Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

Principles of Macroeconomics

VIEWS: 13 PAGES: 41

									Principles of
Macroeconomics


Economic Crisis
    Macroeconomics, March 30, 2009, Martha
                   Stuffler
       WHAT’S GOING ON

 Recession

 Textbook definition

 NBER definition

 NBER – Peak December 2007
              Macroeconomics, March 30, 2009, Martha
                             Stuffler
       WHAT’S GOING ON
 BEA Data – www.bea.gov


 Quarterly Real GDP Change


       1Q 2008      + 0.9 %
       2Q 2008      + 2.8%
       3Q 2008      - 0.5%
       4Q 2008      - 6.2%

              Macroeconomics, March 30, 2009, Martha
                             Stuffler
      WHAT’S GOING ON


 What does this data mean?

       Determination of the
       December 2007 Peak
        in Economic Activity


            Macroeconomics, March 30, 2009, Martha
                           Stuffler
         WHAT’S GOING ON
 UNEMPLOYMENT RATE


      IRVINE 5.6%
      CA 10.1%

      7 US STATES > 10%

      US 8.1% (Feb. 2009)



 Discouraged workers
               Macroeconomics, March 30, 2009, Martha
                              Stuffler
        WHAT’S GOING ON
 Difference between recession and depression


 Why Recession?


 SHORT ANSWER


     Consumption and Investment ↓


               Macroeconomics, March 30, 2009, Martha
                              Stuffler
        WHAT’S GOING ON

 Economy: 4 sectors: H, B, G and EX - IM


 GDP = C + I + G + EX – IM


 100% = 72% + 14% + 20% - 5%




               Macroeconomics, March 30, 2009, Martha
                              Stuffler
        WHAT’S GOING ON
 DJIA = Measure of wealth


 DJIA High was 10/9/07 14,165


     Today about 7600

 What is the % decrease?


               Macroeconomics, March 30, 2009, Martha
                              Stuffler
WHAT’S GOING ON




   Macroeconomics, March 30, 2009, Martha
                  Stuffler
         WHAT’S GOING ON
 Estimates say US wealth fell 18% last year
  when net worth fell by $11 trillion

 From 1990-2000 US wealth doubled


 From 2000-2007 grew 50% to $50T


 2008 fell 18%

                  Macroeconomics, March 30, 2009, Martha
                                 Stuffler
         WHAT’S GOING ON
 How do falling stock prices and falling
  household wealth affect the economy?

 Why is their overall decline important?


 Stock prices are a Leading Economic
  Indicator



                 Macroeconomics, March 30, 2009, Martha
                                Stuffler
        WHAT’S GOING ON
 Stock prices are an indicator of


             EXPECTATIONS

 Harbinger of future economic activity

 What is happening to US expectations?

 Look at the LEI
                 Macroeconomics, March 30, 2009, Martha
                                Stuffler
WHAT’S GOING ON




   Macroeconomics, March 30, 2009, Martha
                  Stuffler
       WHAT’S GOING ON
 FINANCIAL INSTITUTIONS

  Comptroller of the Currency
      National Banks Administrator

 4th Q08 Report: Banks lost $3.5B in
      derivatives = 7 times more than their
      previous highest lost

 Econ 105 or 210

               Macroeconomics, March 30, 2009, Martha
                              Stuffler
         WHAT’S GOING ON
 BAILOUTS

     FINANCIAL INSTITUTIONS
         Who Are They?

     INSURANCE COMPANIES

     HOMEOWNERS

     AUTO MANUFACTURERS
                Macroeconomics, March 30, 2009, Martha
                               Stuffler
      WHAT’S GOING ON

Low interest rates

Low inflation

Re-fi mania

Fed supplying money and
 encouraging lending
           Macroeconomics, March 30, 2009, Martha
                          Stuffler
     WHAT’S GOING ON

Jobless growing

Negative expectations

State budgets in trouble

CA $8B shortfall
          Macroeconomics, March 30, 2009, Martha
                         Stuffler
     WHAT’S GOING ON


College Grads

Negative expectations



         Macroeconomics, March 30, 2009, Martha
                        Stuffler
WHAT’S GOING ON


 PERSONAL
SAVING RATE


   Macroeconomics, March 30, 2009, Martha
                  Stuffler
WHAT’S GOING ON




   Macroeconomics, March 30, 2009, Martha
                  Stuffler
      WHAT’S GOING ON
 Why is the saving rate important?



 How do business get $ to invest?




