PJ+AdrienneE

Nov. 29:

Aid: help/money/transfer of funds from a more developed country to a less developed country Bilateral aid: money given from one country to another Multilateral aid: several countries helping one, combining the funds, pooled by international finance institutions eg. World Bank, IMF tied aid: money provided by a donor country receiving country, who must use aid provided by country according to certain conditions, which are placed when giving aid debt relief: relieving loans, cancel interest or debt in general, trade vs. aid:
 * outflow for developed, injection to underdeveloped
 * why would we aid?
 * humanitarian: you want to help, you can help,let's give you some aid. they need aid
 * developmental aid: give aid, have to use it to develop infrastructure- not food, or buy clothes-
 * only two countries
 * problems
 * not enough aid might be given, and ties countries together- if a developed country stops aiding, then the underdeveloped country is in trouble.
 * benefits: the country isn't directly tied, they get more money, improve relationships
 * benefits: a country is required to use it for certain things, ensures that aid is likely to use it well, no corruption. It WILL happen
 * cons: it's conditional.
 * if developed countries perceive the problem incorrectly- it's not health care, but food- we need to work on that.
 * benefits: no debt, low inflation
 * cons: the country could misuse the funds
 * trade: profit making, comparative advantage
 * aid: helping, transfer of money, simple transfer
 * there are some mutual benefits with aid, but whatever.

Nov. 15.

Savings ratio: % of national income to amount saved - the higher the savings ratio the more the economy will grow about 20% is necessary to grow. apparently. will lead to growth. capital output ratio: amount of capital needed to generate some goods. If you invest only a little and increase the output by a lot, [increase in capital, to increase in output], then the more efficient you are and the more you grow. technology helps this. Harrod-Domar: GDP is proportional to increase. higher the savings ratio, the faster the economy will grow. agricultural --> industrial.

criticisms: -it assumes that all of the savings are invested- but there is corruption and stuff. -false starts- you can save and invest, but if the gov. changes-? political stability. -there are other factors. -small countries can't grow- can't create that much savings- but is this true? -not everyone is growing because there are savings- there are other factors. newly discovered resources. -you have perfect knowledge- the terms of trade are not deteriorating, the exchange rate is unstable -but the exchange rate affects investment, not attractive --> less savings. -assuming that people are educated, know how to save, convert it into goods and services that would help economy grow, --> but some are uneducated,... THIS MODEL IS BASED ON COUNTRIES THAT ALREADY HAVE THIS INFRASTRUCTURE, BUT HAVE BEEN AFFECTED BY SOMETHING OUTSIDE- LIKE THE WAR--> they assume that these things already exist (share, education, not just private but public/society). attitude towards growth is important- willing to sacrifice present happiness for the future?

Oct. 10 2011

Balance of trade: exports and imports of physical goods Current Account Balance: balance of trade with services and unilateral transfers; balance of payment deficit: outflow; surplus: inflow Capital Account: investments, gov. securities, bonds Reserve Account Transactions: foreign exchange reserves- central bank, current account + capital account + reserve account transactions = balance of payments
 * unilateral transfers; net of what you give and what you get (eg. gift- donation): will be a negative of balance of payments

_

FOREX: Foreign Exchange

changes in real interest rates changes in consumer preferences perceptions of economic stability

what would lead to U.S. being a stronger dollar? Floating exchange rate: the market takes care of itself rates are continually changing
 * prints out more dollars, more dollars are available everywhere
 * US imports from India: they will give out dollars- an increased supply of dollars
 * spent U.S. money in India, the Indians now have more U.S. dollars
 * a lot o imports leads to sporadic exchange rates
 * if $ are high, no one will want to import from there- so U.S. exports decrease, and then supply decreases, and then people lose their jobs- more unemployment will occur
 * impacted by imports and exports, direct investments
 * currency will appreciate/depreciate (both will happen simultaneously: one country will appreciate, one will depreciate
 * but the fixed rate: the Fed takes care of the rest [fixed exchange rate]- re-evalutaion, devaluation
 * [blackmarket] some change in currency weights results from speculation

Central Bank in control of the exchange rates



Because Pw is lower than the equilibrium, and that Pt is lower, the consumers will bear the cost of the tariff. The X is the consumer surplus (lost- from people willing to pay all the way up to the equilibrium point- less people are willing to pay). The tariff is protecting the domestic producer- some goods can come in, but it is more attractive for the domestic producer to produce rather than foreign market. Because of the tariff- the consumers lose out (consumer surplus). Gain is Q2 to Q4r (yellow lines) - the gain to the world with tariff. Without the tariff, the gain is Q1 to Q3 (blue to red)

- Y is producer's surplus -X is consumer's loss


 * When analyzing an article:**

What: read and tell what you know, what's happening Why: theories; analysis and application, what ideas are behind this, diagrams How: relative merits, long term benefits; evaluation and synthesis, effect

International trade:
 * trade: an exchange of goods
 * why? --> an overall [global] increase in output, + transmission of ideas
 * one country doesn't have the resources they want
 * minerals, food, oil, any natural resource
 * specialization--> increase efficiency
 * comparative advantages- more can be made in the same amount of time
 * so trading will allow countries to specialize
 * but there is a chance of surplus, and dependency
 * the industry is totally wiped out- more and more specialization- some people have lost their jobs
 * if there is a change in the value of the currency of one of the countries, it alters the comparitive advantage
 * also, local producers cannot compete with other countries who are specialized in a subject and can therefore offer it cheaper.
 * exchange process of production, technologies
 * why do we not trade? [protectionist policies]
 * infant industry
 * you have a disadvantage because you are just starting and competing with economies with a lot of experience. So protecting that first. You don't have economies of scale, and they are not big enough- not efficient or skilled
 * thus, the gov. wants to protect this industry (for a short-period of time).
 * it can get abused: they are "infants"- so they don't try, no incentive because they get help. Or it's just the wrong industry- it is not possible for it to grow that much, so the gov.'s protection goes on forever
 * they might not care to improve
 * people have to pay a higher price than they would have had trade been free.
 * foreigners are giving subsidies
 * thus, one country's goods can be sold at a lower price
 * the other country's goods cannot compete, thus- trade restrictions!!!!
 * dumping: protect domestic economies from dumping
 * if one country produces too many goods- in excess, so they sell at a low price
 * or the country has recession, so there is not enough demand: don't want to close down factories, hopefully recession is temporary- so they dump
 * protect domestic jobs
 * prevent unemployment
 * foreign people taking local jobs
 * sometimes they instead give incentives to employ own local people and not foreigners
 * consequences: subsidies- consumers are taxed more
 * "in order to protect a job of 3,000$, you have to spend 5,000$"
 * sometimes it's not reasonable
 * restricted trade practices (drugs, weapons, certain materials, food- diseases)
 * what are the means for restricting trade?
 * quotas
 * allow a certain amount to be traded, but not beyond that
 * restricting supply: (vertical line): so prices increase
 * tariff
 * tax on the imported goods - raises prices (price of good + taxes)
 * now it's easier for the domestic producer to compete



