Transcript And the second half begins

And the second
half begins
Less details but big guys even
more critical
Overview
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Purpose today is to preview
Hit major points
Ch 23 next chapter
Vocab need memorized
Econ is econ
• Nothing has changed
• Goal was to understand
• Changed during
DEPRESSION
• John Maynard Keynes
• First time gov’t got involved
QuickTime™ and a
decompressor
are needed to see this picture.
Waves in the ocean
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Basic principles don’t change
Economy is like the beach
Classical view--yeah so what?
Keynesians--yeah, fix it
How?
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Economy = GDP
GDP = CIGX
GDP = WIRP
2 different ways/powers
Federal Gov’t
Federal Reserve
Federal Gov’t
• They have lots of jobs
• REGULATE THE BUSINESS
CYCLE
• Been that ways since
Depression
• 2 different ways to do it
FISCAL POLICY
• Fed Gov’t ability to influence
economy by controlling taxes
& spending
• CIGX
• Spending = G
• Taxes = C
Federal Reserve
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“mommy” bank
Not part of gov’t but works w/ it
What do banks control?
MONETARY POLICY
Money supply
• What happens when you have
more money?
Monetary Policy
• FED controlling money supply
to influence economy
• 3 ways
• OPEN MARKET OPS
• RESERVE RATIO
• DISCOUNT RATE
What’s the goal?
• Just like micro, LET THE
GRAPH TELL YOU WHAT
NEEDS DONE
• New semester; same graph
• Change the labels
AS / AD graph
• Want to produce at POTENTIAL
• Also called FULL EMPLOYMENT,
NATURAL RATE OF
UNEMPLOYMENT, & LRAS
• Ideal output level for country
• Represented by vertical line
• Long-run AS
Graph it!!!
• Vertical line = GOAL
• Equilibrium tells where at
• Always want to move towards
X
• Do so using FISCAL &
MONETARY POLICY
In a slump like now