Macro final topic review
Download
1 / 7

Macro Final Topic Review - PowerPoint PPT Presentation


  • 59 Views
  • Uploaded on

Macro Final Topic Review. Savings & Leakage Economic Schools of Thought. DEMAND FOR MONEY. MS. You usually do not have to shift MD The Fed. Controls MS and that moves with monetary policy HOWEVER- sometimes they shift MD on the exam For example:

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Macro Final Topic Review' - scout


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Macro final topic review

Macro Final Topic Review

Savings & Leakage

Economic Schools of Thought


DEMAND FOR MONEY

MS

You usually do not have to shift MD

The Fed. Controls MS and that moves

with monetary policy

HOWEVER- sometimes they shift MD on the exam

For example:

1) If the stock market crashes—people hold more

Money (precautionary demand) and MD shifts right

2) If the price level ↑, then MD shifts right

Money Market

Nominal

Interest

Rate

Demand for Money:

Transactions Demand

Precautionary Demand

Speculative Demand

MD

Qty $

Price Level changes shifts Demand Curve for Money

↑ Px level shifts MD right

↓Px level shifts MD left


Market for Dollars

Market for Euros

S

S

Euro Price

1

1

S

S

of a dollar

Dollar Price

1

1

of a Euro

.70

--------------

Euro

--------------

1.43 Dollars

--------------

D

D

1

1

--------------

D

D

1

1

Q

1

Qty of Dollars

Q

Qty of Euros

1

  • Relative Price Level

  • Real Interest Rate

  • Booming Foreign Economy


Gdp leakage
GDP Leakage

  • GDP =Y = C + I + G + (X – M)

  • Leakage to GDP: S + T + M

    (S = Savings T= taxes M = Imports)

  • Injections to GDP: I + G + X

    (Investment, Gov’t, Exports)

  • In equilibrium: Leakage = Injections

    S + T + M = I + G + X

Savings must end up as

Investment


Phillips curve short long run

3. . . . and

increases the

inflation rate . . .

B

B

6

A

A

2

Phillips curve

4

7

(output is

(output is

8,000)

7,500)

Phillips Curve Short & Long Run

SHORT RUN Phillips Curve

LONG RUN Phillips Curve

Inflation

Rate

Inflation

Long-run Phillips

(percent

Rate

curve

per year)

Unemployment

0

Unemployment

0

Natural rate of

Rate (percent)

Rate

unemployment

You may have to draw a Phillips Curve

Remember—Unemployment on x-axis


Economic schools of thought
Economic Schools of Thought

  • Classical View

    • Markets are naturally self regulating (No Gov’t intervention)

    • Recessions are temporary, Wages & Prices are flexible

  • Keynesian View

    • Economy is inherently unstable, Not self regulating

    • Wages & prices are sticky (Gov’t intervention needed)

  • Monetarist View

    • Money matters!----do not regulate economy—control inflation

  • Supply Side View

    • Incentives matter! Create incentives to increase LRAS


  • World Price: when above domestic price we export

    World Price: when below domestic price we import

    Tariffs & Quotas

    Revenue Tariff - designed to raise revenue

    Protective Tariff – designed to protect domestic market

    Quotas- limit # of goods imported

    Price

    S

    P

    -------------

    ------------

    D

    US

    Market

    (Wheat)


    ad