Quantity of money demanded (demand for money curve) If you influence the interest rate you influence the money supply



If the S [money supply] increases, because the Fed buys bonds or something, increasing the money supply, they lower the rate of interest.

Why are banks allowed to influence the money supply?
 * because there is demand for money
 * the price of money: the interest you can earn with money
 * the more I can earn, the more money I am willing to part with

The Central Bank can control to reduce or increase the money supply, by allowing or not allowing the individual banks to **take/borrow** money from it (reserve funds). They can also alter the **reserve ratio**; decreasing it means more money supply as more loans are available, increasing the reserve ratio will decrease the money supply. If they increase or decrease the **interest rates** they give to the banks, it can increase or decrease the money supply.

Bank assets $ = liabilities $
 * assets: amounts owned
 * reserves: bank deposit with central bank + cash with bank
 * Fed decides reserve ratio- and the reserves stay with the Fed
 * 10% **100$**
 * excess reserve [hasn't been loaned yet] : money acquired on top of the reserve required- banks don't like this.
 * loans
 * **900$**
 * The loans go to other people which then are put in other banks,: money multiplier effect
 * liabilities: amounts owed
 * **1000$**demand deposits/ transaction deposits [people depositing money in the bank]
 * assure you that you get some interest [see assets]


 * M1**: money supply: = deposits + cash + any other form of cash
 * it is not when the money only changes hands
 * It only changes when the Fed increases the money supply
 * The Fed buys gov. securities, or bonds- it is not a transfer of money- it is creating that additional money

Money multiplier effect: there is actually more money in the economy than the Fed actually purchases.

Properties of Money: -uniformity (standard) -official (no copying) -money has legal boundaries (within countries) -some money is universal -financial institutions: credit/debit card - also universal-
 * Money and Banking**

Money Supply: -the amount of money floating around (in circulation) -if there is too much: danger of inflation - too much supply -value of money decreases -Central Bank's purpose: maintain watch... (Reserve Bank of India) _

Banking Systems
private banks, commercial banks - make profits central banks - bank for national treasury or finance ministry

Direct finance: straight through the individual (individual --> company) Indirect finance: individual --> bank --> company Banks can also facilitate payments (credit cards and stuff) Banks need investors, or otherwise they will not be able to pay individuals back when they ask for it back.
 * financial intermediation:** because of the risks of lending out money. Also, then a lot of money is invested at once, they get better rates.
 * But people save some money- people lend it to corporations (shares) - and receive dividends, or interest
 * Make sure the corporation will make money to be able to return and make profit
 * How do we evaluate? So some give money to the bank, as that is safer.
 * The banks then lend money to the companies.
 * This is a liability: banks are responsible for keeping the money, and adding interest.
 * The banks have to pay all of this. The central bank is ensurer to the banks.
 * If all the money is defaulted- and the central bank cannot pay all of it, and everyone wants to take it out:
 * 2008 crisis
 * but then when the money is returned by the company, with extra profit, then the bank keeps some of the profit, and gives the rest of the money back to the individual

http://post.jagran.com/reserve-bank-of-india-raises-policy-rates-by-50-bps-1304400112

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Class notes

Macroeconomics:
**April 21, 2011** **Source:** [|**http://schmidtomics.blogspot.com/2010/03/taxation-macro.html**]

**direct taxation**: taxes paid directly to the government (i.e. income and corporate tax)

**indirect taxation**: taxes paid to the government via an intermediary (i.e. sales tax, value-added tax - VAT, sin taxes: goods and services)

**progressive taxation**: tax rates that increase as income goes up (i.e. most countries income/corporate tax regimes)
 * pros
 * the value of the money of the poor is more to them than to the rich.
 * redistribution of income
 * reduced division between the poor and rich
 * "neighborliness"
 * cons
 * "I work hard, why should I be taxed more, giving to those less diligent"
 * discourage ambition (disincentive)
 * people do not declare

**regressive taxation**: tax rates that decrease as income goes up (all sales taxes are regressive in nature...why?!)
 * no sales tax for necessary goods and services: food

**proportional taxation**: tax rate that are the same for all (i.e. everyone pays 15% regardless of income, seen in many East European countries like Ukraine).
 * pros
 * "fair"
 * easy to implement
 * cons
 * the poor feel it much more than the rich

**transfer payments**: payment by government as a "gift" or aid, not for g/s and not counted in GDP...a transfer (type of redistribution from richer to poorer includes welfare checks and social security; unemployment benefit, donation --> not contributing to the GDP). **Laffer curve**: a graph showing the relationship between tax rate and government tax revenue (at zero tax rate, there is zero government revenue, at 100% tax rate, there is zero government tax revenue because no one works...the ideal is somewhere in the middle where revenue peaks). as you increase taxes, as the disposable income increases, there is a point where the tax takes away so much of the disposable income that it is a disincentive

19/04/11

crowding out: gov. spending- but private sector (households and businesses) decrease, so AD doesn't move business cycle lags
 * gov. replaces private expenditure, so no effect (eg. public library --> less books bought)
 * military, judicial (gov. jobs)

More on Fiscal Policy Macro study guide (blue book) page 161: working with graphs gov. source of revenue: taxes on wages, businesses, imports, productions, Fiscal policy in practice: Policy lag time: Result: the policy can do more harm than good - Lower taxes during recession hence disposable income drop is less than what recession could cause - Transfer payments during recession keeps up the aggregate demand
 * Recognition lag** – collection of data and identification of economic problems:
 * It takes time to realize there is a problem
 * they have to identify, analyze, collect data
 * Action lag** – implementation of policy
 * You recognize the problem, but it takes time to create a solution: analyzing, implementing.
 * Effect time lag** – time it takes for policy to show results
 * Although the policy has been decided, it takes time to declare the policy, and it takes time for people to feel the policy, and feel that they have more/less to spend.
 * Automatic stabilizer:** factors that cause the economy to automatically stabilize


 * Income || Taxes on it || Disposable income ||
 * 5000$ || 10% || 4500 ||
 * 4000$ (after recession) || 10% || 3600 : change is not a full 1000, despite the salary actually decreasing by a thousand ||

Fiscal policy during **normal times** is not very effective; causes uncertainty if tax rates change frequently.
 * no unexpected growths or recessions
 * Tax rates change frequently: uncertain: there is not pattern, so instability, in the minds, don't know how to react- could be unhappy, change the balance.

