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Unit 10: Macro-Economics
Transcript of Unit 10: Macro-Economics
Monetary & Fiscal Policy
Exports > Imports
Wealth is measured in gold
Colonies produce raw materials for mother country
Should the US trade with other countries? What could we gain?
What do we trade?
Find out here.
How do we trade? Does Japan take US $? Do we take Japanese $?
Check this out!
Why does the US have a trade imbalance?
What accounts for the imbalance?
ability to produce more than another country
ability to produce more than another country with less opportunity costs
Scenario 1: Suppose Gina wasn't as agile with the hammer and could only make 1 birdhouse an hour, but she took a sewing class and could print 10 t-shirts an hour. Mike on the other hand takes woodworking and so he can build 5 birdhouses an hour, but he doesn't know the first thing about making t-shirts so he can only print 2 t-shirts an hour. While Gina would have the absolute advantage in printing shirts, Mike would have an absolute advantage in building birdhouses.
Scenario 2: Say you are John who makes $300 an hour and he hires a maid who works for $25 an hour. It takes John 1 hour to clean his house compared to his maid who takes 8 hours to clean his house. John has an absolute advantage over his maid but the maid has a comparative advantage. This is because if John cleans his house by himself, he loses $300. If he hires the maid, he makes a profit of $100. Explanation: If John doesn't work for 1 hour and instead uses that time to clean his house, he loses 300$. If he hires the maid to clean the house, he spends($25*8)=200$. By hiring the maid, John earns $300 from working, pays his maid $200, and ends up with a $100 profit. The maid has a comparative advantage over John.
What is the US advantage?
How do you get an advantage?
ex: Germany refuses to allow foreign beer in the country b/c it's "impure"
ex: Bush put a tariff on steel imports b/c our steel industry was struggling
1. Get revenue for nation
2. Encourage ppl to buy domestic goods
limit amount of imported goods
Sanctions & Embargos
Review: What's the difference?
You have them or you don't...
ex. US has a lot of metal deposits, other countries don't... so we export a lot of metal
manufactured goods are produced in countries with advanced technology (machines & factories)
Not okay for Adam Smith
Economist who wrote "
Wealth of Nations
Said gov't should NOT regulate economy, it should be
Economy is best if it's a
w/ competition ("invisible hand")
What does NC offer that other states want?
- Furniture industry
What does NC contribute to US exports?
Most of NC exports stay in North America and almost all of them are manufactured goods.
ppl spend $
ppl. save $
an unusually low trough
The Great Depression
Stock market crashes in October 1929 largely because of speculation (take risk in hopes of profit)
Banks lost $ in stock, people withdrew money
Businesses need $ and call in loans
Businesses cut labor/capital
John M. Keynes - govt can end recession by spending money
FDR's New Deal puts ppl to work
FDIC created to insure bank $
SEC created to regulate stock trading
How do we measure the economy?
value of goods/services sold in a year (doesn't include items from other countries or used items)
% of those looking for a job (if below 6.5%, considered full employment)
measures the change in the average price level of goods/services
measures the change in the average price level of goods/services, allows for substitutions
Gross Domestic Product (GDP)
Cost of Living
Consumer Price Index (CPI)
So what do we do to "fix" the economy?
Determined by Congress & the President
Amount gov't spends
Determined by the Fed & banks
Bank reserves (how much $ do banks need to keep on hand)
Amount of $ printed
the banks' bank & the govt's bank
where banks get their money after Mint issues it
govt's checking account & where US savings bonds are issued
aka "Federal Reserve System"
If the economy is NOT doing well...
More $ into circulation
Lower interest rates
Lower reserve requirements
If the economy IS doing well...
Less $ into circulation
Raise interest rates
Raise reserve requirements
Decide if the action SLOWS or SPEEDS the economy.
1. Increase interest rate
2. Print more money
3. Increase bank reserves
4. Changing the interest rate from 4.5% to 3%
5. Changing the bank reserve requirement from 15% to 10%
6. Issue more currency into the economy
1. Who designs the budget? Who passes it?
2. What are appropriation bills?
3. Where do appropriation bills start?
What can Congress do to slow/speed the economy?
If the economy IS doing well...
Spend less gov't $
SLOW the Economy
If the economy is NOT doing well...
SPEED the economy
Spend more gov't $ (ex. Stimulus package)
Led by Janet Yellen
Goal is a Balanced budget.
Revenue EQUALS Expenditures
the total amount you owe, (the sum of your deficits)
gov't required to spend (by law)
gov't can tweak amount spent
Exempt = MANDATORY
medical care for
health care for
making more than you spend
spending more than you make
graduated rate - percent of your income that you pay increases as your income increases
Tax rate is same percentage for everyone
flat amount, falls most heavily on the poor
The Stock Market
Public corporations list shares of their company for sell & investors can buy stock through stock exchanges
New York Stock Exchange (NYSE),
London Stock Exchange,
Tokyo Stock Exchange,
are indicators that show how the stock market is doing in general
*NYSE & NASDAQ are located in NY's financial district called "
Organizations of workers to protect their rights & interests
(b/c there is power in numbers)
If collective bargaining fails...
employees refuse to work
employers close shop until agreement is made
NC is a "
right to work state
" meaning employers can't require you to join a union.
So are all the turquoise states...
1. What is MacroEconomics?
2. Describe the role of the federal government in NC's economy.
3. What role does the NC economy play in the world?
4. What does interdependent mean?
5. What are the principles of mercantilism?
The Communist Manifesto
Said there's a struggle between proletariat (workers) & bourgeoisie (landowners)
Workers should rebel & take control
Wealth should be spread equally through society
1. What is the difference between imports and exports?
2. Give an example of absolute advantage & comparative advantage.
3. What does the US mainly export?
4. Describe 3 ways to get an advantage in global trade.
5. What is a tariff? Quota?
6. What's the difference between Adam Smith & Karl Marx?
1. Draw and label the business cycle.
2. Who is in charge of monetary policy?
3. Who is in charge of fiscal policy?
4. If the economy is doing poorly, what 3 things can the Fed do?
5. If the economy is doing great, what 2 things can Congress do?
6. What is "The Fed" ?
7. What was the worst trough in US history?
Warm Up, Part 1
1. What's the difference between Adam Smith & Karl Marx?
2. What is the difference between surplus & deficit?
3. What's the difference between monetary & fiscal policy?
4. What's the difference between mandatory & discretionary spending?
5. Describe the types of taxes.
6. What's the difference between absolute & comparative advantage?
7. What's the difference between the business cycle and the circular flow?