Transcript International Lecture - Rockhurst University

Major Categories of Data
Stocks (measured at a point in time eg. Balance sheet items):
-
Money, Assets, Liabilities, Debt
Flows (measured between two points in time)
-
National income and product accounts: GDP, federal deficit, trade deficit
Prices (ratios of stocks or flows)
-
On goods ($/good) - on labor ($/hr.)
interest rate ($ next year/$this year minus one)
Exchange rate (unit of foreign currency/unit of domestic currency)
Disequilibrium and Effects of disequilibrium (flows)
-
Inventory buildup, queues, order backlogs,
capacity utilization, unemployment rate
Unemployment rate
NATIONAL INCOME AND
PRODUCT ACCOUNTS
EXPENDITURES “injections” (What institutions buy creating
-
jobs):
Personal Consumption Expenditure (“consumption”): households]
Investment (business purchases of capital to produce future consumption
Government Expenditure
net Exports (exports-imports)
INCOME (Where factors (in blue) receive their money). Factor payments in
-
red
Labor wages and salaries
Land payments
Capital payments
Entrepreneur payment
Wage rate
Rent
Interest rate
Profit rate
EXPENDITURES = INCOME=REAL OUTPUT
C+I+XImp+F+S
U.S. Accounts, 1984 ($billions)
Personal consumption X
Dep
IndT
ax
(-SS-RECT+NI+Tr
PT
2342
2342
Gross private domestic
investment
637
637
Exports
364
364
Imports
430
-430
Federal government purchases
296
296
State and local government
purchases
452
452
Depreciation
403
Indirect business taxes
304
Social security taxes
306
-306
Retained earnings
118
-118
88
-88
Net interest
150
150
Transfer payments
418
418
Personal taxes
435
Corporate profits tax liability
-403
-304
-435
Cumulative:
3661
GDP
3661
NDP=GDP-Dep
NI=NDP-IndTax
PI=NI-SS-RE-CT+NI+Tr
2342
-403
-304
56
3258
2954
3010
-435
2342
Fundamental Balances
Injections (create jobs)= Leakages (lose jobs)
Investment+GovtExpend+Exports=Saving+Taxes+Imports
In terms of balances this is rewritten:
(Exports-Imports)=(Savings-Investment)+(Taxes-GovtExpend)
External Balance =Private Balance
+Government Balance
MICRO: MARKET SUPPLY AND DEMAND
Lower Price
Lower
Output
Higher Price
Less productivity (technological change)
Higher price of resources
Seller expectations of future surpluses
Less number of sellers
Leftward
(downward)
Shift of Demand
less income
less tastes for good
less buyers
less complement
lower priuce for substitutes
Buyer expectations about future
shortages
Higher
Output
Rightward
(downward)
Shift of
Supply
Leftward
(upward)
Shift of
Supply
More productivity (technological change)
Lower price of resources
Seller expectations of future shortages
More number of sellers
Rightward
(upward)
Shift of Demand
Breakdown all shifts into their output and price vectors
More income
More tastes for good
More buyers
More complement
Higher priuce for substitutes
Buyer expectations about future
shortages
MACRO: AGGREGATE SUPPLY & DEMAND
Lower Price (deflation) Higher Price (inflation)
Lower
Output
(slow
Growth)
RECESSION/DEPRESSION
Leftward
(downward)
Shift of Aggregate
Demand:
STAGFLATION
Leftward
(upward)
Shift of
Aggregate
Supply:
less injections,
or more leakages
Less factors or
higher factor prices
Higher
Output
(fast
Growth)
HIGH GROWTH
-LOW INFLATION
Rightward
(downward)
Shift of
Supply
:
More factors or
lower factor prices
HIGH GROWTH
-HIGH INFLATION
Rightward
(upward)
Shift of Demand:
mor injections,
or less leakages
Breakdown all shifts into their output and price vectors
MODEL of the DETERMINANTS OF GDP
Government.