Fiscal policy could simulate AD if economy is in the depression phase
 * the economy is in recession
 * counter: Will have huge effect

Fiscal policy may dramatically increase GDP in war time; government expenditure does not change private spending.
 * A lot of government expenditure: GDP increases "tremendously"

Consequences of budget deficit: pg 354 Steps to reduce deficit: pages 356-357 --> (could change the balance again) - increase taxes - rich may be taxed more - decrease government expenditure
 * money is going out of the economy
 * could be a blackmarket- not reporting all of your earnings
 * stop production, will be a disincentive to work more
 * maybe leave the country

15/04/11

Fiscal policy- Keynesian policy- stickyness- things do not change automatically Define fiscal policy – discretionary changes in government expenditure and taxes to achieve economic goals. Economic goals: economic growth, low unemployment- expansionary and reach potential, stable prices. Expansionary fiscal policy- economy increases: increase AD can decrease tax, increasing gov. spending -X effect on deficit (overspending) and debt Contractionary fiscal policy- slowing the economy down: decrease AD increase tax (indirect by housholds and businesses), decreasing gov. spending If the economy is operating at full employment level, shifts in AD lead to temporary increase in GDP. Economy tends to be at LRAS curve. Limitations on effectiveness of fiscal policy: 1. Deficit budget – interest rate may rise. 2. Deficit budget perceived as increase in future taxes – households increase their savings. 3. Government expenditure competes with private sector – lower investment expenditure by firms. 4. A very high tax rate may be disincentive to work 5. Time lags- it takes time to see the effects, and by then the economic conditions will have changed Announcing policies by the time they have started things have changed. ceteris paribus does not exist in the real world
 * use when:
 * [[image:https://static.flatworldknowledge.com/sites/all/files/imagecache/book/30773/fwk-rittenecon-fig22_014.jpg width="292" height="294" caption="https://static.flatworldknowledge.com/sites/all/files/imagecache/book/30773/fwk-rittenecon-fig22_014.jpg"]]
 * inflationary gap: recessionary gap (if Ad2 shifts to Ad1) in short-run: needs expansionary gap: then Ad will shift to the right
 * but can't always: too much- inflation, + debt --> interest rates will increase - low investments, low consumption- so got to have a balance
 * adds to deficit and debt
 * So on same graph: if AD increases too much, then it is an inflationary gap: huge GDP, high prices, temporary going on beyond full employment on: so have to slow it down, hall it back
 * possible to go beyond the full employment level: (it is beyond LRAS) - more people wanting jobs, workers have to work longer, wages offered are so high (for both people wanting jobs and working longer) - so more people want work --> not stable: really high wages, really long work hours- there isn't any economic development. TEMPORARY: you have to pay more to work more: the cost of production has increased- high prices, or reduce the amount. So it will move back to the LRAS. A short term phenomenon. But it could still stay on the AD line, and inflation will still exist.
 * but people may dislike this, and misjudge the value of contractionary fiscal policy: so they will disrupt what is happening by saving, and ruin the policy. They may not decrease their AD but increase savings.

13/04/11


 * Determining equilibrium real GDP**
 * Income = GDP, but...
 * Real disposable income is less than real GDP because of real net taxes (taxes minus transfer payments [voluntary money transfers --> no real output] ).
 * We added consumption(C) and investment (I) to get AD. (but did not talk about Gov. Spending)
 * We must also include government and foreign sector of the economy. (only if it affects the real GDP [no transfer payments: welfare]
 * Real government spending (G), not including transfer payments are determined by political process. (always changes with each gov.)
 * The difference between real exports and real imports is also affects GDP. **net exports**
 * The level of exports depends on economic condition of countries that buy out products. Level of imports depends on domestic economic conditions.
 * Equilibrium real GDP is when total planned expenditure (C+I+G+X) equals GDP, assuming price level is remaining unchanged.
 * [[image:http://econ.la.psu.edu/%7Edshapiro/l17_f06.jpg caption="http://econ.la.psu.edu/~dshapiro/l17_f06.jpg"]]
 * To have equilibrium, the C+I+G+X curve (AE) must be on the 45 degree line (where GDP = planned expenditure)... on the AE line but above the 45 degree line: too much planned expenditure vs. little GDP
 * AD curve: different: price vs. real GDP
 * C+I+G+X : total planned expenditure vs. real GDP : but they connect
 * MPC + MPS = 1 = APS + APC
 * Relationship between AD and C+I+G+X curve (page 308-309)

11/04/11

Consumption – using income to purchase goods and services. These give immediate satisfaction to households. It is one of the components of AD. Short-term only: no investments whatsoever. Immediate satisfaction. Saving is the act of not consuming; it is a rate over a period of time. (10% of my income per year) Savings is the total amount not consumed at a point of time. (5,000 $, or something) Hence, saving = disposable income – consumption __**or**__ consumption + savings = disposable income Expenditure on new machines and buildings by firms is called investment. Classical view – supply of saving is determined by the rate of interest. Keynes – consumption and saving decisions depend on household’s real disposable income. Consumption function (planned real expenditure vs. disposable income) shows how much households plan to consume per year.
 * Determinants of Consumption spending and consumption’s role in influencing AD and investment**
 * -but at zero income, there still is a bit of consumption- borrowings, savings, negative consumption --> not related to disposable income
 * -the autonomous consumption
 * 45 degree line: where consumption equals income: so there is a break even point: at point A
 * below point A: you are consuming more than you are earning; above: consuming less than the income: saving
 * [[image:http://cwx.prenhall.com/bookbind/pubbooks/casefair6/chapter8/medialib/19a.gif caption="http://cwx.prenhall.com/bookbind/pubbooks/casefair6/chapter8/medialib/19a.gif"]]

