This is a fun simulation where you are the federal reserve chairperson and you are in charge of the federal funds rate. Your mandate is price stability (2%) and full employment (5% natural rate of unemployment). Dont forget there is a time lag or delay so your policies might really have an impact 2 or 3 turns later. See if you can get reappointed as the Fed chair! Have fun try this--it's short and educational :)
Comparative advantage, specialization, and exchange
Demand, supply, and market equilibrium
Macroeconomic issues: business cycle, unemployment, inflation, growth
Measurement of Economic Performance (12–16%)
National income accounts
Circular flow
Gross domestic product
Components of gross domestic product
Real versus nominal gross domestic product
Inflation measurement and adjustment
Price indices
Nominal and real values
Costs of inflation
Unemployment
Definition and measurement
Types of unemployment
Natural rate of unemployment
III. National Income and Price Determination (10–15%)
Aggregate demand
Determinants of aggregate demand
Multiplier and crowding-out effects
Aggregate supply
Short-run and long-run analyses
Sticky versus flexible wages and prices
Determinants of aggregate supply
Macroeconomic equilibrium
Real output and price level
Short and long run
Actual versus full-employment output
Business cycle and economic fluctuations
Financial Sector (15–20%)
Money, banking, and financial markets
Definition of financial assets: money, stocks, bonds
Time value of money (present and future value)
Measures of money supply
Banks and creation of money
Money demand
Money market and the equilibrium nominal interest rate
Loanable funds market
Supply of and demand for loanable funds
Equilibrium real interest rate
Crowding out
Central bank and control of the money supply
Tools of central bank policy
Quantity theory of money
Real versus nominal interest rates
Stabilization Policies (20–30%)
Fiscal and monetary policies
Demand-side effects
Supply-side effects
Policy mix
Government deficits and debt
The Phillips curve
Short-run and long-run Phillips curves
Demand-pull versus cost-push inflation
Role of expectations
Economic Growth (5–10%)
Definition of economic growth
Determinants of economic growth
Investment in human capital
Investment in physical capital
Research and development, and technological progress
Growth policy
VII. Open Economy: International Trade and Finance (10–15%)
Balance of payments accounts
Balance of trade
Current account
Financial account (formerly known as capital account)
Foreign exchange market
Demand for and supply of foreign exchange
Exchange rate determination
Currency appreciation and depreciation
Imports, exports, and financial capital flows
Relationships between international and domestic financial and goods markets
03/12/202004/03/2020
03/12/202003/31/2020
Please print and bring to class the following 9 page outline and practice questions.
Make sure you answer the 21 practice questions before the test (HINT! HINT!). There will be very similar test questions on the in-class test you will take at the end of this unit.
I will be recording lectures on chapter 6 and 7. These are critical chapters for the AP test. In the meantime, please immediately start watching these Khan academy videos this week to reinforce your learning of this key vocab on GDP, Inflation, Unemployment, etc. You do not need to sign in or do any of the work.
Please be responsible and learn from these videos. We have a lot of AP material to get through. You will need to spend time learning on your own as well. We've got this but you must watch the videos and read any posted current events and do assigned homework. Thank you.
But don't wait until Tuesday night--it is a long assignment.
Read and outline: chapter 6: 105 - 119
Skip Circular Flow Revisited 114-115;
Read and outline chapter 7: 124 - 142 (including "The Last Word" on page 142)
03/21/202003/26/2020
Please read the following article regarding our economy from Barrons.com. This has many concepts that will be on the AP econ test:
Worst Threat Since the 1930s
Isabel V. Sawhill
The Covid-19 crisis has rightly made saving lives a top priority. In the process, the economy is collapsing. As people stop traveling, going to restaurants, and shopping, and as businesses see their sales plummet, the economy will almost surely take a deep dive. Vulnerable groups, such as the homeless and the poor, will be made even more vulnerable, and the broader middle class will feel the pain as well. Not since the 1930s has the middle class faced such a serious economic threat.
When a crisis comes—whether to an individual, a group, or an entire society—starting points matter. Those who have prepared and have some reserves fare better than those who have not. What is most striking about the U.S. right now is how little has been done to get ready for this or any other crisis. Not only is our health-care system ill-prepared for what is coming, but our debt is too high, our infrastructure crumbling, our safety net fragile, and our middle class poorly positioned to weather the storm. Because of an inadequately prepared health-care system, the authorities are trying to “flatten the curve” of infection rates. But that unfortunately may prolong the economic distress.
