Transcript GoalCE.E.2and3_Notes_Macroeconomics

Macroeconomics
CE.E.3.1 – Summarize basic economic indicators and how they change over the course of the business cycle.
CE.E.3.2 – Explain how fiscal policy and monetary policy influence various aspects of the economy.
CE.E.3.3 – Analyze various organizations in terms of their role and function in the U.S. economy.
CE.E.2.1 – Evaluate the impact of trade on global economies.
Recognize the impact of globalization and the effects of international economic interdependence.
CE.E.2.2 – Summarize how nations specialize in the production of goods and services.
Explain the role that scarcity and limited resources play in determining a nation’s economic strength.
CE.E.2.3 – Explain the impact of government policies on international trade.
Describe how economic decisions of one country can affect the economies of other nations.
CE.E.2.4 – Identify goods and services of NC; evaluate NC’s role in the global economy
Business Cycle
• 4 main phases/stages:
peak
expansion
contraction
trough
Expansion (Recovery)
____________________
1. When the economy is growing (moving up)
2. companies produce more, employment increases, people buy
more
Peak (Prosperity)  sometimes called
B. ____________________
1. When the economy peaks with strong productivity
2. Production high, unemployment low, wages increase
Contraction
C. ___________________
1. Decline in economic activity
2. Fall in production, rising interest rates
Recession
____________________
1. Two consecutive quarters of declining output (6-8 months)
Depression
2. _________________
= a deeper and longer recession
Trough
D. ____________________
1. When expansion starts again after a contraction/recession
2. This change (low-point) = trough
A.
Economic Indicators
= statistics used to judge an economy’s health
Gross Domestic Product
GDP
A. ___________________________
(________)
1. Measures activity in an economy
2. Adds up the value of a country’s annual output (production) of
goods/services
Per capita GDP
B. _________________________
1. Value of what a person produces in a year
live in the nation
2. Divides the GDP by the number of people who _____________
Consumer Price Index
CPI
C. __________________________
(_____)
1. Measures the average change in prices for items for the average
consumer (= 80,000 items each month)
D. ____________________
Standard of Living
1. Measures prosperity and wealth
2. Education, income, debt levels, and housing quality contribute
National Debt
E. _____________________
1. Amount of money owed by the federal gov’t (currently over $16 trillion)
Government Regulation
1.
2.
3.
4.
5.
Environmental Protection
_________________Protects
natural resources, monitors
and enforces pollution levels from industries, regulates
drinking water
Consumer Protection
___________________Protects
consumers against dangerous
products Ex: mandates warning labels on cigarette packs
Worker Protection
_________________Gov’t
protects workers from dangerous
and unhealthy working conditions
Dept. of Labor
a) _______________
Can mandate that employers provide
employees with safety equipment (goggles)
The Constitution guarantees equal protection under the 14th
Affirmative Action
amendment and does this through ________________
Deregulation
___________________
Removes gov’t rules from businesses
and the economy to create a more free marketplace
Population Shifts
Migration
1. ____________
The movement of people from one
location in a country to another
2. ____________
People coming to the US from
Immigration
another country permanently
Europe
a) History = most from _________
Latin America
Asia
b) Current = __________
and _______
Northeast
Midwest
3. Populations are leaving the ________
and _______
south
west
and moving to the _______
and ___________.
Rust
4. _______
Belt– states of the Northern Midwest
_______
Belt- states of the upper North
Frost
Sun
5. _______
Belt- states of the South and the West
Silicon Valley
6. _________________
In northern California = the hub of
the computer industry (Microsoft, Apple, Google, Yahoo
are based here)
Triangle Park (RTP) In Raleigh-Durham of NC
7. Research
_________________
( almost 200 research and scientific industries are
based here) –> high-tech research / biotechnology /
pharmaceuticals / software technology
** Furniture / Textile Factories in NC have declined
Rapid growth of furniture industries and exports from China and other
countries, along with textile production in Latin America and Asia, have
severely hurt NC industries
•
•
Downsizing
_________cut workers to cut costs and increase profits
Outsourcing
________another company (often overseas) manages
part of their operations
Leading Industries in NC today:
* Agriculture (especially tobacco, hog farming, cattle, poultry and
eggs, sweet potatoes, soybeans)
* Financial Services (banking and finance)
* Charlotte now the 2nd largest banking center in the U.S.
behind New York City
* Manufacturing (mainly textiles, chemicals, electrical equipment,
paper and pulp, and paper products)
* Information and Biotechnology Industries (proximity to major
research universities has helped – Duke / UNC-CH / NC State /
UNC-Charlotte)
* Tourism – mountains vs. beaches, historic sites, sports venues,
amusement parks, etc.