Income-saving relation is the saving function. Households actually draw on past savings when disposable incomes are low (negative saving or dissaving). Even when real disposable income is zero, there is some consumption – the autonomous consumption. Consumption that is independent of income. How low is the APS in US and why? [capital gains not included, credit cards] pg 293 MPC indicates how much you will consume out of additional income. APC gives the percentage of total income that you consume. Shift in consumption function -- real wealth changes Investment: more variable than consumption Investment decision is based on rate of return. Opportunity cost of investment – rate of interest. Investment function – relation between planned real investment and rate of interest Shifts in investment caused by non interest rate variables – positive expectations, economic stability, productive technology, changes in business taxes
 * Average propensity to consume** = real consumption / real disposable income
 * how much do you plan/feel you can consume: higher --> the more you are going to consume, lower --> less consuming
 * APS = 1-APC**
 * If you have more than a certain (quite high) disposable income: you tend to save more than you spend
 * low APS, high GDP
 * capital gains not included
 * capital gain: buying something (like a house) and being able to sell it at a higher price --> eddie
 * buying something for less than it is worth
 * wealth effect: you feel richer than before : increases consumption (save less)
 * credit cards
 * paying stuff in small parts (monthly), not as a lump sum, plus it was easier to borrow
 * Marginal propensity to consume** = change in real consumption / change in real disposable income
 * if real wealth increases, consumption function shifts up
 * higher rate of interest: less money- higher cost- so spend less on investment
 * [[image:http://www.transtutors.com/userfiles/image/interest%20rate%20investment.JPG width="339" height="165" caption="http://www.transtutors.com/userfiles/image/interest%20rate%20investment.JPG"]]
 * [[image:http://edwardmcphail.com/intromacro/lecture9.1/Image33.gif caption="http://edwardmcphail.com/intromacro/lecture9.1/Image33.gif"]]
 * business taxes: employ more people, spend more, economy is going to go up

Factors/Variables of the Entire Economy as a Whole 1. Distribution of Income 2. Economic Growth ( what rate is it growing or shrinking, eg. National Income) 3. External Stability/Dependency (Imports and Exports- the balance of the two) 4. Un/employment (rate of unemployment- too much money leads to crime: not equally distributed), but so does little money) 5. Price Stability/ Rate of Inflation-
 * not including INFLATION --> the value of rupees could have increased or decreased.
 * thus, Real GDP (GDP adjusted for inflation)
 * to compare between different years, or different countries (take into account exchange rate)
 * NDP (Net Domestic Product) An annual measure of the economic output of a nation that is adjusted to account for depreciation
 * GDP - depreciation
 * depreciation: the cost of replacing an existing equipment in a certain amount of years
 * GNP (Gross National Product) Total value of all final goods and services produced within a nation in a particular year, plus the income of citizens (at home and abroad), minus the income of non-citizens (in the country).
 * the value that the nation produces regardless of location
 * GDP + Add anything earned outside the country and remove anything earned by foreign companies within a country
 * nominal GDP (Gross Domestic Product) Total final goods and services produced within a country (no matter if it is by a native)
 * GDP per capita (the average income and stuff in the country)
 * look at products produced, total income made, or amount of total expenditure (consumers)
 * __final product__: can't count something twice (grain --> bread), things that are getting created (not second-hand goods)
 * GDP = C + (X-M) + G + I
 * C = consumables (short-period of time) + durables (long-time period) + services
 * (X-M) = (Exports - imports) -> the final goods...(net exports)
 * I = investment (not bond stocks (transfer payments)) --> but equipment, factories, inventory spent that a company invests into buying/ increasing
 * G = government spending
 * not counting transfer payments: private,
 * [[image:http://mindtools.net/GlobCourse/GDPcomp1.gif caption="http://mindtools.net/GlobCourse/GDPcomp1.gif"]]
 * inaccuracies: blackmarkets, illegal activities, unreported incomes (no receipts), illegal immigrants, not standard of living, doesn't include negative externalities, how much is being used to improve standard of living? (work too much)
 * capital goods are used up--> don't always want a high GDP
 * uses: to know whether there is economic growth, would want GDP per capita-> but not equal distribution/ standard of living. but want to measure economic growth- what can be done short term and long term, to predict
 * __unemployment:__ the total number of willing and able adults who are actively looking for a job but do not have one.
 * __full employment__: an equilibrium state where there are a certain number of jobs available and the same amount of people looking for jobs and getting them. It does not mean that everyone has a job; but an equilibrium state: there are always people who have lost their job and are looking for another one.
 * __underemployment__: employed part-time; could produce more but you are not employed fully: willing and able, but not full day work.
 * __unemployment rate:__ unemployed people / the total work force
 * __structural unemployment__: unemployment resulting from a poor match of workers' abilities and skills with current requirements of employers
 * __frictional unemployment:__unemployment due to the fact that workers must search for appropriate job offers. This takes time, and so they remain temporarily unemployed.
 * to reduce: give work before college students graduate
 * __seasonal unemployment:__ jobs related to the natural seasons: (winter shoveling snow, brushing leaves autumn?)
 * __cyclical unemployment:__ unemployment resulting from business recessions that occur when aggregate demand is insufficient to create full employment.
 * Inflation: a rise in the price of a group of goods between different years. Talking about the currency value of a product.

Circular Flow of Income: Money always being spent and given.

Households (control the factors of production) give money and labor, capital, entrepreneurship, land, to Firms, who in turn produce goods and services. They also pay wages, interest, profits, rent, to households.

Households save some of their income (it's not a part of the circle)- firms produce less, hire less, less income for households SAVING is a leakage

Put it in a bank, who lend it to firms: investing in companies- an INJECTION

IMPORTS: a leakage- spending income outside the economy (firms don't receive money) EXPORTS: an injection- money into your economy

Government:
 * make money from taxes, reducing income: leakage
 * spends: money comes back in: injection
 * transferring (rich to low) does not count.

