Absolute Advantage
-Individual - Exists when a person can produce more of a certain good/service than someone else in the same amount of time.
-National - Exisits when a country can produce more of a good/service than the other country in the same amount of time period.
Comparative Advantage
-Individual/National - when an individual or nation can produce a good/service at a lower opportunity cost than can another individual or nation.
*Input problems - This is where the country or individual can produce a set amount of something by using the least amount of resources, land, or time has the absolute advantage.
Chosen item
Forgone item
*output problem - looking at production, who can produce the best
What is given up
What is produced
Saturday, May 16, 2015
Unit 7 04/15/2015
Foreign exchange market (FOREX)
-The buying and selling of currency
EX in order to purchase souvenirs in France, it is first necessary for Americans to sell (supply) their dollars and buy (demands) Euros.
-The exchange rate (e) is determined in the foreign currency markets
EX 77 Japanese yen to 1 U.S dollar
-Always change the D line on the one currency graph, the S line in the other currency graph
-Moves lines of two currency graphs in the same direction and you will have the correct answer.
-If D on one graph moves up then so will the S on the other graph. And same if D on one graph moves left then S on the other graph will also move left.
Change in exchange rates.
-Exchange rates are a function of the supply and demand for currency.
=increasing of supply in a currency will make it cheaper to buy one unit of that currency.
=decreasing in supply of a currency will make it more expensive to buy one unit of that currency.
=Increase in demand for a currency will make it more expensive to buy one unit of that currency.
=decrease in demand for a currency will make it more cheaper to buy one unit of that currency.
Appreciation
-Appreciation of a currency occurs when the exchange rate of that currency increases
Depreciation
-Depreciation of a currency occurs when the exchange rate of that currency decreases.
Exchange rate determinants
-Consumer taste
-Relative income
-Relative price level
-The buying and selling of currency
EX in order to purchase souvenirs in France, it is first necessary for Americans to sell (supply) their dollars and buy (demands) Euros.
-The exchange rate (e) is determined in the foreign currency markets
EX 77 Japanese yen to 1 U.S dollar
-Always change the D line on the one currency graph, the S line in the other currency graph
-Moves lines of two currency graphs in the same direction and you will have the correct answer.
-If D on one graph moves up then so will the S on the other graph. And same if D on one graph moves left then S on the other graph will also move left.
Change in exchange rates.
-Exchange rates are a function of the supply and demand for currency.
=increasing of supply in a currency will make it cheaper to buy one unit of that currency.
=decreasing in supply of a currency will make it more expensive to buy one unit of that currency.
=Increase in demand for a currency will make it more expensive to buy one unit of that currency.
=decrease in demand for a currency will make it more cheaper to buy one unit of that currency.
Appreciation
-Appreciation of a currency occurs when the exchange rate of that currency increases
Depreciation
-Depreciation of a currency occurs when the exchange rate of that currency decreases.
Exchange rate determinants
-Consumer taste
-Relative income
-Relative price level
Unit 7: 04/09/2015
Balance of payments
-Measure of money inflows and outflows between the U.S and the rest of the world (ROW)
*inflows are referred to as credits
*outflows are referred to as debits
Balance of payments are divided into three accounts
1.Current account
2. Capital/Financial account
3. Official reserves account
double entry book keeping
-every entry in the balance of payments is recorded twice in accordance with standard accounting practice.
Current account
-Balance of trade of net exports
*Exports of goods and services (-) imports of goods and services (-) exports create a credit to the balance of payments (-) imp. create a debt.
-Net foreign income
*income earned by U.S owned foreign assets (-) income paid to foreign held U.S assets.
-Net transfers
*foreign aid --> a debit to the foreign account,
Capital/financial account
the balance of capital ownership includes the purchase of both real and financial assets.
direct investments in the U.S is a credit to the capital account,
Capital/financial account
purchase of foreign financial assets represent debit to the capital account.
relationship between current and capital account
-Current and capital account should zero each other out
Official reserves
-The foreign current holdings of the U.S federal reserves system.
-When there is a ball of rice of payments surplus the fed accumulates foreign currency and debits the balance of payments.
Active Vs. Passive
-U.S is passive in its use of official reserves, doesn't seek to manipulate the dollar exchange rate.
-People republic of China is active in its use of official reserves. actively buys and sells dollars in order to maintain steady exchange rate with the U.S.
-Measure of money inflows and outflows between the U.S and the rest of the world (ROW)
*inflows are referred to as credits
*outflows are referred to as debits
Balance of payments are divided into three accounts
1.Current account
2. Capital/Financial account
3. Official reserves account
double entry book keeping
-every entry in the balance of payments is recorded twice in accordance with standard accounting practice.