Middle-class income growth has been subpar for decades. Not only has it failed to keep pace with income growth at the top, but it has, more surprisingly, even lagged income growth among the bottom fifth of the income distribution. Specifically, income growth for the middle 60% of the distribution (those with incomes between $40,00 and $154,000 for a household of three) grew by 47% from 1979 to 2016 after accounting for taxes and transfers. Most of the growth in middle-class incomes was created by more women going to work and earning higher wages. That source of growth cannot continue forever and has now fallen behind that of other advanced countries.
What happens to middle-class incomes if, as expected, Covid-19 leads to a deep recession? It’s impossible to say with any certainty since so much will depend on the trajectory of the health crisis itself and on what is done to mitigate its economic effects. We are at the very beginning of what may be the worst of times since the Great Depression. But what we do now can alter that outcome.
The last recession was triggered by a financial crisis that then spilled over into the broader economy. This time around we are likely to see the reverse. But the biggest lesson from the Great Recession that began in 2008 is the importance of acting quickly and with enough fiscal stimulus to prevent a prolonged decline.
The Federal Reserve has already lowered interest rates and has other tools at its disposal to keep credit flowing, but it cannot offset the sharp if temporary decline in spending we are now likely to see. That will require fiscal measures, including getting money into the hands of middle-class families, not just because they need it but because they are the backbone of the economy, the group that keeps demand strong, without whom businesses will not survive. Consumer spending is 70 percent of GDP. People don’t buy cars or furniture or anything much beyond necessities when they don’t have jobs, when their hours have been curtailed, or when they are uncertain about the future. If, on top of that, they are busy with children home from school, an elderly relative whose treatment has been postponed by an overwhelmed health care system, or are simply hunkered down at home, their ability and willingness to spend is further reduced.
Congress seems inclined to act quickly to provide outright cash, unemployment insurance, and other forms of assistance to households. The price tag will be high—likely a trillion dollars and perhaps a lot more. What about the effects of all this assistance on an-already high federal debt? That must be a concern over the longer run. But now is not the time to worry about it. What needs to be understood is that a failure to act quickly and boldly now could produce a much bigger decline that would permanently harm both households and the economy and prolong the pain. We need to understand that temporary deficits to save the economy are very different from those that are permanent because we have more government than we are willing to pay for.
Given the economic uncertainties about how long and how deep any recession will be, and the inevitable political squabbles over how much and what kind of assistance to provide, the best approach would be to condition the amount and timing of any assistance on the unemployment rate or some other metric of economic health. Such triggers help to reduce the need for political haggling and provide some assurance to financial markets and households that help will be provided if and when it is needed—but only if it is needed. While automatic triggers reduce the ability of policymakers to tailor assistance in ways that get it to just the right places, they also limit the ability of special interests to affect the process. They reassure citizens that their fate will not be determined by a much-distrusted political class.
In addition to worrying about household incomes, there should be a focus on assets as well. One way to weather the loss of wages or self-employment income is to draw down savings. But the middle class is increasingly living paycheck to paycheck. Savings as a percent of disposable income has decreased from 13% to 8% since 1973. The median amount of wealth (defined as total assets less total liabilities) held by the middle class is $87,000. But liquid assets, meaning checking accounts, money market accounts, savings accounts, and prepaid cards average only $4,000. The Federal Reserve estimates that 6 in 10 households don’t have enough saved to cover three months of expenses.
In this context, what is needed is not just an infusion of cash to help support both families and the economy through this period, but a willingness on the part of creditors to defer the repayment of student loans, credit card debt, mortgage payments, and the like. Requiring people to keep current may simply drive them into bankruptcy and further undermine their ability to pay over the longer term. Small businesses and the self-employed especially need this kind of forbearance if they are to remain viable once the crisis has passed. The American middle class may contain a few deadbeats or others who will take advantage of such forbearance to cheat the system, but the vast majority will repay their debts.
For similar reasons, states must be made whole. They are on the front lines of the crisis and unlike the federal government, they are required to balance their budgets and cannot borrow unlimited amounts. A higher federal matching rate for Medicaid expenditures, for example, is a top priority. Without it, states would have grave difficulty in meeting both the health crisis and the sharp drop in revenues created by a declining economy. Spending cuts or revenue increases at the local level would only worsen the economic downturn.