** while large cities (Charlotte, Raleigh, Greensboro, and others)
have experienced rapid population and economic growth over
the last 30 years, many of NC’s small towns have suffered
from the loss of jobs and population, especially those that
developed around the textile and furniture factories.
Another leading economic indicator – the unemployment rate
Unemployment – the % of people in the labor force (16 years old + and
who want a job) who do not have a job and are seeking one
4 types of unemployment:
1. Frictional (short-term unemployed)
* may be looking for work
- unemployed due to being between jobs or looking for first job
- not a major problem; will always exist
2. Cyclical (long-term unemployed)
- unemployed due to a slowdown in the economy as we enter a
contraction or trough period
- many will get their jobs back as the economy improves,
but not all
3. Seasonal
- unemployed due to jobs not existing during certain parts of the
year (for example – agricultural jobs / construction)
* can be planned for
4. Structural (sometimes called Technological)
- unemployed due to your job / skills no longer being needed
- workers can gain new skills / education (“human capital”)
- can lead to being a discouraged worker  given up looking
(not counted in labor statistics)
for work
Underemployment – people who are “overqualified” for jobs
(for example: someone who is a trained medical doctor working as
a taxi driver, or a new graduate with a Master’s degree in
accounting working in a fast food restaurant as a cashier)
or – “involuntary part-time” – someone who is looking for a full-time
job but is not able to find one, so he/she works a part-time job
* underemployment can be a significant cause of Poverty (lacking
money / resources to meet basic needs – food and water, clothing,
shelter); although the worker may be able to find part-time work,
the part-time pay is not sufficient for basic needs
* can result in homelessness.
Money and the Economy
Money is a claim on something that has value
* it represents value
* money has 3 basic functions:
1. serves as a medium of exchange (use it to buy goods / services)
* this replaces the barter system, in which something (a good or service)
was traded for something else (another good or service)
2. serves as a measure of value (we can compare the value/worth of things
in terms of it)
3. serves as a store of value (to hold the value of accumulation of wealth)
characteristics of money which allow it to serve its functions:
1. must be accepted (U.S. money is called fiat money, because the government
gives it its value and tells us it must be accepted as legal tender)
2. must be divisible
3. must be portable
4. must have a reasonably stable value
* the amount of money available to be spent is the money supply
* M1 includes:
1. currency (coins and bills)
and
2. demand deposits (checking accounts)
* M2 includes:
1. M1
+ 2. savings accounts
+ 3. small-time deposits (< $100,000), including CDs
(certificates of deposit)
+ 4. money market funds (m.m. mutual funds)
+ 5. money market deposits
* M3 includes
1. M2
+ 2. large-time deposits (> $100,000)
Changes in the money supply can cause inflation (a rise in prices), if the money
supply increases faster than production; and it can cause deflation (a
decrease in prices), if production increases faster than the money supply.
The expansion of money means that banks are letting more than one person or
business use the same money.
The basic process:
1. money is deposited in a bank
$1,000
2. the bank holds back its
reserve requirement
(% which cannot be loaned out and
must be held “in reserves”)
current r.r. is 10%
$ 100
3. the remaining money is loaned out to
someone else who deposits it or spends
it and starts the whole process over
$ 900
Limits on the expansion of money:
1. banks often keep more than the required reserves (called “safety margin” or
excess reserves)
2. people don’t always spend / deposit their $, but they hold it
The Federal Reserve System  organization created in 1913 to oversee
banking in the U.S.
* there is a system of 12 Federal Reserve Banks (with 25 additional branch banks)
throughout the U.S. (much like the 12 judicial “circuits”/regions of the U.S.)
* NC is served by the FRB in Richmond, VA and the branch bank in Charlotte
The Fed (FRS) is governed by a 7-member Board of Governors who serve 14-year
terms and are chosen by the President and confirmed by the Senate
Current Chairman of the Board of Governors = Janet Yellen (1st female Chairman)
** most important function of the Fed  to try to keep a stable money supply
for the U.S.
The Fed tries to accomplish this through monetary policy; the policies the Fed
uses impact inflation, interest rates, etc.
Monetary Policy
* the 3 basic tools of monetary policy
1. Reserve Requirement (sometimes called the reserve ratio)
* the most powerful tool, but not often used
* if the r.r. is ↑ , money supply ↓
* if the r.r. is ↓ , money supply ↑
2. Discount Rate
* this is the interest rate that banks pay the Fed to borrow money
* if d.r. ↓ , banks will ultimately lower the interest rate on consumer
loans (car loans, credit cards, etc.), and that will motivate
people to buy more (m.s. will ↑ )
* if d.r. ↑ , banks will increase the interest rate on consumer loans, and
people will borrow less money (m.s. will ↓ )
3. Open Market Operations
* this is the buying / selling by the Fed of used gov’t securities (bonds, etc.)