Current account
-Balance of trade of net exports
*Exports of goods and services (-) imports of goods and services (-) exports create a credit to the balance of payments (-) imp. create a debt.
-Net foreign income
*income earned by U.S owned foreign assets (-) income paid to foreign held U.S assets.
-Net transfers
*foreign aid --> a debit to the foreign account,
Capital/financial account
the balance of capital ownership includes the purchase of both real and financial assets.
direct investments in the U.S is a credit to the capital account,
Capital/financial account
purchase of foreign financial assets represent debit to the capital account.
relationship between current and capital account
-Current and capital account should zero each other out
Official reserves
-The foreign current holdings of the U.S federal reserves system.
-When there is a ball of rice of payments surplus the fed accumulates foreign currency and debits the balance of payments.
Active Vs. Passive
-U.S is passive in its use of official reserves, doesn't seek to manipulate the dollar exchange rate.
-People republic of China is active in its use of official reserves. actively buys and sells dollars in order to maintain steady exchange rate with the U.S.
Unit 5 & 6: 04/07/2015
Inverse relationship between unemployment and inflation?
-Short run Philips curve
Graph of long run aggregate supply curve looks?
-Vertical at full employment
What type of inflation caused by adverse supply shock?
-Cost push inflation
Hypothetical economy '03-'06 inflation dec 8% -> 6% -> 3%
-Disinflation
knowledge and skills that make a worker productive
-Human capital
High inflation and high unemployment
-Stagflation
Supply side economics
-Belief that the AS curve will determine levels of inflation, unemployment, and economic gorwth
-To increase the economy the AS curve will have to shift to the right which would benefit the company first.
-Supply side economists focus on marginal tax rates.
Marginal tax rates: amount paid on the last dollar earned or the additional dollar earned.
Lower taxes are incentives for workers to invests in our economy
1.Supply side economists
-Supports policies that promote GDP growth by arguing that high marginal tax rate along with our current system of such unemployment.
-People to increase savings and therefore create lower interest rates and increase business investments.
-Provide disincentives to work, invest, innovate, and undertake entrepreneur ventures.
2. Supply side economics (Raeganomics)
-Lowered the marginal tax rate to get the U.S not in a recession ---> Deficit
Laffer curve
it is a trade off between tax rates and government
It is used to support the supply side economics.
As tax rates increase from zero, tax revenues increase from zero to some maximum level and then decline,
The higher the tax rates you set the less money you will collect and the laffer curve id controversial and debatable.
Criticism of the laffer curve...
1. researchers suggest that the impact on tax rates on incentives to work, invest, and to save are small.
2.tax cuts also increase demands
-Short run Philips curve
Graph of long run aggregate supply curve looks?
-Vertical at full employment
What type of inflation caused by adverse supply shock?
-Cost push inflation
Hypothetical economy '03-'06 inflation dec 8% -> 6% -> 3%
-Disinflation
knowledge and skills that make a worker productive
-Human capital
High inflation and high unemployment
-Stagflation
Supply side economics
-Belief that the AS curve will determine levels of inflation, unemployment, and economic gorwth
-To increase the economy the AS curve will have to shift to the right which would benefit the company first.
-Supply side economists focus on marginal tax rates.
Marginal tax rates: amount paid on the last dollar earned or the additional dollar earned.
Lower taxes are incentives for workers to invests in our economy
1.Supply side economists
-Supports policies that promote GDP growth by arguing that high marginal tax rate along with our current system of such unemployment.
-People to increase savings and therefore create lower interest rates and increase business investments.
-Provide disincentives to work, invest, innovate, and undertake entrepreneur ventures.
2. Supply side economics (Raeganomics)
-Lowered the marginal tax rate to get the U.S not in a recession ---> Deficit
Laffer curve
it is a trade off between tax rates and government
It is used to support the supply side economics.
As tax rates increase from zero, tax revenues increase from zero to some maximum level and then decline,
The higher the tax rates you set the less money you will collect and the laffer curve id controversial and debatable.
Criticism of the laffer curve...
1. researchers suggest that the impact on tax rates on incentives to work, invest, and to save are small.
2.tax cuts also increase demands
3. where the economy is actually located on the curve is yet
to be located on the curve is yet to be determined,
Unit 5 & 6: 04/06/2015
The long run Phillips curve (LRPC)
Because long run Philips curve exists at the natural rate of unemployment. Structural changes in the economy that affect Unemployment will also cause LRAPC to shit
-Shift up in unemployment will shift LRPC to the right
-Shift downward in unemployment will shift LRPC to the left
Stagflation
is when inflation and unemployment increases simultaneously
EX. Baby boom
Women's movement
Civil rights movement
Vietnam war ends
Oil embargo of 1973 and 1979
Disinflation
Reduction in the inflation rate from year to yea this occurs when agregate demand declines.