One interesting facet of this crisis is the number of people who are now working from home. I estimate that somewhere between half and two-thirds of the existing labor force should be able to do this, at least much of the time, but are not permitted to do so because of inertia and fear of malingering. One thing we will learn during this period is whether we should be moving more aggressively to offer employees this option and perhaps increase the ability of parents or the disabled to work more in the process. Telecommuting has the potential to reduce business costs for facilities, lessen commuting time, and improve the environment.
My conclusion is that, if handled right, the economic threat to middle class incomes and assets will be temporary and the economy will likely rebound strongly once the immediate crisis is past. Pent-up demand for goods and service will eventually create a surge of new spending, creating jobs, and higher incomes that will allow households to repair their balance sheets, repay their debts, and face a brighter economic future. Other positive consequences of the crisis could be a stronger recognition of the need to get our fiscal house in order, the feasibility of telecommuting, and the need to provide paid sick leave to more workers as one way to reduce the contagion of all viruses, not just Covid-19.
Isabel V. Sawhill is a senior fellow in Economic Studies at the Brookings Institution .
03/18/202003/23/2020
READ 2-5 ECONOMIC ARTICLES DAILY FROM CNBC.COM OR FINANCE.YAHOO.COM
To best learn from home, read daily economic articles. The AP test is a real world test. Everyday when I read these articles, I am amazed at how many actual AP macro test questions are right there in the articles.
We are living through unprecedented economic times. Fiscal and monetary stimulus are kicking in. You all know the Keynesian info:
GDP = Consumer Spending + Business Investment + Government Spending + Net Exports (exports - imports)
Aggregate demand is unfortunately collapsing due to this black swan event: Coronavirus
The US and the global economy are heading into a severe recession that will hopefully be short lived. GDP is falling due to a large decrease in C, I, and X (3 of components of aggregate demand).
NOT HOMEWORK. READ ONLY AND REVIEW THESE FOR THE TEST!!!
Please answer the following 6 actual AP essay questions in the attached PDF file (feel free to print it and bring it to class). Remember each answer should have 3-4 parts. If they ask for graphs, correctly label them and shift 1 curve only. you can use abbreviations and short hand and even linkages but be thorough showing causation.
02/14/202003/12/2020
US incomes fall compared to Swiss incomes.
Since US incomes fall, Americans have less money. Not only will they buy fewer domestic goods but they will import less from Switzerland as well. ….
US prices fall compared to Swiss prices.
Since US prices fall compared to Swiss prices, US goods are now cheaper. …
US productivity falls compared to German productivity.
Since US productivity falls, the per-unit cost of running American business rise.American companies raise their prices to offset the increased cost in running their businesses so US Price level rises. Since US price level rises compared to German Price level, US goods now cost more than German goods. …
EU interest rates rise compared to Japan’s interest rates
Since EU interest rates are higher, EU bonds pay more. Japanese investors will be more attracted to the higher paying EU bonds so financial capital will flow out of Japan and towards Europe. …
02/14/202003/12/2020
Scantron test is worth 2 points per question!!! Study.
57 questions x 2 points each = 114 points total
02/14/202003/12/2020
Be sure to thoroughly READ only
95-96, 100 (last word) Government and Trade (Protectionism; stop at Multilateral trade--READ)
685-692 Economic Impact of Tariffs (READ!!!)
There will be scantron questions on this material on this test and also an essay question on the final exam in April based on this material!
02/14/202003/09/2020
Please answer the following questions. Be thorough on the "why" where necessary:
P. 715 ANSWER 1,3,4,9,13
02/14/202003/06/2020
This is not homework. These are just review questions to help you on the test.
This is the 3rd of 4 sections of this international unit.
Please follow the directions below but be sure to thoroughly read all of 696-700 and 711-714;
BE SURE TO READ THE CURRENT ACCOUNT/CAPITAL ACCOUNT TYPED OUTLINE YOU PRINTED FROM THIS UNIT'S OUTLINES (pages 16-19 in the 19 page reader).
Read and outline the following:
Thoroughly outline: 696 - 700 Financing international trade (stop at quick review 36.1 on page 700)
02/14/202003/03/2020
Please answer the following 2 comparative advantage questions and 2 other Questions. Be sure to show your math.
For the two questions, Draw a table the with 2 countries and the 2 products at the beginning of each question and then circle the country with the comparative advantage. Then answer the rest of the Qs.
