Unit Four Video Summaries: Video Six

Blog Video Summaries

3/26/16

6th Video Summary

The last video combined a few of the concepts we learned earlier and showed the relationship between the Loanable Funds Market, the Money Market, and Aggregate Demand-Aggregate Supply.

If the government runs a deficit, then everything is affected.

• Demand for Money shifts RIGHT, Interest Rate goes UP, Supply of Money stays the same
• Demand for Loanable Funds shifts RIGHT or Supply of Loanable Funds shifts LEFT
• Aggregate Demand shifts RIGHT, Price Level goes UP, and GDP goes UP

If you'll notice, everything increased when the government ran a deficit. This is called the Fisher Effect.

Fisher Effect- The change in the interest rate must equal the change in price level. They must have a 1:1 direct ratio.

It is important to be able to explain the relationship between all of the graphs. 

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Unit Four Video Summaries: Video Five

Blog Video Summaries

3/16/16

5th Video Summary

This video talked about Money Creation and Multiple Deposit Expansion (all those sample problems we've done in class with RR and ER and all that jazz. One point that was made: Banks make money by making loans!!!

Money Multiplier: 1/ RR (Reserve Requirement)

EXAMPLE: Bobs puts $500 into the bank. The reserve requirement is 20%. What is the amount of money that is created in the banking system?

RR= 20% so 1/.2=2. ----------------> Money Multiplier= 5

5(Loan Amount) --------------> 5 x 500= 2,500 

Answer: $2,500

(This answer is implied that there are no ER- Excess Reserves. If there were, our $2,500 would be decreased.)

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Unit Four Video Summaries: Video Four

Blog Video Summaries

3/26/16

4th Video Summary

This video talked about the Loanable Funds Market.

Loanable Funds- Amount of money available in the banks for people to borrow.

Demand for Loanable Funds is downward sloping because when the interest rate is low, people demand more money to spend. A high interest rate discourgaes people from borrowing money.

Supply of Loanable Funds comes from the amount of money people have in banks. It is dependent on SAVINGS. The more people save, the more money banks can loan out.

If the government is running a deficit, then they are demanding more money to spend. Demand for Loanable Funds shifts RIGHT and interest rate goes UP or Supply of Loanable Funds shifts LEFT and interest rate goes UP. 

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Unit Four Video Summaries: Video Three

Blog Video Summaries

3/26/16

3rd Video Summary

The third video talked about the three monetary tools of the Fed. There are two directions the Fed can take: Expansionary (Easy Money) or Contractionary (Tight Money). The three tools the Fed can use are the Reserve Requirement, the Discount Rate, and Open Market Operations (OMO). 

Reserve Requirement- Percent of total deposits banks must keep in vault cash or on reserve with a Fed branch. This money CANNOT be loaned out.

Discount Rate- The rate at which banks can borrow money from the Fed.

Open Market Operations (OMO)- Buying or selling bonds or securities: Used most often

Federal Funds Rate- The rate at which banks can borrow from other banks

Under an Expansionary Policy, the Fed is trying to increase the Money Supply. In order to do so, they can: DECREASE the Reserve Requirement, DECREASE the Discount Rate, or BUY BONDS.

Under a Contractionary Policy, the Fed is trying to decrease the Money Supply. In order to do so, they can: INCREASE the Reserve Requirement, INCREASE the Discount Rate, or SELL BONDS/SECURITIES.

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Unit Four Video Summaries: Video Two

Blog Video Summaries

3/25/16

2nd Video Summary:

The second video was the introduction to money market graphs. 

Dm stands for Demand of Money. It is downward sloping because when interest rates are low, people tend to want to borrow more. Sm stands for Money Supply. This is a vertical line because it doesn't vary based on interest rates because it is fixed and set by the Fed, unless they do something to change it. They may shift it to the right, or increase the Money Supply to stabilize interest rates. A increase in Demand of Money causes it to shift  to the right and and an increase in interest rates. A decrease in the Demand of Money causes it to shift to the left and a decrease in interest rates.