* if the Fed buys securities (bonds), m.s. ↑ (people get more $ to spend)
* if the Fed sells securities (bonds), m.s. ↓ (less $ available for people
to spend)
** this is the most important tool
Easy Money Policy  used to correct a recession (and cause the economy
(Loose)
to “expand”)
* getting money is easier (for example, loans)
The Fed would do one, two, or three of the following:
* decrease the reserve requirement
* decrease the discount rate
* buy government securities (bonds) on the Open Market
** Note: all 3 cause an increase in money supply
Tight Money Policy  used to correct inflation (and cause the economy
(Hard)
to “contract”)
* borrowing money is harder (interest rates are higher)
The Fed would do one, two, or three of the following:
* increase the reserve requirement
* increase the discount rate
* sell government securities (bonds) on the Open Market
** Note: all 3 cause a decrease in money supply
Examples of other things the Fed does besides stabilizing the economy / money
supply:
1. check processing
2. cash processing
* the Fed helps distribute money printed by the Dept. of Treasury
* pulls out unfit (worn, torn) money and replaces it
3. makes loans to banks
4. enforces laws to protect consumers
5. electronic transfers of money
example: direct deposit of paychecks
FDIC  the Federal Deposit Insurance Corporation
a independent government agency that insures / protects the money
you have in banks, up to $250,000 per deposit
1.
2.
Fiscal Policy
How the government raises and spends money
taxes
Most of the government’s revenue is created through ________
and is
spent on things such as education, social security, defense, Medicare,
Medicaid, etc.
Personal income taxes
a) ______________________comes from your income
(federal and state)
Excise taxes
b) _______________
- production/consumption of goods and services
(gasoline / cigarettes / telephones)
Sales taxes
c) _______________purchase of goods/services
* not in all states
Property taxes
d) __________________
- levied by local governments
Categories of taxes
Regressive taxes higher % of income as income decreases
a) ____________(example: sales tax)
Progressive taxes tax rates rise when income rises
b) _____________(example: income tax)
c) _________________“flat tax” everyone pays the same
Proportional taxes
(example: in some states  “flat-rate income tax)
*** intergovernmental revenue – money from one level of gov’t to another
Why Countries Trade
(Global Interdependence)
* Countries specialize in the production of goods / services that they most
efficiently produce, and they trade with other countries for goods / services
that they are not as efficient in producing.
* exports  goods sent out of a country (sold to other countries)
* imports  goods brought into a country (bought from other countries)
* not only do we buy goods / services from other nations, we want other nations to
be markets for our goods / services
exchange rate - how much a certain amount of money in one nation is worth in
another nation
Balance of Trade
* a favorable / positive balance of trade is when exports > imports
(aka a trade surplus)
* an unfavorable / negative balance of trade is when imports > exports
(aka a trade deficit)
Among highly industrialized countries, self-sufficiency is almost impossible.
The greatest volume of trade occurs among highly developed countries who
exchange goods and services among themselves.
* the biggest trading partners of the U.S. are Canada, Mexico,
the European Union (EU), China, and Japan. The greatest value of
trade is in manufacturing and machine goods.
Nations trade for several reasons:
1. allows them to specialize in the production of particular goods / services,
thereby increasing productivity and output
2. they have different amounts of land (natural resources), labor, and capital
available to them
3. trade allows them to use their economic resources more efficiently
Theories behind trading:
* absolute advantage:
Country A has an absolute advantage over Country B
in the production of corn if it uses fewer resources to
produce corn. For example, less labor and soil preparation
are needed to produce corn in the U.S. than in Finland,
where the climate is much colder. Thus, the U.S. has an
absolute advantage in the production of corn.
* comparative advantage:
Principle by which countries determine which products they
should export or import. For example, Country A produces
20 yards of cloth per week while Country B only produces
10 yards per week. Country B produces 6 barrels of milk
per week, while Country A produces only 1 barrel of milk per
week. Country A has a comparative advantage in cloth, and
Country B has a comparative advantage in milk. Therefore,
Country A will specialize in cloth, and Country B will
specialize in milk, and the countries will trade with each other.
* protectionism:
Includes those policies (for example, tariffs, quotas, etc.)
which protect domestic producers from foreign competition
Barriers to trade:
1. tariff (a tax on imports)
types of tariffs:
a. Revenue – a tax to bring in money for the importing country’s gov’t
b. Protective – tax on imports to make them more expensive so people
will buy domestic goods instead (products made in
your own country)
c. Restrictive – a high tax which attempts to limit or stop importation of
a product
2. quotas (a limit on the # of a product which can be imported)
3. trade agreements – treaties or other agreements between countries which outline rules
regarding trade, tariffs, etc.