P. 102 5
P. 694 3
P. 715-716 2 a-g , 7 (a-h)
02/14/202002/25/2020
Please read and then thoroughly outline the following sections:
89-92: Specialization and Comparative advantage (outline, stop at foreign exchange market heading)
677-682 Comparative advantage graph analysis (stop at quick review 35.1)
02/13/202002/21/2020
Money market graph,
Agggregate supply-aggregate demand graph,
real interest = nominal interest - inflation
All linkages (but now interest rates is nominal interest rates in the linkages).
02/14/202002/20/2020
Please print the following outlines and bring to class. Remember, this unit on international trade is awesome, but a bit daunting. Sorry in advance that it's 19 pages long but it is crucial for your success.
All linkages (but now interest rates is nominal interest rates in the linkages).
02/14/202002/20/2020
Please print the following outlines and bring to class. Remember, this unit on international trade is awesome, but a bit daunting. Sorry in advance that it's 19 pages long but it is crucial for your success.
Please read carefully the following pages. Then outline or define what is stated below. Follow the directions: Some parts you only need brief bullet points or vocabulary words and definitions. Other sections you need to thoroughly outline. Be sure to draw at least 2 foreign exchange graphs and label all axis and curves.
7 sides --especially emphasize determinants and graphs from pages 92-94, 700-705
Assignment 1: Read and Outline
84-89 Trends of Trade (bullet points of key points and define key vocab; stop at Specialization and Comparative Advantage)
Look at the following supply and demand curve shifts, the dotted lines and arrows (outside the axis but inbetween the dotted lines) and then the order of the 3 blanks below each of the 4 graphs. This will be on the chapter test.
Elasticity measures how sensitive demand is to price changes.
On the AP macro test, they said that both the US and Japan were in recession. They then had you cut interest rates in the 2 countries by the same amount to stimulate spending in both. Then they said that Americans were sensitive to interest rate changes (elastic demand--interest rate is the price to take out a loan) and that the Japanese are not sensitive to interest rate changes. If both countries had the same bad recession and cut interest rates by the same amount, the Americans should have a greater economic rebound than Japan due to their borrowing and spending more due to their sensitivity to interest rate changes.
Please answer the follwing 5 questions on Supply and Demand. If the question says to use graphs or graphical analysis, please draw AND CORRECTLY LABEL both axis and any curves (don't forget dotted lines and arrows).
P. 63-64, 8,9,10,14,15
01/29/202001/31/2020
You were all given a handout in class about 1 week ago called "Production Possibilities Curve Test." On my CV webpage, I also posted (they are still there) typed answers on how to answer any of these types of essay questions.
There were 10 questions on it. We did questions 6,8, and 9 in class.
Please answer all 10 questions. If you already did the 6,8, and 9, just continue on that same sheet of paper and answer the remaining Qs.
If you were absent that day we did the 3 questions in class, just answer questions 1-10 in order. Refer to the typed answers and Section 3 of chapter 1.
01/27/2020 01/28/2020
I have included 2 short articles below. Please read them. DO NOT PRINT THEM. You will write about one-half to two-thirds of a page for each of the 2 articles below. It should be really easy since we have discussed both topics in class.
On the first article, in a few sentences, explain why the stock markets had such a bad sell off today. Then, explain WHY the different sectors of stocks mentioned were down (It's OK to be redundant). (maybe have about 7-10 bullet points/sentences on this first article).
The 2nd article further below is about the Fed leaving the Federal Funds Rate this week unchanged.
You have great leeway to answer the following questions. You can write sentences, bullet points or just number the questions. Write about 1/2 to 3/4 page.
Why is the FED leaving interest rates unchanged? What is the worry about inflation? What are the downside and upside risks to the economy? How are the low rates causing stocks and bonds (assets) to respond? What are the risks?
Dow posts worst day since October and turns negative for the year as coronavirus fears grow
Stocks tanked on Monday after more cases of the coronavirus were confirmed over the weekend, ratcheting up worries over the virus’ impact on the world economy.
TheDow Jones Industrial Average fell 453.93 points, or 1.6% to 28,535.80, wiping out the average’s gains for the year. The S&P 500 dropped 1.6% to 3,243.63, snapping a 74-session streak without a 1% decline. The Nasdaq Compositehad its worst day since August, dropping 1.9% to 9,139.31.
There are 2,862 confirmed cases so far in China and the death toll in China has risen to 81. In the U.S., a fifth case of coronavirus was confirmed over the weekend.
“China is the biggest driver of global growth so this couldn’t have started in a worse place,” said Alec Young, managing director of global markets research at FTSE Russell. “Markets hate uncertainty, and the coronavirus is the ultimate uncertainty in that no one knows how badly it will impact the global economy.”