To increase economy, injections > leakages To lower economy, injections < leakages For stable/same economy, injections = leakages

10/02/11

Money:
 * medium of exchange for goods
 * medium of exchange for services
 * makes transactions easy
 * serves as a standard of value
 * standard of future payments
 * barter system:
 * opinion based, so it doesn't work as easily


 * 27/01/11**

Productivity: human capital

GDP ---> GDP per capita at PPP (purchasing power parity) comparing price of living from different countries doesn't tell of living standards
 * life expectancy
 * poverty
 * literacy --> innovation, research: human capital
 * leisure time
 * child mortality

economic growth depends at productivity: the amount of goods and services one can produce in an hour
 * growth rate**: lower countries can grow faster than those with a higher GDP - rate of growth does not tell of standard of living either
 * capital**: increase productivity by investing into physical capital. It will increase a lot, but eventually will taper off.
 * saving**: country saves: there will later be a lot of growth. For there to be growth, PPC shifts outwards: producing more with the same resources. It implies that the productivity is increasing, and better technology.

innovation: introduction of a product/ opportunities --> economic growth (new jobs, efficiency)

cost of economic growth:
 * good
 * better standard of living (sometimes)
 * lower poverty
 * literacy
 * higher life expectancy
 * political stability
 * bad
 * pollution
 * breakdown of the family
 * isolation and alienation
 * urban congestion

1. rubric requirements 2. evaluation -3.organization and presentation -4. use of economic terminology -3. application and analysis of economic concepts and theories 6. Writing

IA Commentary:
 * evaluation
 * evaluate **theories**: ...judgmental... not criticizing the article itself
 * eg. price elasticity: is it a good concept to use to represent the situation? (it is dependent on)
 * law of demand: it doesn't always hold and why?
 * analysis
 * not general --> specific to your topic
 * use economic terms to explain own situation
 * do not contradict yourself
 * economic terms
 * define **all** terms
 * be specific in your diagrams
 * eg. comparing demand and supply of .... quantity of what? price of what?
 * make sure names are the same in the writing and the diagrams
 * make sure statements match diagrams (if inelastic, show elasticity)

31/01/11

= I. Economic Growth =

d) Interest Table is more accurate
e) compounded table-> like the interest rate, a lot of gain

1. A function of savings
x a) saving is a leakage, there will not be growth? Nope! b) the more they will save, the more growth they will have tomorrow c) investment will also increase growth.

(b) **Patents** and other IPRs are important to __encouraging__ technological innovations
-encourage research, patents can prevent some from using beneficial ideas

(2) Protectionism can harm growth in the long run
-could be discouraging indigenous producers who do not have the technology to do things b) leads to economic growth. absolute advantage of a trade, sell at a lower cost, and gain and then the things that cost a lot to make one can buy from others.

b) Can bring innovation and entrepreneurship
c) small: means less specialization d) immigrants can bring in new specializations and companies (which give employment) or new products

=
(2) But taxes are necessary to provide government and public goods! money needed to provide infrastructure, subsidies, transportation: funds are necessary, it just depends how much- must encourage investment. should not be high nor low. =====

(1) High interest rates discourage investment
-to loan money

(2) But high interest rates encourage savings!
-to save money

4. Social/political change (political instability, or spending on war: GDP is good, but country is failing)
education: increase productivity and skills "creative destruction": destroying old jobs and industries and creating others (traditional carpentry --> factory carpentry, with machines) free trade: increase specialization, increase market size, increase efficiency in some things while buying others.

Content knowledge
Resources: things that have value and are used to produce goods and services that satisfy people's wants.

Wants: items that people would purchase if they had unlimited income.

Analyzing the economy can give a person several benefits. With the power of economic analysis, people can make better judgments about their own job, education, and paying the bills. Economic analysis will make a person more knowledgeable about current events, politics, problems, the world, and better equipped to answer questions and create strategies to deal with the current events, politics, and problems in the world. Learning about economics can, overall, make life more interesting.

Economics is a part of the social sciences, which is a study of human behavior. Economics itself focuses on an explanation of human behavior, analyzing people's and society's choices and wants, sometimes looking at an effect and going backward to find the cause.

Both microeconomics and macroeconomics are related to each other. While macroeconomics is an overview of economy, focusing on the overall aspects of a community, microeconomics narrows down to individuals and a smaller part of the community- reviewing only one or two events instead of the bigger picture. These two types of economics are connected to each other, being as it is that, since microeconomics focuses on the choices of a few, macroeconomics includes the choices of the individuals studied under microeconomics. You cannot have one without the other.

Sources used:

Miller, Roger Le Roy. "The Nature of Economics." //Economics Today//. 15th ed. U.S.: Pearson Education, 2010. Print.

Research
Adam Smith: -father of economics -Beliefs -God has created the world to be happy, and so humans act in a certain way to maximize this happiness -the rich and the poor are equally happy -people always want to be wealthier, so they always work harder and increase happiness. -Ideas -individual wants to be wealthy and watches only for himself -to do this, he must work with others -"Invisible Hand": Human happiness is at best -in order for this to happen, strong rules must be set up, eg. thievery -Laissez-faire: free trade- no government involvement -ideas were the start of a new economy that is still used today

Sources used:

http://plus.maths.org/issue14/features/smith/
 * http://www.investopedia.com/articles/economics/08/adam-smith-economics.asp

Reflection
Economics seems to be a very relevant subject today. It can apply to any set of circumstances and events that may happen. It will be interesting to be able to analyze cause and effects of things that happen all over the world, as well as understand the motives of people and how economy works. The four first simple words that we first learned; resources, incentives, self-interest, and wants, seem to play a much bigger role in the world than I was aware of at first.

Decision: responsible one, one you have to make, make it based off your choices

Choice: options available, come before decision

18/08/10

Govt to take call on BlackBerry services today Aug 12 2010

Summary of discussion of newspaper

The indian government wants to ban the use of blackberries, because they are a security risk, as the government cannot monitor emails. The blackberry is a security risk, and dangerous groups like terrorists can use it. The RIM (Canada's Research in Motion) has not answered India's call for more access to monitoring these blackberry phones. So, the India government wants to ban blackberry services, and by doing this they will satisfy their wants of self-interest of less money spent paying to access the blackberries and a safer community. While it will eliminate the security risk, we must consider the workplaces and business- all use blackberries, so it will halt a lot of business for a time. All places communicate through BBM- because its free, and an email system, so it has a cost reduction, making it cheaper for businesses. If the cost were reduced for the Indian gov. by banning the BBM, it will cause more problems for corporate companies. The companies will have to find a way to keep securities.

