is MPC?
What is good about fiscal policy?
What makes fiscal policy difficult?
-
7/29/2019 Week 12 S2013
37/66
Government Revenue
How does the Govt make money?
-
7/29/2019 Week 12 S2013
38/66
What if the Govt spends more
than its revenue?
-
7/29/2019 Week 12 S2013
39/66
Budget Deficit
When government spending exceeds tax
revenues for a given fiscal year.
NOT the same as the TRADE DEFICIT
The opposite is a budget surplus: When
revenues are greater than spending
Does Canada have a budget deficit or surplus?
How much?
-
7/29/2019 Week 12 S2013
40/66
Budget Deficits
2013 Budget of the Canadian FederalGovernment:
Total Revenue C$263.9 billion
Total Expenditures C$282.6 billion
Resulting in C$18.7 billion deficit
http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-
summary-of-the-2013-budget/article10012488/
http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/http://www.theglobeandmail.com/news/politics/budget/infographic-the-visual-summary-of-the-2013-budget/article10012488/ -
7/29/2019 Week 12 S2013
41/66
Why Have a Deficit?
-
7/29/2019 Week 12 S2013
42/66
The Federal Government Debt
Budget Deficits
Due to a weaker economy and increases in
government spending on priority areas such ashealth, education, transport and defence.
Provide the government with the flexibility to
respond to changing economic circumstances.
May run deficits in response to:
War
natural disaster
economic downturn
-
7/29/2019 Week 12 S2013
43/66
The Federal Government Debt
Financing a Budget Deficit
The budget deficit is financed by issuing debt.
The federal government issues bonds
What is Canadas debt?
http://www.debtclock.ca/
What country has the most debt?http://www.economist.com/content/global_debt_clock
http://www.debtclock.ca/http://www.usdebtclock.org/http://www.economist.com/content/global_debt_clockhttp://www.economist.com/content/global_debt_clockhttp://www.usdebtclock.org/http://www.debtclock.ca/ -
7/29/2019 Week 12 S2013
44/66
Debt to GDP ratio
Italy 119.7%
Greece 157%
U.S. 105.6%
Canada 81%
India 67.5%
China 15%Brazil 63.8%
Debt figures are derived from national definitions and therefore may vary from
country to country.
http://online.wsj.com/article/SB10001424052748703789104576272891515344726.html
http://online.wsj.com/article/SB10001424052748703789104576272891515344726.htmlhttp://online.wsj.com/article/SB10001424052748703789104576272891515344726.htmlhttp://online.wsj.com/article/SB10001424052748703789104576272891515344726.htmlhttp://online.wsj.com/article/SB10001424052748703789104576272891515344726.htmlhttp://online.wsj.com/article/SB10001424052748703789104576272891515344726.html -
7/29/2019 Week 12 S2013
45/66
The Federal Government Debt
Budget Surpluses
Policymakers must decide what to do with a
surplus: Pay down the government debt
Cut taxes
Use for improvements in education, health
care, and R&D, leading to greater economic
growth
-
7/29/2019 Week 12 S2013
46/66
The Federal Government Debt
Government Debt
Is debt ok?
-
7/29/2019 Week 12 S2013
47/66
Debt
In a recession, tax revenues fall, and money is
needed for social programs (EI)
BUT deficits during hard times should be
balanced by surpluses during good times.
-
7/29/2019 Week 12 S2013
48/66
Debt
How much debt is too much?
-
7/29/2019 Week 12 S2013
49/66
Debt
It depends
Can the government pay off its debt in the future?
Developed countries can sustain higher levels of
debt.
-
7/29/2019 Week 12 S2013
50/66
Debt
If debt is too large:
Default
Austerity
Why do countries/people continue to hold USdebt?
-
7/29/2019 Week 12 S2013
51/66
European Economic Problems
Greece
-
7/29/2019 Week 12 S2013
52/66
Greece Problem
National debt - 300 billion ($413.6 billion)
Debt is 141% of GDP (2010)
Unemployment 18.4% (youth rate 43.5%)
Solution
50% write-down of debt (53.5% reduction) 110 billion bailout (2010)
130 billion bailout (2012)
Cut spending by 1.5% of GDP, cut minimum wage and
holiday bonuses, tax increases
The goal to cut the Greek government's debt from 160% of GDP to
120% of GDP by 2020.
-
7/29/2019 Week 12 S2013
53/66
Italy
Problem
National Debt 1.927 trillion
Debt is 121% of GDP
Average annual growth (15yrs) - 0.75%
Interest on debt (2.7% - short term, 6%+ LR)
-
7/29/2019 Week 12 S2013
54/66
Italy (ECB/Germanys Concerns)
bailing out Italy will simply encourages
reckless spending
printing money will stoke inflation
if Italy failed to repay the rescue loans, it couldleave the ECB itself in need of a bailout, and
that could destroy its independence.
-
7/29/2019 Week 12 S2013
55/66
Practice
T/F The government can use fiscal policy tostimulate the economy out of a recession.
T/F When tax revenues are greater than
government spending a deficit exists. T/F An increase in taxes would stimulate the
economy.
T/F Sometimes fiscal policy can destabilize theeconomy
T/F Time lags are a problem in the
implementation of fiscal policy.
-
7/29/2019 Week 12 S2013
56/66
Practice
Budget surpluses exist when:a. government spending exceeds its tax revenues.
b. government tax revenues exceed its spending.
c. government spending equals its tax revenues.
When taxes are increased, disposable income ____, and
hence consumption ____.
Fiscal policy refers to the government manipulation of what?During a recession, government transfer payments
automatically ____ and tax revenue automatically ____.
-
7/29/2019 Week 12 S2013
57/66
Practice
What is a contractionary gap?
What action can the govt take to correct this gap?
What is an expansionary gap?
What action can the govt take to correct this gap?
-
7/29/2019 Week 12 S2013
58/66
Assignment #6 Q5&Q6
5. What is aggregate demand? What are the
two reasons the aggregate demand curve is
downward sloping?
6.Compare/Contrast the advantages and
disadvantages of Monetary and Fiscal policy?
-
7/29/2019 Week 12 S2013
59/66
Chapter 12
Functions of Money
Demand and supply for money
Money multiplier
-
7/29/2019 Week 12 S2013
60/66
What are the functions of money?
-
7/29/2019 Week 12 S2013
61/66
The Functions of Money
There are three main functions that money
performs:
a means of exchange
a measure of value
a store of purchasing power
-
7/29/2019 Week 12 S2013
62/66
Functions of Money
1. Medium of Exchange
The primary function of money.
To facilitate transactions and lower transaction
costs.
Alternative to barter the direct exchange of
goods and services without the use of money.
-
7/29/2019 Week 12 S2013
63/66
Functions of Money
2. Measure of Value
Common ruler" for comparing the values of
diverse goods and services.
Lowers information costs of making
transactions.
-
7/29/2019 Week 12 S2013
64/66
Functions of Money
3. Store of Purchasing Power
A means of efficiently saving things of value.
Money is cheaper and easier to store than
other goods.
-
7/29/2019 Week 12 S2013
65/66
Facebook Credits
10 cents/credit
Buy premium content inside games and
applications
Could a gigantic nonsovereign like Facebook
someday launch a real currency to compete
with the dollar, euro, yen, and the like?
-
7/29/2019 Week 12 S2013
66/66
Facebook Credits
Measure of Value? YesCredits offer a system-wide pricing scheme for
app vendors across countries
Store of Value? No
Cant convert into something else of value (gold)
Medium of Exchange? No
Microsoft wont accept them
Facebook banned the use of Credits as
payment for tangible goods
top related