Overseas, global stocks took a hit, as the Japanese Nikkei 225 dropped 2% while the German Dax lost 2.6%. France’s CAC 40 also pulled back more than 2%. The Stoxx 600 index — which tracks a broad swath of European equities — tanked by 2.3%. The iShares MSCI Emerging Markets ETF (EEM) dropped 3.5%. Chinese markets were closed due to the Lunar New Year holiday.
“The market had run up a lot on the belief that economic data would improve post the trade war,” said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management. “This, to me, could potentially push out the time for that data to improve.”
Traditional safe havens such as Treasurys and gold got a lift as worries over the sickness permeated. The 10-year U.S. Treasury yield fell to 1.61% and hit its lowest level since October while gold futures climbed about 0.6%.
The Cboe Volatility Index (VIX), widely considered to be the best fear gauge on Wall Street — jumped to around 18.2 from about 14.5.
Coronavirus fears have been rattling investors since last week. Stocks closed lower on Friday, marking their first weekly decline of the young year.
“Investors tapped the brakes last week as overbought conditions and concerns over the coronavirus created a few speed bumps on the path to record-highs,” said Craig Johnson, chief market technician at Piper Sandler. “We continue to believe there is an elevated risk for a deeper pullback to develop.”
The Federal Reserve has taken away, for now, one of the biggest uncertainties that investors face.
When they meet this week, Fed officials are all but certain to leave their target range on overnight rates on hold (Federal Funds Rate) . Nor do they seem likely to do much of anything in the months ahead through the remainder of 2020.
The Fed’s stance is somewhat curious given that its three rate cuts last year were meant to guard the economy against the possibility that trade tensions and slowing global growth would sap it. Now that those dangers have abated, why not take some of those insurance cuts back?
They now have another worry—the dangers of inflation remaining persistently below its 2% target.That can push the public’s inflation expectations lower as a result, making it even harder to get back to 2%. This opens the economy to the kind of low inflation, low-rate regime to which Japan has succumbed.
The Fed is in the midst of a review of its inflation-targeting strategy that it expects to release in the first half of this year. Judging from policy makers’ comments, it looks as if it may adopt a policy of letting inflation run above 2% for a while before raising rates again. This means that the current level of rates could extend even further into the future.
The Fed’s new tune on policy is giving investors something akin to perfect knowledge of what rates will be in the future, allowing them to take on more risk. The Fed’s move to cut rates last year, but not take those cuts back, solidifies investors’ perception that the Fed is far more attuned to downside risksthan it is to the dangers of asset markets becoming too frothy.
Low
Investors’ belief that the Fed won’t be making any moves to stand in their way may be part of why stocks have rallied so strongly over the past several months, pushing valuations sharply higher. The S&P 500 now trades at 18.6 times expected earnings. That is as high as the forward price/earnings ratio has ever been outside of the years surrounding the dot-com bubble.
Even though both the 2000 dot-com bust and the 2008 financial crisis were the proximate cause of the past two recessions, and even though the Fed recently flagged elevated asset prices as a risk, it seems unlikely that the Fed will lean against stocks if valuations continue to push higher. The politics of doing so would be too fraught, especially after the steady criticism the Fed has received from President Trump. Moreover, economists have yet to come up with a workable, agreed-upon economic model that includes the dangers posed by financial market excesses.
So the Fed’s commitment to low rates will likely remain in place until inflation is clearly above its 2% target, giving investors a green light to not worry about the central bank tightening policy for a very long time. It is a party that might end badly, but it could keep raging for a while.
01/16/202001/24/2020
Outline ALL OF CHAPTER 3 (we are skipping chapter 2).
print and read and know the above attachment. bring to class.
Also, read (or at the least skim) all of pages 303-304.
Read the sections on page 309 about infrastructure (physical capital) and human capital--including the labor participation rate.
01/02/202001/10/2020
DUE FRIDAY AFTER THE WINTER BREAK
6 full sides to your outline minimum: use black or blue ballpoint pen
Please read All of Chapter 1 and one of the sections in Chapter 2 (The Circular Flow of the economy).
Read Pages 3-18, 38, 39, 41
Then Thoroughly Outline those pages No Typed Outlines!!! Handwritten only. Be sure to have headings. Skip lines between headings.
Be sure in your outline to Draw the Production Possibilities Curve (PPC) (draw the actual graph) and describe thoroughly what it is and what different points on the curve or inside/outside it mean.