24/08/10

graph model:

point C for arc 1: impossible, --> limited resources point D: inefficient, --not using all of your resources (not optimal) Point c for arc 2: best possible outcome, arcs: all possibilities of using all of your time --> production possibility curve arc 1 to arc 2: growth

assumptions used: 1. resources are fully employed 2. production takes place over a specific time period- one year 3. the resource inputs, in both quantity and quality, used to produce computer servers or HDTVs are fixed over this time period. 4. technology does not change over this time period.

Each individual is **rational**, has **self-interest**. There is **scarcity** of **resources**- this leads to **choices** we make, choices to maximize benefits net of **opportunity cost** whence you choose your comparative advantage and end up **specializing**.

__Rationality:__

__Self Interest:__

__Scarcity:__ We do not ever have enough of everything, including time, to satisfy our every desire. human wants always exceed what can be produced with the limited resources and time that nature makes available.

__Resources:__

__Choices:__

__Opportunity Cost:__ The value of what is given up- second best, the next highest ranked alternative, because a choice was made.

__Specialization:__ A specialist will get the job finished sooner than you could and has the proper equipment to make the job go more smoothly. specialization usually leads to greater productivity and efficiency, not only for each individual but also for the nation.

__Comparative Advantage:__ The ability to perform an activity at a lower opportunity cost. (quicker, ability, cheaper)

__Absolute Advantage:__ Ability to do everything better than everyone else- but one would still have to choose one to specialize in- thus comparative advantage still applies.

__Factors of Production:__ Land- all nonhuman gifts of nature (natural resource), Labor- human resource, contribution of individuals, Physical capital- factories and equipment used in production, or improvements to natural resources, human capital- education and training of workers, how many hours people work, how productive, worker's skills, entrepreneurship- organizing, managing, assembling the other factors of production to create and operate business ventures.

__economic goods:__ scarce goods, must constatnly make decisions regarding their best use. The desired quuantity of an economic good exceeds the amount that is available at zero price.

__economic bads:__ desired quantity is much less than what nature provides at a zero price (weeds)

__services:__ tasks that are performed for someone else- intangible goods

__trade offs:__ engage in an activity using any resource, even time- trading off the that resource for one or more alternative uses.

30/08/10

Demand: (chapter 3) pages 14-16

what people want at a particular point of time, at particular prices goods and services purchased by individuals at various possible prices, ceteris paribus ceteris paribus: quality remains the same, location/availability(opportunity cost of transportation/time), perception a schedule of individual demand of a good at a specified time period for different prices demand pattern: as price goes up, demand decreases inverse relationship

demand (quantity)

supported by rationality assumption: maximize self-interest, lower the price, enjoy net additional games opportunity cost of good is lower. we give up less of another good. the money you save you can then spend on the second-best item.

demand: relative prices price of one good compared to price of another. price of one unit of apples vs. price of one unity of oranges how much pizza to purchase a CD actual money that you pay is money price money price difference during dif. time periods does not tell much. (50$ 10 year ago, 100$ now. It doesn't tell what other goods cost, incomes were, -->>>> relative price!) if all prices are increasing: growth demand schedule: tabular representation of demand (graph into table) of goods and services for dif. prices. constant quality units: it doesn't change (ceteris paribus) demand curve: data into graph: should be negative slope, inverse relationship between price and quantity demanded

market demand: sum up all individual demand: result = market demand

1/09/10

obtaining increasing increments of goods requires giving up more and more units of other goods. -1 unit of wool: 2 units of cheese keeps increasing -because of specialization (resources are specialized) -curved straight line

tradeoff between capital goods and consumption goods -allocate more resources to producing capital gooods (ceteris paribus assumption) economy will grow faster, ppc will shift ouward by larger amount in future -more consumption in future -giving up using consumption goods today

shift in demands

increase in quantity demanded at every price, curve shift outward (growth)

external stimulus to cause shift

factors that lead to change in demand: eg. electrifying rural india leads to an increase in demand for television sets eg. normal goods : demand curve shifts outward (music, dvd) eg. inferior goods- demands curve shifts inward (music cassettes/tapes) can buy better quality/more expensive stuff substitutes: bread or margarine. increase of butter price, more demand for margarine -demand curve shifts outward if price of substitute goes up complements: demand for new cars is affected if price of gasoline increases, increase in price of gasoline leads to decrease in demand for cars -demand curve of good shifts inward if price of complement goes up (need one to have the other)
 * tastes and preferences: flash drive vs. cd (iphone vs. home telephone)
 * expectation regarding future price rise (importation taxes will rise)
 * increase in market size
 * individual income
 * price of similar goods
 * fashion: pants in fashion, skirt prices decrease, pants cost increases

Law of Supply: direct relationship between quantity of supply and price, ceteris paribus (assumptions: quality of goods, same resources)

as the price is supplied higher, then more of it is produced

The quantity is less for the same price - resources are more expensive or something- supply shift

determinant for supply -resource price (input costs more, price increases) -specialization (skills) -(productivity) -technology -taxes and subsidies -the taxes rise, or lower, so cost production is more, supply decreases -price expectations -if they expect it to rise, then they will increase the supply -number of firms in the industry -if more and more people produce, the supply will increase---> shift to the right)



red is supply, demand is blue

the higher the price, the more of the supply and the lower the demand black point (intersection): __market clearing__, or __equilibrium price__: the quantity of supply = the quantity of demand: pull even, efficiency -price cause market to be stable. whatever is produced is sold. -if the price is lower than the E intersection point, then there will be little supply and more demand. (shortage) -above the intersection point, surplus, ceteris paribus -thus, economy is not stable, because something happens to change the supply and demand




 * price is what controls the demand and quantity of supply, allocating**

subsidies: everyone should get one, so price decreases, but get subsidies first come, first serve.