             Macroeconomics, March 30, 2009, Martha
                            Stuffler
      WHAT’S GOING ON
 INVESTMENT in economics

 When Saving < Investment ► we
 require ―capital inflows‖ = borrow
 from abroad

 US shortage of saving and not
 alone worldwide shortage of saving
 in many high income nations
            Macroeconomics, March 30, 2009, Martha
                           Stuffler
      WHAT’S GOING ON
 US DISTINCTION


   World’s Biggest Debtor Nation

 Who is the World Biggest Creditor
 Nation?

            Macroeconomics, March 30, 2009, Martha
                           Stuffler
       WHAT’S GOING ON
       INTERNATIONAL TRADE

 Economist view


 WTO, GATT, NAFTA passed 1994


 Crisis ► Protectionism

              Macroeconomics, March 30, 2009, Martha
                             Stuffler
        WHAT’S GOING ON
 NAFTA - transnational border program


 President just cancelled a pilot program
  allowing Mexican truckers to transport cargo
  in the US

 Pilot program affects 29 Mexican carriers and
  about 100 trucks


                Macroeconomics, March 30, 2009, Martha
                               Stuffler
        WHAT’S GOING ON
 March 17th, 2008 Mexico released list of 89
  US potential products and threatened new
  tariffs from 10-45% on March 17th

 New stimulus bill has some kind of ―buy
  American‖ provision

 Our trading partners are feeling threatened
  and are not happy with us—Brazil just sent us
  a stern warning.
                Macroeconomics, March 30, 2009, Martha
                               Stuffler
         WHAT’S GOING ON

 Trade wars may develop from strong
  nationalism to protect domestic industries—
  undo GATT & WTO accomplished

 How do tariffs affect the ability for domestic to
  compete with foreign companies in
  international markets?


                 Macroeconomics, March 30, 2009, Martha
                                Stuffler
  WHAT’S GOING ON


How much does the US
    economy rely on
  International Trade?


       Macroeconomics, March 30, 2009, Martha
                      Stuffler
WHAT’S GOING ON



IT’S NOT ALL
 ABOUT US!

   Macroeconomics, March 30, 2009, Martha
                  Stuffler
      WHAT’S GOING ON

 Dubai construction stoppage


 Dubai in 2008 bailed out one of
 their biggest banks



             Macroeconomics, March 30, 2009, Martha
                            Stuffler
     WHAT’S GOING ON

  DUBAI’S LEADING LENDER

Tightened lending requirements


50% down to finance a home

          Macroeconomics, March 30, 2009, Martha
                         Stuffler
      WHAT’S GOING ON
               EU
 Confidence Declining

 Banks not lending

 How do EU unemployment rates
 typically compare to US
 unemployment rates?
            Macroeconomics, March 30, 2009, Martha
                           Stuffler
      WHAT’S GOING ON

2008 EU average unemployment
 rates rose from 6.8% to 7.4%

What was the rate of increase in
 EU unemployment rates?


           Macroeconomics, March 30, 2009, Martha
                          Stuffler
         WHAT’S GOING ON
                             China


 Don’t know unemployment rate


 56% of 1.3B people live in countryside


 Went into cities


 Now, no jobs in the cities
                 Macroeconomics, March 30, 2009, Martha
                                Stuffler
        WHAT’S GOING ON

 Return country to live on yearly average
  income of $700

 Shortage of good or high paying jobs


 How will crisis affect US trade relations
  with China?
                Macroeconomics, March 30, 2009, Martha
                               Stuffler
 WHAT’S GOING ON

    China and Russia

  Recommending US Dollar
    no longer serve as the
international reserve currency


        Macroeconomics, March 30, 2009, Martha
                       Stuffler
     WHAT’S GOING ON

            AFRICA

Tourism


National Parks

           Macroeconomics, March 30, 2009, Martha
                          Stuffler
    WHAT’S GOING ON

                   ASIA

Tourism


Manufacturing

           Macroeconomics, March 30, 2009, Martha
                          Stuffler
     WHAT’S GOING ON
     US CHALLENGES BEFORE
         CURRENT CRISIS


Trade Deficit


Budget Deficit

          Macroeconomics, March 30, 2009, Martha
                         Stuffler
     WHAT’S GOING ON
     US CHALLENGES BEFORE
         CURRENT CRISIS


Low saving rate


Rising consumer debt

         Macroeconomics, March 30, 2009, Martha
                        Stuffler
 WHAT’S GOING ON

PARADOX OF THRIFT

 Now when we need
 consumer spending,
consumers are saving
     Macroeconomics, March 30, 2009, Martha
                    Stuffler

								
To top