Draw the PPC graph in your oulines a few times.
Also, be sure to draw the Circular flow diagram with arrows and labels of the arrows (and the 4 boxes as well).
You are planning a minimum 17 day youth hostel/low expense trip internationally, or a roadtrip in the US, or a camping/hiking/food drop backpacking trip. Read the following directions for the assignment. You will be doing it in Google Slides. You will submit it by the due date to my google classroom (classroom.google.com)
17 Day minimum road trip or backpacking trip through the US or elsewhere.
A minimum of 21 slides: 17 days = 17 slides + slides 1,2,3,4:
Convert foreign currency to dollars for prices
You are going to plan at least a 17 day vacation that you actually want to do. It can be a US road trip staying in cheap hotels or camping. It can be a long backpacking trip (ie, Appalachian trail, Pacific Crest Trail, John Muir Trail+
Page 1: Brief title page with your name, period, where the trip goes and the number of days
Page 2: Summation of all costs:
Big font: Dollar to foreign currencies exchange rates
Total Cost of the entire trip in dollars:
Airfare(s)
Train/bus/local transport
Hostels:
Food ($40 per day x # of days)
Activities:
Page 3: Itinerary:
Number the days and list as briefly as possible what you are doing each day
Page 4: screen shot airfare to/from US
Page 5+ Just go through your trip day by day with screen shots, prices converted to dollars, activities, pictures, etc.
Please go over all of these practice questions. I recommend printing them. Bring them to review sessions for help. The answer key is the last page. These will be very useful for the final exam and the actual AP test.
You have 2 handouts you picked up in class. There are a total of 3 sides of AP essay questions. Please use your notes and be methodical. Be very precise with you graph labels and shifts (show dotted lines/arrows for shifts). Use linkages where ever you can. But some questions require you to give written answers (think 3 part answer: restate question, state causation, then show outcome).
This is due next Wed.
04/22/201904/29/2019
Please print the following 3 pages and bring them to class Read page 1-2 before coming to class.
Bring the class notes to class. On the 2nd page, there are 8 multiplier questions (1-5 = monetary multiplier; 1-3 after that the regular multiplier)
Please read all of the following pages and know the definitions. READ ONLY and learn the definitions.
Chapter 15 Extending the Analysis of Aggregate Supply
Read pages: 290-295 (Trade-off between inflation-unemployment, Phillips Curve), skim 295-299 (supply side economics); read p. 299 (chapter summary all)
The Vocabulary words to know from page 299; Know everything about Phillips curve
Short run, Long run, trade-off between Inflation and unemployment, Phillips curve (short run Phillips curve, long run Phillips curve, shifts of the curve during stagflation of the 1970s), Aggregate supply shocks, disinflation, supply-side economics, Laffer Curve
Chapter 16 Economic Growth
Read pages: 302-317 (Economic Growth); p 317 (Chapter summary all)
The 10 vocabulary words to know from page 317:
Economic growth, supply factors, demand factors, efficiency factor, labor productivity, labor-force participation rate, infrastructure, human capital, economies of scale
Chapter 17 The economics of Developing Economies
Read pages: 334 (table on bottom of page); p 335 (Chapter summary all)
The vocabulary words to know from page 335:
Classical view, Keynesian view, monetarism, equation of exchange, velocity of money, MV = PQ, rational expectations Theory and New classical economists (Rational expectations economists are also known as New Classical economists)
04/15/201904/25/2019
There is a 5 sided attachment on bank assets and liabilities. Read this 5 page packet.
There are 6 questions in that packet. Please answer all 6 of them on a separate sheet of paper.
Even though I've provided the answer key to the last 2 longer questions, please also write out your answers, showing the math and changes.
6 questions to answer on a separate sheet of paper
04/15/201904/22/2019
For homework. Everyone MUST READ either the ap review book on this unit or the text book on chapters 12,13,14. This is your last big reading assignment and is probably 20% of the final exam and the AP test.
If you have the 5 steps to a 5 review book, outlinethe chapter titled MONEY AND BANKING. Define all Vocab as well.
Or use the book and READ the following pages of chapters 12,13,14. define thoroughly the terms listed on the accompanying link.
Whether you have the 5 steps to a 5 review book or not, be sure to click on the link below and verify that all of these words are defined.
Read these outlines. You should print them and add them to your notes (but you don't have to print them. At the minimum, read them. They are on the AP test.
Time Value of Money: (Present vs. Future)
Money may serve as a store of value, but money does lose its value over time.