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Unit Four Video Summaries: Video One

Blog Video Summaries

3/25/16

1st Video Summary:

The first video was basically an introduction to the concept of money. The woman went into depth about the three types of money as well as the three functions of money. The three types of money are Commodity Money, Representative Money, and Fiat Money. Commodity Money is where a good is used as currency but also serves other purposes; for example, in Africa they used to use cow's as money, but they are also used as food or hide. Representative Money is where whatever currency is being used is representative of a specific quantity of metal. Fiat Money (what we use today) is where money's value is backed by word of the government. The three functions of money are: Medium of Exchange, Store Value, and Unit of Account. Medium of Exchange means that through money, exchange for goods and services occur. Store Value means that when we out money into any type of bank or account, we expect to be able to use it at the same value as when we put it in. Unit of Account means that we often equate the price of something with it's quality. 

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Unit Four Videos!

Blog Videos

3/25/16

Alrighty! So as we all know we were required to watch some videos on Youtube that help us understand more of Unit Four which is all about money! The next couple of posts will have summaries for all of the videos. However, their placement will be a bit random because some videos had more information than others. Just in case anyone needs them, here are the links to all the videos!

Types and Functions of Money

Money Markey Graphs

The Fed's Tools of Monetary Policy

The Loanable Funds Market

Money Creation and Multiple Deposit Expansion

Relating the Money Market, Loanable Funds Market, and AD-AS


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Unit Three: Fiscal Policy

Fiscal Policy

Notes from 2/29/16

Fiscal Policy- Changes in the expenditures or tax revenues of the federal government

2 Tools of Fiscal Policy

     -Taxes: Government can either increase or decrease taxes

     -Spending: Government can either increase or decrease taxes

DEFICIT, SURPLUS, DEBT

-Balanced Budget- Revenues = Expenditures

-Budget Deficit- Revenues < Expenditures

-Budget Surplus- Revenues > Expenditures

-Government Debt- Sum of All Deficits - Sum of All Surpluses

• Government must borrow money when it runs a deficit from:
• Individuals (Taxes)
• Corporations
• Financial Institutions
• Foreign Entities/ Foreign Governments

2 Options

1. Discretionary Fiscal Policy (ACTION)
1. Expansionary
2. Contractionary
2. Non-Discretionary Fiscal Policy (NO ACTION)

DISCRETIONARY

-Increasing or decreasing government spending and/or taxes in order to return the economy to full employment.

-Involves policymakers doing fiscal policy in response to an economic problem (recession)

AUTOMATIC

-Unemployment compensation and marginal tax rate are examples of policies because they mitigate the effects of recession and inflation.

-Takes place without policymakers having to respond to economic problems

EXPANSIONARY

-Combats a recession

-INCREASE government spending 

-DECREASE taxes

CONTRACTIONARY
-Combats inflation

-DECREASE government spending

-INCREASE taxes

AUTOMATIC or BUILT-IN STABILIZERS 

-Anything that increases the governments budget deficit during a recession and increases its budget surplus during inflation without requiring explicit action by policymakers.

-Economic Importance:

    +Taxes reduce spending and AD
    +Reductions in spending are desirable when the economy is moving toward inflation

    +Increases in spending are desirable when the economy is heading toward recession

    +Examples: Medicare, Medicaid, Social Security

TAXES

1. Progressive Tax System- Average tax rate rises with GDP
2. Proportional Tax System- Average tax rate remains constant as GDP changes
3. Regressive Tax System- Average tax rate falls with GDP

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Unit Three: Consumption and Saving

Consumption and Saving

Notes from 2/25/16

Disposable Income: Income after taxes or net income

       -DI = Gross Income - Taxes

2 Choices

       -With DI, households can either:

         +Consume

         +Spend

         +Cannot do both at 100%

Consumption

-Household spending

-Ability to consume is constrained by:

   +The amount of disposable income

   +The propensity to save

-Do households consume if DI=0?

    +Autonomous Consumption (automatically comes out of paycheck)

    +Dissaving

Saving

-Household NOT spending

-The ability to save is constrained by:

   +The amount of disposable income

   +The propensity to consume

-Do households save is DI=?

    +NOPE!

