TeacherWeb

Document Sample
TeacherWeb Powered By Docstoc
					                                              4/9

-   4
-   Notebook Organization
    - Micro Review
        - Quick Study Review
        - Course Outline
        - Crash Course
        - Unit 2 Review
    - Graphs
        - PPC
        - Perfect Competition
        - Elasticity
        - Per-Unit Tax
        - Price Ceiling
        - Total Utility
        - Perfect Competition (Market/Firm Graphs) – 2 Pages
        - Monopoly – 2 Pages
        - Monopolistic Competition
        - Labor Market
    - Important Handouts
        - Factors that Shift Demand
        - An Elasticity Menagerie
        - Different Types of Market Structures
    - Multiple Choice
        - Units 1-5 Questions
        - Kaplan/Cracking
        - 5 Steps (pg. 23, 269, 311)
    - Free Response Questions
        - Sample #1-3
        - 2000-2011 (3 Questions per Year)
        - 2002-2011 (Form B) (3 Questions per Year)
        - Comparative Advantage
        - Price Ceiling
        - Per-Unit Tax
        - Elasticity
        - Perfect Competition
        - Monopoly
-   4/9 – 4/13 Micro Review (Factor Markets)
    - 4/9 – Chapter 11 Crash Course
    - 4/10 – Chapter 11 Crash Course and 2011 (B) FRQ #3
    - 4/11 – FRQs (Hiring Rule)
        2010 (B) FRQ #2
        2008 (B) FRQ #3
        2007 FRQ #2
        2005 FRQ #3
        2003 (B) FRQ #3
        2001 FRQ #3
        2000 FRQ #2
    -  4/12 – FRQs (Factor Markets Graphs)
       2011 FRQ #2 (C)
       2010 FRQ #2
       2006 (B) FRQ #3
       2005 (B) FRQ #1
       2003 FRQ #3
       2002 FRQ #1
       2002 (B) #3
    - 4/13 – Factor Markets Practice
-   Important Macro Material
    - Basic Economic Concepts
       - Scarcity, choice and opportunity costs
       - Production possibilities curve
       - Comparative advantage, absolute advantage, specialization and exchange
       - Demand, supply and market equilibrium
    - Measurement of Economic Performance
       -    Circular Flow Diagram
           - Demand-Side Economics (Keynesianism)
           - Draw with Households, Firms, Product Market, Factor (Resource) Market
           - Leakages (less consumption, less revenue, less employment of resources, higher
                unemployment, less income, less production ---- lower GDP)
           - Injections (more consumption, more revenue, more employment of resources, lower
                unemployment, more income, more production ---- higher GDP)
           - Government Sector
                - Leakage – Taxes
                - Injections
                     - Goods/Services
                     - Infrastructure
                     - Check (Redistribution has no total effect on GDP)
           - Banking (Financial) Sector
                - Leakage – Savings (Households making a Financial Investment by supplying Financial
                     Capital)
                - Injection – Borrowing (Households) (Firms borrowing to make a Business Investment
                     in Physical Capital) (Government)
           - Foreign Sector
                - Leakages
                     - Imports (Tariffs)
                     - Demand Resources Overseas
                     - Flow of Financial Capital out of the U.S. (Capital Outflow)
                - Injections
                     - Exports
                     - Demand U.S. Resources
                     - Flow of Financial Capital into the U.S. (Capital Inflow)
       - Gross Domestic Product (GDP)
           - “Market value of all final goods and services produced within a country in a given period
                of time”
           - Aggregate Spending (Expenditure) Model
                - Consumption (C)
                     - final goods/services (including commissions) (not intermediate goods)
                     - no way to measure nonmarket transactions
                     - no way to measure underground economy
       -   do not count second-hand sales (already counted in a previous year)
       -   consumption by foreign households on U.S. exports will be added in at the end
       -   consumption by U.S. households on foreign goods (imports) will be subtracted
           out at the end
    - Investment (I)
       - Households
           - New Housing
           - do not count financial investments
       - Firms
           - New Physical Capital
           - ∆ Market Value of Unsold Inventories
    - Government (G)
       - Goods/Services
       - Infrastructure
       - do not count transfer payments
    - Net Exports (X-M) (Exports – Imports)
-   Other methods used to calculate GDP - National or Aggregate Income (Y), National
    Output
-   Nominal vs. Real GDP
    - Nominal Numbers - include the effects of inflation
    - Real Numbers
       - take out the effects of inflation (since the base year)
       - putting two nominal numbers in real terms allows us to be able to compare
           numbers from different years (for example with GDP to see how much more we
           are actually producing as compared to a previous year)
    - Calculating Nominal GDP
       - Current Year Price * Current Year Quantity for C, I, G, X-M
    - Calculating Real GDP
       - Base Year – 2005
       - GDP Deflator (Price Index)
           - (Spending Current Year/Spending Base Year) * 100
           - What Spending is Included?
                - all domestic final goods/services (no imports)
                - producer goods
           - Base Year GDP Deflator = 100
           - %∆ GDP Deflator (between 2 different years)
                - (New GDP Deflator – Old GDP Deflator)/Old GDP Deflator
                - New GDP Deflator – Base Year Deflator