28/09/10

Market: where **volunteer exchange** happens, and the term is the **price** -if it is a **free market** (lots of buyers and sellers) then everyone comes away better off -rationing on what is the reasonable income/price to pay A shock to the market: if demand or supply changes drastically -if there are more suppliers, then there is an increase in supply (shift in curve), SURPLUS and now price decreases (more competition) and equilibrium price moves.

-buyers say I don't want to buy for .5 euro, I''ll buy at .4. -now demand will shift, because the price is lower: -and the price keeps changing, because demand and supply keep shifting, until it eventually finds a place -**indeterminate situation**: we can't know where the price will settle

cost: cost of production price: price to obtain the object

-this is not true today, because there is internet marketing, online, no transaction costs (no need for a middleman)
 * Transaction cost**: what the cost is for a trade to take place, for finding a buyer, the middleman

-because there are no other ones, patents/copyrights, specialization
 * Monopoly**: a supplier has control over the price (is the only one able to make it)
 * Oligopoly**: a group of suppliers work together

04/10/10


 * price ceiling:**


 * end up with shortage (Q4 > Q1 : demand > supply)


 * price floor:**


 * end up with surplus (supply > demand)


 * rent control**: example of price ceiling //so poor can afford housing//:
 * for maintenance of existing housing
 * encourage construction
 * allocate use of existing houses

what is the effect of this policy -->

US World war II: so people from war could rent a house e__ffects__: always think of consequences/ sequences of events
 * discouraged construction, only luxury apartments built in NYC because they were exempt from rent control,
 * buildings abandoned, rent not sufficient to meet maintenance. some burnt to collect insurance: to expensive to maintain
 * housing gridlock: no one was moving: cases going to judges, therefore
 * clogging of judicial system: owner vs. tenant cases in court
 * low income group suffered the most: owners demanded upfront cash payment from new tenants, looked for excuse to evict tenant
 * higher income benefited the most


 * wage control**: minimum wage, example of price floor //to help poor get living wages//:
 * created surplus of labor
 * existing labor put in longer hours, more unemployed labor
 * unlisted labor, other benefits not given: people work for less and with no health care
 * movement of labor

06/10/10

smith's paradox


 * total utility**:


 * marginal utility**: the part of utility that is gained or lost (in the decision to buy one more unit), increase in utility as a result of consuming one more unit of the good. (usefulness/satisfaction)
 * 1) the marginal utility diminishes with increasing consumption
 * 2) so the price of a good must reduce for a person to derive more additional utility and increase their demand for that good
 * 3) as an individual consumes more of a good or service the increase in total satisfaction becomes smaller and smaller in a given period
 * the scarcer the good, the higher the marginal utility
 * law of diminishing marginal utility
 * it can increase for a little bit, but eventually it will decrease. always.
 * MU = [[image:http://faculty.lebow.drexel.edu/McCainR//top/prin/txt/MUch/delta.GIF align="top"]]U/[[image:http://faculty.lebow.drexel.edu/McCainR//top/prin/txt/MUch/delta.GIF align="top"]]Q [[image:http://faculty.lebow.drexel.edu/McCainR//top/prin/txt/MUch/appreq.GIF align="Absmiddle"]]dU/dQ
 * U = utility
 * Q = quantity



Increasing at a decreasing rate, until the marginal utility is negative and the curve startes to decrease



With both marginal and total utility: when MU is negative, the TU starts to decrease.

To chose between two objects, you compare the marginal utility between the two, and which one is higher for the next unit you will consume. per dollar


 * optimum consumption**: when you have reached the top of the total utilities you can consume (when marginal utility is zero- you can't improve upon your satisfaction- point M?)
 * consumers always try to maximize satisfaction: a consumer option is that set of choices which leads to maximum satisfaction subject to a limited income
 * we stop when marginal utility per dollar spent is equalized across all purchases
 * MU/P for one good is equal to that of another good
 * price change will cause the consumer optimum to change. consumers would substitute goods with lower price as utility per unit of price would be higher for cheaper goods. MU/P would increase for the cheaper good.
 * **negative relationship between price and demand** (inverse relationship)
 * can explain law of demand using the marginal utility

18/10/10

Economics: a scinece? Can you ever study humanity using scientific methodology? demand curve (price increases, demand decreases)
 * two main areas of criticism
 * assumptions and data
 * nike vs. regular
 * ceteris paribus

Assumptions
 * enough buyers and sellers
 * freedom of entry and exit from the market
 * buyers and sellers have perfect knowledge of prices/availability
 * all firms produce the same product
 * law does not always hold
 * the assumptions: one can't control variables
 * so assumptions must be made, to discover trends and theories

Data: Can you isolate variables enough to draw calculations?
 * empirical evidence
 * unemployment:
 * actively seeking work at current wage rates
 * gov. counts claim benefits
 * where does the data come from
 * data is always inaccurate
 * one can never have all of them, or the same one
 * some people working (illegally) yet claiming
 * gov. changes rules: disability benefit
 * takes time before allowed to claim benefits
 * working spouses
 * surveys likely to be inaccurate
 * not everyone will answer
 * a biased group (not random)/ size too small
 * people will lie
 * questions may not make sense to the answer-er
 * survey-ors may disregard the data

Higher interest rates lead to less demand:
 * Yes
 * higher mortgage payments
 * more attractive saving
 * less investment
 * all resulting in lower spending
 * But
 * loads of other things lead to less demands
 * higher unemployment, slower economic growth, lower consumer confidence: misleading
 * not able to say X caused Y

for analysis- limitations:

can humans be subjected to a scientific approach:
 * most humans do this: genearlizations
 * data: unreliable, useful if aware of limitations
 * assumptions necessary to increase understanding: not trying to concretely prove or disprove certain theories.

natural science: how things work limitations? social sciences: how things should work limitations? economics is still useful

Price System v Assumption: plenty of sellers and plenty of consumers, individuals know the true opportunity cost of their actions
 * Advantage - economic efficiency
 * Resources move from less valued uses to more valued uses
 * Consumers decide what will get produced

So why do we have market failure? Market failure is when too many or too few resources go into specific economic activity. 1.External cost – industry uses **free** clean air, create pollution. Industry paid for all the factors of production but not for increasing the air pollution. Parties other than the direct consumer or seller are affected.



the 'free' air is not so free anymore, because the air is polluted, so you are not taking into account this air

the price system does not take into account a market failure. The supply decreases, the price that you should set for the good must take into account the external cost of the air pollution. over allocation of resources.