Deflation
General drop in the price level.
Because long run Philips curve exists at the natural rate of unemployment. Structural changes in the economy that affect Unemployment will also cause LRAPC to shit
-Shift up in unemployment will shift LRPC to the right
-Shift downward in unemployment will shift LRPC to the left
Stagflation
is when inflation and unemployment increases simultaneously
EX. Baby boom
Women's movement
Civil rights movement
Vietnam war ends
Oil embargo of 1973 and 1979
Disinflation
Reduction in the inflation rate from year to yea this occurs when agregate demand declines.
Deflation
General drop in the price level.
Unit 5 & 6: (04/01/2015)
Short run aggregate supply
Time is too short fir wages to adjust to the price level.
-Workers may not be aware of changes in their real wages due ti inflation and have adjusted their labor supply decisions and wage demand accordingly. (if fixed contract no increase in real wages.)
Nominal wage - the amount of money received per hour, per day, or per year.
Sticky wages - this is where the nominal wage level is set according to an initial price level and does not vary.
Long run aggregate supply (LRAS)
-Flexible price level and wage
- offset each other
Time long enough for wages to adjust to the PL
- Growth in some format
- Technological
Phillips curve represents th relationship between unemployment and inflation.
-Trade off between inflation and unemployment that only occurs in the short run.
Long run Phillips curve.
-occurs at the natural rate of unemployment represented by a vertical line.
-There is no trade off between unemployment and inflation in the long run which means that the economy produces at the full employment level.
-The long run phillips curve will only shift if the LRAS curve shifts.
Three tyoes that make up phillips unemployment,
1.Structual
2. seasonal
3. frictional
Major LRAS assumption is that more worker benefits create lower natural rates.
LRPC only shift if LRAS shift
Otherwise it is vertical or stable
Short run phillips curve
Inverse relationship between unemployment and inflation.
It has relevance to okuns law
-Since wages are sticky inflation changes, moves the points on the SRPC. If inflation persist and the expected rate of inflation rises tha the entire SRPC moves upwards due to stagflation.
-If inflation expectations drop due to new technology or economic growth then the SRPC moves downwards.
If you move/Shift curve its due to AS if its a determinate of AD it shifts along the curve.
AD- Along the curve
AS- Move along the curve
Aggregate supply shocks cause both the rate of inflation and the rate if unemployment to increase.
Supply shock --> rapid and significant increase in resource cost.
Misery index - combination of inflation and unemployment in any given year.
single digit misery =Good
Time is too short fir wages to adjust to the price level.
-Workers may not be aware of changes in their real wages due ti inflation and have adjusted their labor supply decisions and wage demand accordingly. (if fixed contract no increase in real wages.)
Nominal wage - the amount of money received per hour, per day, or per year.
Sticky wages - this is where the nominal wage level is set according to an initial price level and does not vary.
Price level
|
Wage level
|
Employment level
|
Implications
|
|
Keynesian/Horizontal
|
Fixed
|
Fixed
|
Flexible
|
Dep. On change in employment.
|
Intermediate
|
Flexible
|
Fixed
|
Flexible
|
Dep. On change in price level and employment.
|
Classical or Vertical
|
Flexible
|
Fixed
|
Fixed
|
Dep. On change in price level.
|
Long run aggregate supply (LRAS)
-Flexible price level and wage
- offset each other
Time long enough for wages to adjust to the PL
- Growth in some format
- Technological
Phillips curve represents th relationship between unemployment and inflation.
-Trade off between inflation and unemployment that only occurs in the short run.
Long run Phillips curve.
-occurs at the natural rate of unemployment represented by a vertical line.
-There is no trade off between unemployment and inflation in the long run which means that the economy produces at the full employment level.
-The long run phillips curve will only shift if the LRAS curve shifts.
Three tyoes that make up phillips unemployment,
1.Structual
2. seasonal
3. frictional
Major LRAS assumption is that more worker benefits create lower natural rates.
LRPC only shift if LRAS shift
Otherwise it is vertical or stable
Short run phillips curve
Inverse relationship between unemployment and inflation.
It has relevance to okuns law
-Since wages are sticky inflation changes, moves the points on the SRPC. If inflation persist and the expected rate of inflation rises tha the entire SRPC moves upwards due to stagflation.
-If inflation expectations drop due to new technology or economic growth then the SRPC moves downwards.
If you move/Shift curve its due to AS if its a determinate of AD it shifts along the curve.
AD- Along the curve
AS- Move along the curve
Aggregate supply shocks cause both the rate of inflation and the rate if unemployment to increase.
Supply shock --> rapid and significant increase in resource cost.
Misery index - combination of inflation and unemployment in any given year.
single digit misery =Good
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