Balance
DEMAND Side Plcy
interest rate Investment
Government
UnemployInflation rate Expend.
ment
Consumption
$ Exchange Exports
Rate
Trade
Balance
Imports
SUPPLY Side Plcy
Taxes
Inventory
Raise Tax Rates
Change
Impose Stds. Regulation
Saving
Impose Price Controls
Impose
Output
Controls
Wage rate
Nationalization
G
D
P
Interest ra
Inflation r
$ Exchang
Taxes
Saving
Wage rate
MODEL of the DETERMINANTS OF GDP
Government.
Balance
DEMAND Side Plcy
interest rate Investment
Government
UnemployInflation rate Expend.
ment
Consumption
$ Exchange Exports
Rate
Trade
Balance
Imports
SUPPLY Side Plcy
Taxes
Inventory
Raise Tax Rates
Change
Impose Stds. Regulation
Saving
Impose Price Controls
Impose
Output
Controls
Wage rate
Nationalization
G
D
P
Interest ra
Inflation r
$ Exchang
Taxes
Saving
Wage rate
Prices,
Wages,
Interest
rates
1 to 2 years
Exchange
rates
GDP
Government.
Balance
Prices,
Unemploy6 mos.Wages,
ment
Interest
Trade
rates
Balance
Exchang
Inventory
rates
GDP
1 to 2 years
Prices,
Wages,
Interest
rates
Exchange
rates
Government.
Balance Prices,
Unemploy6 mos.Wages,
ment
Interest
Trade
rates
Balance
Exchang
Inventory
rates
Change
STOCK MARKET: Level, Change, & Change of change
AT WHAT CHANGE & CHANGE OF CHANGE DO
WE WANT TO INVEST IN THE STOCK MARKET?
LEVEL
+ ++ ++++++ + + + + ++
CHANGE
+0 - - - 0+++ 0
-
- - - 0+ ++0- -
- 0 + ++
CHANGE of
CHANGE
-
- 0+
19
47
Percentage
20
15
10
5
0
-5
-10
-15
GDP%chg
Year
UnemplRate
20
01
19
95
19
89
19
83
19
77
19
71
19
65
19
59
19
53
Indexes
B
A
L
A
N
C
E
O
F
P
A
Y
M
E
N
T
S
Currrent account = trade balance= net exports
Real goods and services - imports
Money
Home
Abroad
Real goods and services - exports
CAPITAL ACCOUNT
Titles to foreign wealth sold to Americans
Money
Home
Abroad
Titles to American wealth sold to foreigners
Unilateral transfers
Home
Money
Abroad
1.2
THE VALUE OF THE YEN
($/yen)
1
0.8
0.6
0.4
0.2
0
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year
3
THE VALUE OF THE DOLLAR
(yen/$)
2.5
2
1.5
1
0.5
0
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year
FISHER EFFECT:
U.S.
(CPI) & U.S. INTEREST RATES (PRIME RATE)
(% INFLATION
annual change)
0.16
0.14
0.12
0.1
cpi %d
Prime
0.08
0.06
0.04
0.02
0
76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year
FISHER EFFECT:
JAPANESE INFLATION (CPI) & INTEREST RATES (PRIME RATE)
(% annual change)
0.12
0.1
0.08
interest
inflation
0.06
0.04
0.02
0
76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year
INTEREST RATE PARITY (PRIME RATES): U.S. and Japan
(% annual change)
0.16
0.14
0.12
0.1
Japan
U.S.
0.08
0.06
0.04
0.02
0
76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year
PURCHASING POWER PARITY:
INFLATION (CPI): U.S. and Japan
(% annual change)
0.14
0.12
0.1
0.08
U.S.
Japan
0.06
0.04
0.02
0
76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year
REAL INTEREST RATE PARITY: U.S. and Japan
(% annual change)
7
6
5
4
3
U.S.
Japan
2
1
0
76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
-1
-2
Year
Difference in U.S. and Japanese Rates
(% annual change)
8
7
6
5
4
Inflation Dif
Interest Dif.
3
2
1
0
-1
-2
76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year