2. External benefit – people get inoculated; help prevent epidemic so other people benefit. Actual demand was more than equilibrium demand.

(1)External costs - market over allocates resources (2)External benefits – market under allocates resources

Government can correct this For external cost · Special taxes – like effluent fee or a pollution tax can be imposed. · Regulation – maximum allowable rate of pollution, hence pollution abatement instruments have to be installed. For external benefits · Subsidies – a negative tax, reimburse some costs (reduce the price) · Finance additional production · Regulation or laws that require an action to be taken. Example all school children must get inoculated

22/10/10


 * Public goods:**
 * no rivalry, no competition between customer
 * can be consumed by more than one person at the same time
 * free riders (cannot exclude people from benefiting, whether they paid or not
 * public education, national defense, police, law, hospitals, roads, air?

Role of Government:
 * promote production of goods with external benefits (subsidies)
 * promote competition
 * prevent/control negative externalities (taxes, regulation)
 * legal system, national defense, ensure stability (promote- provide public goods)
 * create infrastructure (public transport system)

demand and price: why is it so important? (change in demand to a particular price)
 * study a particular area- companies to know when to make more profit
 * whether a good will respond to a change in price
 * will not be respond:
 * water, electricity



Extreme situations: A seems impossible, but B is possible, if price is not an issue- or a monopoly, a need

the greater the slope of demand, the less change in demand for a particular price, low price elasticity


 * price elasticity**: change in demand/change in price- how elastic the price is



1/11/10

determinants of elasticity (other than price)



people are only willing to play a certain amount: at a certain point the demand decreases so much that the demand x the price will lower one's revenue.

negative relationship between price and total revenue when the market demand is elastic

maximum total revenue: beyond this price the total revenue falls

so the responsiveness of demand to price is what a seller is interested in finding out so he can price his / her product to maximize the total revenue.

determinants of elasticity:
 * availability of substitues
 * monopoly: only one source (no substitutes), than inelastic... quality and availability of substitutes (if available, then elastic)
 * share of budget:
 * if it is 50 --> 100, then elastic: bigger percentage of budget, so you lose a bunch of other things.
 * if it is 1 --> 2, the inelastic : small percentage of budget, then you don't have to lose other things
 * time for adjustment
 * longer the price change persists, more elastic, ceteris paribus
 * after time, then you have time to find substitutes, or do without it, to adjust and find alternative markets

3/11/10


 * Cross Price Elasticity of Demand:**
 * how demand for one good is effected by demand for another good
 * price cost of pepsi increases, more demand for coke
 * percentage change in demand for Good X / percentage change in price of Good Y
 * complements: __negative__ --> if price goes up, demand goes down
 * substitutes: __positive__ --> if price goes up, demand also increases
 * cross price elasticity of demand for two unrelated products NA




 * Income elasticity of demand:**


 * Price elasticity of supply:**
 * responsiveness of quantity supplied to a change in price
 * percentage change in quantity supplied / percentage change in price
 * always positive
 * determinants:
 * space capacity: more units able to produce you can change output while not changing price- if you have a built capacity, and you aren't using it all, then you can respond quickly to a change in price --- elastic
 * stocks: if there are leftovers, you can quickly respond to change in price (no wasted time to produce) --- elastic
 * time period: the longer time that passes by, the good becomes more elastic
 * Flexibility of factors of production substitutes: if you can substitute making computers instead of robots, then it's okay, but if you go from computers to wheat, then it won't be that great.



11/11/10:



Marginal benefit decreases, because as it keeps getting better, it can only get so good- the marginal cost increases (it pays to be green), as you increase the cost, you only get a little marginal benefit- it's not worth it. (when the marginal cost is above the marginal benefit)


 * common property**:

A good that can't be quantified, that is everywhere. No one can own it.
 * air, view (tree by ground floor blocks upper floors' views)
 * now there is a value to the view/tree
 * property used/owned by everyone
 * wherever there is common property, there are externalities (both negative/positive)
 * common property always looks worse (people don't care what it looks like, it's not really theirs)

15/11/10

What

Why- analysis, because

How- evaluating and synthesize, examples

17/11/10

leads to a higher cost of production- supply moves to the left (over-allocating resources) negative externalities always occur with common properties (no definite property rights) total cost: private cost + social cost social cost: government intervenes:
 * taxes / subsidies
 * limiting the amount of pollution allowed (forcing to install better technology

marginal benefit: additional benefit of gaining cleaner air (reducing each additional unit of pollution) marginal cost: additional cost of obtaining cleaner air (reducing each additional unit of pollution) "okay" pollution (optimum): when marginal benefit = marginal cost- not zero!!
 * decreasing at a decreasing rate
 * increasing at an increasing rate
 * otherwise, the marginal cost to increase air cleanliness would be more than the marginal benefit to society
 * at first, cleanliness of air is easy to attain, but it gets costlier
 * also, at first, the benefit is greater- later on, the benefit decreases. the air can only feel so clean.
 * a trade-off: transactions


 * How do we accomplish a quality environment in a world of relative scarcity?
 * How can setting universal environmental quality standards reduce people's quality of life?
 * How can selling the right to pollute reduce pollution levels and / or increase efficiency?
 * Why do people/ society that feel pollution is bad consciously decide to pollute?

possible solutions: standards, permits, tax, self regulation


 * Isn't a pollution price a license to pollute and therefore is reprehensible!
 * What should be the target?
 * Given the target, how should we allocate the pollution among the polluters
 * Won't the polluters just pass on these pollution prices to me, a consumer, by raising production prices to cover these charges?
 * Yes.
 * Why should I pay for their foul pollution?
 * Pollution prices are designed to confront the consumers?
 * Is this fair? Where should the burden go?
 * Won't pollution permits stop business people from trying to clean up their production emissions? Buying permits and people want them lowered. competitive economy.
 * Won't the buying and selling of permits concentrate pollution in certain areas and in certain populations?


 * Topic: XXXXXXX Date:**

Content knowledge
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Research
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Content knowledge
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Research
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Reflection
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Content knowledge
what have you learned, definitions, a summary of what you learned and understood. short.

Research
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Reflection
further questioning, thoughts on assignment