(for example – NAFTA  North American Free Trade Agreement)
4. regulations / restrictions – temporary restrictions to limit / stop trade in a reaction to a crisis
(for example, a few years ago, Mad Cow Disease or avian bird flu) or as
a sanction (punishment) – (for example, Iraq and oil)
* Free trade - international trade without restrictions (rare)
Why restrict trade?
1. to protect infant (growing) industries in your country
* protectionism
2. national security – there are some products that you do not want to rely on other countries
for
(example: weapons)
3. protect domestic jobs (those in your own country)
* protectionism
4. economic stability – you do not want to rely too heavily on another nation for a product that
is important to your country
(for example: oil crisis in the U.S. in the 1970s – because OPEC –
Organization of Petroleum-Exporting Countries) enacted an
embargo on the U.S. because of our support of Israel
(a refusal to trade with)
Interdependence of Domestic and
International Economies
Monetary Fund (aka IMF) monitors the global financial system
1. International
___________________through foreign exchange rates and trade
Developed countries
2. _________________have greater material wealth and a
higher standard of living
Developing countries
3. _________________poor & often depend on foreign aid;
have a lower standard of living
World Bank
4. ________________aka
International Bank for Reconstruction
& Development
-Goal: to help nations devastated by WWII; fighting poverty
through education, technology, interest-free loans.
WTO = World Trade Organization
5. _________________________________
Deals with rules of trade among nations
Goal: help producers, importers, & exporters conduct their
business
Factors for Economic Decision-Making
EPA
_________
was founded in 1970 to ensure a cleaner, healthier
Clean Air Act
Clean Water Act
envt. (1963 ______________
& 1977 __________________
)
Waste
2. Radioactive
______________
Created as a by-product of processes such as
burial
operating nuclear power plants / chief method of disposal Deep
_______
3. Embargoes- Prohibit or limit trade with a country
OPEC- Organization of Petroleum Exporting Countries
a) _________________________________________
1) Inflicted an oil embargo on the US in 1973 because of our
support for Israel
Bear market - value of most listed shares of stock falls consistently
4. ________
1.
market - prices of stocks rise
5. Bull
________
Building Codes Regulations set to prevent pollution and safety
6. ____________
hazards
* a local gov’t
zoning
7. ____________
Where houses / businesses can be built
responsibility
NIMBY- Not in my backyard Construction of new roads/rail lines, waste
8. ___________________
storage facilities, jails, drug rehab centers, power plants, etc. -citizens don’t want these things built near them.
Public Problems and Issues
9. Discrimination - unfairly denying opportunities due to race,
gender, sex, orientation, physical condition,
appearance, age, etc.
**The government has mandated equal pay for people of racial
status, educational background, & religious affiliation.
10. Substance abuse - how society deals w/ people addicted
to alcohol, illegal drugs, pain killers, tobacco
11. Law and order - most effective ways to deal with crime
a) allocating resources for rehabilitation?
b) stiffer penalties
c) prison reform (improve prison conditions)
d) what should be legal / illegal
12. Disease - best way to deal with diseases
a) funding of research? (for cures)
b) prevention? (of viruses like ‘bird flu’)
13. National Security - how far should the gov’t go in limiting civil
liberties to prevent terrorism (Patriot Act)
* Freedom of Information Act (FOIA) – a federal law that
allows for the full or partial disclosure of previously
unreleased information and documents controlled by
the United States government
** transparency – concept that the government and
businesses are “open” about their operations and finances
14. Immigration - process of foreigners coming into the USA
a) How do we deal with illegal immigrants?
b) How do we monitor who comes into the USA?
c) Immigration Act of 1990 gives priority to people with
particular skills, talents, or money to invest in the
U.S. Economy
15. Natural disasters - who is responsible for dealing with the
effects of hurricanes, tornadoes, earthquakes, fires, etc.?
* Federal Emergency Management Agency (aka FEMA)
16. Pollution - potentially harmful chemicals/gases
a) How can we better deal with waste disposal?
b) Acid rain - chemicals released into atmosphere,
absorbed into clouds, and return in rain, sleet, snow
c) Greenhouse effect - gases produced by pollutants are
holding in heat from the sun
17. Taxation - will lower taxes = more spending?
18.“Baby boomers” - after WWII many babies were born
(between 1946 – 1964)
19. “Graying population” - the baby boomers are getting older,
nearing retirement, and will be in need of
Social Security and Medicare
20. Citizen apathy - lack of concern
* will lead to people doing nothing = 1) dictatorship
2) failing economy
This is it…the end of C&E!!!
(at least the notes, anyway…)