                - Indicates the Inflation Rate that has occurred between those 2 years
           - Problems with using GDP Deflator to measure the Inflation Rate
                - are you really including all domestic final goods/services?
                - not measuring prices of imports
                - change in price may be due to a change in quality
                - less effective as you move farther away from 2005
                    - quantities have changed
                    - products have changed
                    - this is why the U.S. uses a Chained Price Index
       - Three Methods for Calculating Current Year’s Real GDP
           - Base Year Price * Current Year Quantity for all goods/services
           - (Current’s Year’s Nominal GDP/Current’s Year’s GDP Deflator) * 100
           -     %∆ Real GDP = %∆ Nominal GDP - %∆ GDP Deflator
-   Business Cycle
    - Expansion
    - Peak
    - Contraction
         - Recession - at least six months of negative growth in Real GDP
         - Depression (vs. Recession)
             - longer period of time
             - more severe decline in Real GDP
             - higher unemployment rate
    - Trough
         - the recession is over
         - economy will need to expand for a period of time to get back to Real GDP level that
             occurred before the recession
         - economy will need to expand for a period of time to get back to Full Employment
             (Increase Aggregate Demand or Short-Run Aggregate Supply)
    - Long-Run Growth
         - Moving out Production Possibilities Curve (PPC) and Long-Run Aggregate Supply
             (LRAS)
         - Increases our Potential GDP
         - More Resources (Physical Capital)
         - Making Existing Resources more Productive (Human Capital)
         - New Technology/Research and Development
-   Inflation
    - Definition
         - Increase in the Average Price Level
         - Decrease in the Purchasing Power of the Dollar
    - Real Income
         - take out all the effects of inflation (since the base year)
         - putting nominal income from two different years in real terms allows you to see the
             change in purchasing power
         - Calculating Real Income
             - Base Year (1983)
             - Consumer Price Index (CPI)
                 - (Spending Current Year/Spending Base Year) * 100
                 - Spending included in CPI vs. GDP Deflator
                     - CPI – Market Basket of 400 consumer goods/services including imports
                         (fixed quantity)
                     - GDP Deflator – all final goods/services excluding exports but including
                         producer goods (quantity changes from year to year)
                 - Base Year CPI = 100
                 - %∆ CPI (between 2 different years)
                     - (New CPI – Old CPI)/Old CPI
                     - New CPI – Base Year CPI
                     - Indicates the Inflation Rate that has occurred between those 2 years
                     - Inflation Rate can also be calculated by using the following:
                         New Year Spending – Old Year Spending/Old Year Spending
                 - Problems with using CPI to measure the Inflation Rate
                     - only includes 400 goods/services
                     - change in price may be due to a change in quality
               -     less effective as you move farther away from 1983
                     - consumers substitute as prices increase but market basket
                          quantity remains the same (supposedly)
                     - emergence of new products has led the composition of the market
                          basket to change since 1983
                     - category weights have changed since 1983
                - CPI since 1930s
                - Current Inflation Rate using Pre-1990 CPI Calculation
                - Current Inflation Rate using Pre-1980 CPI Calculation
                - Producer Price Index (PPI)
        - Two Methods for Calculating Current Year’s Real Income
            - (Current Year’s Nominal Income/Current Year’s CPI) * 100
            - %∆ Real Income = %∆ Nominal Income - %∆ CPI
        - Methods to compare Purchasing Power between two different years
            - find the real income for both years (take out all the inflation that has
                occurred since the base year)
            - take out all the inflation from the most current year that has occurred
                since the oldest year --- for example, if you are wanting to compare the
                difference in purchasing power between your 1990 Salary and 2012 Salary
                --- 2012 Salary * (1990 CPI/2012 CPI)
            - add in all the inflation to the oldest year that has from the oldest year to
                the newest year --- for example, if you are wanting to compare the
                difference in purchasing power between your 1990 Salary and 2012 Salary
                --- 1990 Salary * (2012 CPI/1990 CPI)
            - you can also do the same thing when comparing prices from different
                years (higher or lower % of my income)
-   No Inflation Winners or Losers when Expected (Anticipated) Inflation = Actual Inflation
    - Theory of Rational Expectations
        - Classical School – used to show ineffectiveness of government actions
        - Expect 3% inflation ---- Plan for 3% Inflation --- Get 3% Inflation --- No Impact
    - Cost of Living Adjustment (COLA)
        -    %∆ Nominal Wage = %∆ Real Wage + Expected Inflation
                       3%         =        0%     +        3%