APC and APS

-Average Propensity to Consume and Average Propensity to Save

APC + APS = 1

1 - APC = APS
1 - APS = APC
APC > 1 = Dissaving
-APS = Dissaving

MPC and MPS

-Marginal Propensity to Consume and Marginal Propensity to Save 

• MPC = Change in Consumption / Change in DI
• ∆ C / ∆ DI
• MPS: Fraction of any change in disposable income that is saved
• ∆S / ∆ DI

Marginal Propensities

MPC + MPS = 1 
1 - MPS = MPC
1 - MPC = MPS

Spending Multiplier Effect

-Any initial change in spending (C, G, Ig, Xn) causes a larger change in aggregate spending or AD

Multiplier = ∆AD / ∆C, G, Ig, Xn

Calculating Spending Multiplier

1 / 1 - MPS OR 1 / MPC

Multipliers are POSITIVE when there is an increase in spending and NEGATIVE when there is a decrease in spending. 

Calculating Tax Multiplier

-MPC / 1 - MPC OR -MPC / MPS

-When government taxes, multiplier works in reverse

-Money is leaving the circular flow

-Always NEGATIVE

-If there is a tax cut, then multiplier is POSITIVE

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Unit Three: Keynesian AS

Classical vs. Keynesian

Notes from 2/24/16

-Followers:

       +J. M. Keynes

-Say's Law:

       +Depressions refute Say's Law 

       +Demand creates its own supply

       +Underspending persists

-Savings and Investments

       +Savings DO NOT EQUAL Investment

       +Different Motivations: Future Needs, Precaution, Habit, Income Level, Interest Rate

        -Rate of Profit, Expectations

-Loanable Funds Market

       +Investments from savings, cash, checking accounts

       +Lending creates money, Sm Increases

       +Inflation and Unemployment are unstable

-Wage/ Price Flexibility

       +Price and wages are inflexible downward (Ratchet Effect)

-Supply Curve

       +HORIZONTAL

-Output and Employment

       +AD determines output and employment

-Unemployment

       +AD determines output and employment

-Aggregate Demand

       +AD changes due to determinants

       +AD is unstable even is Sm is stable due to fluctuations in investments

-Basic Equation

       + C + G + Ig + Xn = GDP (1973-Present)

-Role of Government

       +Believe in fiscal policy (tax and spend)

       +Believe in an active government

       +Believes economy is not self-regulating

-Inflation

       +Caused by too much demand

-How long the short run is?

       +Very Long Time

-Emphasis Today

       +Macroeconomics

EXTRA THINGS

*Competition is flawed 

*AD is key, not AS

*Leaks and Savings cause recessions

*Believe in long run, WE ARE ALL DEAD

*Believe "sticky wages" block Say's Law

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Unit Three: Classical AS

Classical vs. Keynesian

Notes from 2/24/16

CLASSICAL

- Followers:

       + Adam Smith

       + J. B. Say

       + David Ricardo

       + Alfred Marshall

-Say's Law:

       + Supply creates its own demand

       + Production = Income = Spending

       +Underspending is unlikely

-Savings and Investments:

       +Saving s= Investment Income

       +Savings (Leakage) = Investment (Injection)

-Loanable Funds Market:

       

-Wage/Price Flexibility:

        +Prices and wages are flexible downward

-Supply Curve

        +VERTICAL

-Output and Employment

        +AS determines output and employment

-Unemployment:

        +Rarely exists due to wage/price flexibility 

        +Causes: External - War 

- Aggregate Demand

       +AD determines price level

       +AD is reasonably stable if supply of money is stable

-Basic Equation

       +mv = PQ (from 1965-1972)

 -Role of Government

       +Monetary Rule

       +Maintain a steady Supply of Money (Sm)

       +Believes laissez-faire is best

       +Believes economy is self-regulating

-Inflation

       +Caused by too much money

-How long the short run is?

       +A short time

-Emphasis Today:

       +Microeconomics

EXTRA THINGS

*Competiton is good!

*Believe in the invisible hand (Government regulates itself)

*In the long run, economy will balance at full employment

*Economy is always close to or at full employment

*Believe in the "trickle down effect" (Rich served first, everyone else second)

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