Most of us prefer to receive money income as early as possible and we prefer to pay our debts as late as possible.
Money today is more valuable than the same amount of money in the future.
Interest paid on savings and interest charged on borrowing is designed to equate the value of dollars today with the value of future dollars.
Time value of MoneyOver time, the value of money falls. Thats why we want to be paid interest on our savings and we are charged interest on our borrowing (when we take loans).
Demand for money:
There are 2 reasons why the public wants to hold some of its wealth as money: To make purchases with it (transactional demand) and to hold it as an asset (Asset Demand).
To make purchases with it (transaction demand)
When theres inflation, people need more money to make the same number of transactions. The larger the inflation rate, the higher the transactional demand for money is. The demand curve would shift up in the money market graph, increasing interest rates.
To hold it as an asset (Asset Demand)
Money also is a store of value. This is why people want to hold money as an asset (Asset Demand).
Money is the most liquid asset. An advantage of holding it is its liquidityits immediately usable for purchasing other assets.
The disadvantage of holding money as an asset is that it earns no or very little interest. Checkable deposits pay either no interest or little interest. Idle currency earns no interest at all.
The amount of money demand varies inversely with the rate of interest (opportunity cost of holding money as an asset).
When the interest rate rises, being liquid and avoiding capital losses becomes more costly (because bonds pay more so youre losing that return).
So with high interest rates, the public reacts by reducing its holding of money as an asset.
When the interest rate falls, the cost of being liquid and avoiding capital losses also declines.
With low interest rates, the public increases the amount of financial assets that it wants to hold as money.
An increase in nominal GDP means that the public wants to hold a larger amount of money for transactions, and that extra demand will shift the total money demand curve to the right.
A decline in the nominal GDP will shift the total money demand curve to the left.
04/15/201904/19/2019
Please print this 1 page attachment, read through it, and bring to class.
Use the typed Phillips Curve outlines I've provided on another link.
Please answer the attached 4 Phillips curves questions. Then also answer all parts of the 2 actual AP essay questions on the Phillips curve. On the essays, use graphs and LINKAGES ONLY when you're asked to explain (not sentences) to save time.
Please Print the following 10 page reader. Thoroughly read and highlight it--it is on the 5 schools of economic thought (Classicals, Keynesians, Monetarists, Supply-siders, Rational Expectations). If you are travelling anywhere take it with you, in addition to a highlighter, pen, and paper).
NO LATE ASSIGNMENTS--THEY ARE DUE on the due date.
On separate sheets of paper, answer the 5 sets of questions after each school of economic thought. (p. 2-3, 1-6, p. 4, 1-10, p. 5, 1-9, p. 6 1-6, p. 8, 1-6, p. 8, 1-6. Read pages 9-10 but skip the 3 last Qs on page 10.
Be sure to answer all questions in complete sentences only--restating the question. This is about 10% of your final exam!!!
print the list below. This list describes the pages to read and the vocabulary to define. If you're having trouble printing this, here it also is in a word document.
(This part is not your homework but rather Questions you should be able to answer for the final from chapter 10, pages 203-204: 1-3, 6-12
Chapter 11, read pages:
208-211
212 (stop at bottom of page)
216-217 (problems of timing)
*217-218 (crowding out effect and current thinking on Fiscal policy)
*221-222 (crowding out effect revisited and a graphical look at crowding out effect. Be sure to add a vertical money supply curve.
Questions from chapter 11 you should be able to answer from pages 225-226: 2,3,5
Vocab words you should know from chapters 10-11:
Chapter 10
Aggregate Demand (graph as well)
Aggregate demand curve (PL and GDP)
Why is the AD curve downsloping?
Real Balances effects
Interest Rate effect
Foreign purchases effect
*Whats the difference between a change in the quantity of AD and a change in AD? What must change to change quantity of AD?
Changes in AD (C + I + G + Xn)
Determinants of AD (see table on page 190; list all of them, theyre described on 189-191)
Skip AS in the long run (pages 192-193)
Page 193 at bottom, Changes Aggregate supply (AS)
*Whats the difference between a change in the quantity of AS and a change in AS? What must change to cause a change in the quantity of AS? What must change to shift the AS curve?