        -   %∆ Real Wage = %∆ Nominal Wage (Fixed) - %∆ Actual Inflation
                   0%    =         3%              -        3%

        -  Workers’ Purchasing Power remains the same
        -  Business’ Profits Remain the same
        -  Problem with Demand-Side Economics belief that increasing Aggregate Demand
           (AD) will increase GDP (Sticky Prices/Wages --- Short-Run vs. Flexible
           Prices/Wages --- Long-Run)
    -   Nominal Interest Rates
        - Nominal Interest Rate = Real Interest Rate + Expected Inflation
                      6%         =            3%     +           3%

        -   Purpose of Interest
            - Risk/Return on Investment/Opportunity Cost
            - Protect Purchasing Power
        -   Problem with Increasing the Money Supply to Stimulate the Economy
       -   Real Interest Rate = Nominal Interest Rate (Fixed) – Actual Inflation Rate
                     3%       =             6%                -          3%

       -     Real Interest Rate
             - Return on Investment
             - %∆ Purchasing Power
             - %∆ Real Dollars
-   Winners and Losers when there is More than Expected Inflation or Less than Expected
    Inflation (Redistribution of Income)
    - Unanticipated Inflation
         - %∆ Real Wage = %∆ Nominal Wage (Fixed) - %∆ Actual Inflation
                     -7%    =          3%           -          10%

           -   Winners
               - Business (sticky vs. flexible wages) (other resource costs???)
               - Renters (signed Long-Term Lease)
           -   Losers
               - Workers
               - Landlord
               - Fixed Income/Benefits (not indexed for inflation or sticking)
               - Taxpayers (Property, Sales Tax)

       -   Real Interest Rate = Nominal Interest Rate – Actual Inflation Rate
                    -4%       =            6%         -          10%

           -   Winner
               - Borrower (Government)
                   - -4% real cost of borrowing vs. 3%
                   - paying back money that has 4% less purchasing power than what
                        was borrowed
               - paying back 4% fewer real dollars than what was borrowed
           - Losers
               - Lender/Saver
                   - -4% real return vs. 3%
                   - receiving money that has 4% less purchasing power than you
                        lent/originally saved
                   - receiving 4% fewer real dollars than you lent/originally saved
               - Wealthy
       -   Practice – Who is Hurt/Helped by Unanticipated Inflation?
           - Banks extend many fixed-rate loans
           - A farmer buys machinery with a fixed-rate loan to be repaid over a 10-year
               period
           - Your family buys a new home with an adjustable-rate mortgage
           - Your savings from your summer jobs are in a savings account paying a fixed-
               rate of interest
           - A widow lives entirely on income from fixed-rate corporate bonds
               -   A retired couple lives entirely on income from a pension the woman
                   receives from her former employer
               - A retired person lives entirely on income from Social Security
               - The federal government has a $15.6 Trillion Debt
               - A firm signs a contract to provide maintenance services at a fixed rate for
                   the next five years
               - A local government receives revenue mainly from fixed-rate license fees it
                   charges businesses
               - Your friend rents an apartment with a three-year lease
       -   Less than Anticipated Inflation
           - %∆ Real Wage = %∆ Nominal Wage (Fixed) - %∆ Actual Inflation
                      2%      =           3%               -         1%

               -   Winners
                   - Workers
                   - Landlord
                   - Fixed Income/Benefits not indexed for inflation (or sticking)
               -   Losers
                   - Businesses (sticky vs. flexible wages) (other resource costs???)
                   - Renter

           -   Real Interest Rate = Nominal Interest Rate – Actual Inflation Rate
                        5%        =           6%          -          1%

               -   Winners
                   - Lender/Saver
                       - 5% real return vs. 3%
                       - receiving money that has 5% more purchasing power than you
                          lent/originally saved
                       - receiving 5% more real dollars paying than you lent/originally saved
                   - Wealthy
              - Loser
                   - Borrower
                       - 5% real cost of borrowing vs. 3%
                       - paying back money that has 5% more purchasing power than what
                          was borrowed
                       - paying back 5% more real dollars than what was borrowed
    - Costs of Inflation
       - Fewer Contracts
       - Shoe Leather Costs
       - Menu Costs
       - Societal Costs
          - Spending vs. Savings
          - Risky Behavior
    - FRQs – 2011 (B) #3 --- Parts C and D/2008 (B) #3 ---- Parts C and D
-   Unemployment Handouts

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:3/26/2013
language:English
pages:7