*Determinants of Supply (write 1 short explanation for each determinant; ie, 4 step linkages)
* Input prices
* Domestic resource prices
* Market power
* Prices of imported resources
* Exchange rate fluctuations
* Change in productivity
* Legal-institutional environment
* Business Taxes
* Government regulation
*Demand-pull inflation
*Disinflation
*Deflation
Menu Costs
Wage Contracts
Minimum wage
*Cost Push inflation (decrease in AS)
*Ratchet effect (p. 200)
*Increase in AS: fell employment with price-level stability
Chapter 11
*Expansionary Fiscal Policy
2 fiscal policies:
Increase G, cut T, or a combination of the 2.
Multiplier effect
MPC, 1/MPS change in AD x multiplier = Greater change in GDP
*3 ranges of AS curve: Horizontal (Range 1), Upsloping (range 2), Vertical (range 3)
*Contractionary fiscal policy
Policy options: G or T?
*If a country must balance its budget (T G), it can either raise taxes or cut gov. spending. For long run economic growth, it is better to cut G than to raise T.
Dollar for dollar, an increase in G of $5 bn will stimulate the economy more than a tax cut of $5 bn. Why? (multiplier effect, mpc,mps)
* Built in stability; Automatic Stabilizers
*Progressive taxes
*p. 216: Problems of timing (3 time lags: recognition lag, administrative lag, operational lag)
Crowding out effect and current thinking on fiscal policy.
Define public debt but skip page 219.
221-222, crowding out effect and graph, with vertical money supply curve.
The following outlines are for you to read only. They're on the AP test. Please read them. Chapter 10 AD AS (Don't do anything here/below related to your homework).
Aggregate Demand = C + I + G + Xn
AD is a schedule or curve that shows the amounts of real output (real GDP) that buyers collectively desire to purchase at each possible price level.
Inverse relationship between PL and real GDP:
When the price level rises, the quantity of real GDP demanded decreases.
When the price level falls, the quantity of real GDP demanded increases.
Only a change in PL can change the quantity of real GDP demanded.
Why the downward slope? 3 reasons.
Real-Balances Effect.
A higher price level reduces the real value or purchasing power of the publics accumulated savings balances.
The real value of assets with fixed money values, such as savings accounts or bonds, diminishes.
Because a higher price level erodes the purchasing power of such assets, the public is poorer in real terms and will reduce its spending. (so the quantity of AD falls as PL goes up).
Ex) A household may buy a new car if its purchasing power of its financial assets is $50,000. But if inflation erodes the purchasing power of its assets balances to $30,000, the household may defer its purchase. So a higher price level means less consumption spending and therefore less AD.
Interest-rate effect
The AD curve also slopes downward because of the interest rate effect.
When we draw an AD curve, we assume a fixed money supply.
When price level rises, consumers and businesses need more money for purchases.
If I now need $11 to buy something that only cost $10 dollars 1 year ago, I need more money to buy the same product. This will increase demand for money.
A higher price level increases the demand for money. So given a fixed money supply, an increase in money demand will drive up the price paid for its use. That price is the interest rate.
Higher interest rates reduce C and I and therefore the quantity of AD.
So, when there is high price level, this increases the demand for money and consequently the interest rate, thus reducing the amount of real output (GDP) demanded.
Foreign purchases Effect
When the US price level rises relative to foreign price levels (and exchange rates do not respond as quickly or completely), foreigners buy fewer US goods and Americans buy more foreign goods. Therefore, US exports fall and US imports rise. Since Xn falls, the quantity of real GDP falls, due to the high price level.
(1) Please correctly draw and label 4 separate loanable funds graphs on one side of a sheet of paper.
Each of the 4 graphs should have their axis and supply/demand curves labeled accurately. Then shift the supply curve left on one graph; the supply curve right on the next; the demand curve left on the next one, and the demand curve right on the 4th graph. Be sure to draw dotted lines and arrows on the graph and then just write if the change in the curve caused the real interest rate to increase or decrease.
(2) Answer essay Questions 1-3 on the back pages on a separate sheet of paper (NOT on the back of the outline). If a question just says to draw and label an graph, do so with dotted lines and arrows. If a question says Explain, then in complete sentences, restating the question, answer it (3 part sentences minimum). Skip lines between all parts (a, b, c, etc.)
I will collect the 4 loanable fund graphs wth shifts/labels/arrows/dotted lines, and essay questions 1,2, and 3.
After we lecture on this section, there will be a quiz on Loanable funds.
03/25/201903/26/2019
Please use your phone/tablet/laptop and click on the PDF link below. Once opened, there are 3 articles. Please read all 3 of them in class. Then, filling the front and back of a paper, write bullet points of ideas, summaries, key points, etc.
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