Macro Lecture Notes

Macro Lecture Notes - Macroeconomics ECO2013 Fall 2008 Exam...

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Unformatted text preview: Macroeconomics ECO2013 Fall 2008 Exam 3 Lecture Notes Dr. David Denslow University of Florida Lecture 1 (10.17) A recession is usually defined as two quarters of declining growth. The first nine recessions after WWII were marked by steep declines in GDP and rapid recoveries. The last two recessions saw smaller declines in GDP, but considerably longer periods of recovery. One of the reasons why recessions have changed in their nature is due to the partial elimination of overshooting through better information technology. During the first nine recessions following WWII, inventory adjustment was a key cause of recessions. Take the Auto Industry: Target ????? ?? = 60 days At Y 2 ????? ?? = 90 days Decline of consumption is often calculated at 3% of total GDP So if the GDP= 9,000 billion 9,000 billion .03 = 270 billion The 270 billion is the consumption effect, in other words, the amount by which consumption declines during a recession. The consumption effect is added to the credit crisis, which is roughly 230 billion to give a total loss of 500 billion. The increase in price of oil increased shipping rates and thus made the demand for Chinese furniture decline. Now that oil prices are dropping, the demand for domestic furniture has fallen, and the demand for Chinese furniture has returned to previous levels. This is partially because Chinese and domestic furniture are good substitutes. _________________________________ Government purchases= g T= net tax revenue T= gross tax revenue- transfer Deficit 500+ 400= 900 400 + 1,000 .03 = 333 ____- 733 billion Increase in G (Increase in government expenditure) Increase in C (Stimulus Package / Tax Rebate) Expansionary fiscal policy is necessary to fight recession. It can be either a reduction in tax rates (what Republicans favor) or an increase in government purchases (what Democrats favor). A contractionary fiscal policy is characterized by increases in taxes and decreases in government spending. Lecture 2 (10.20) Federal Deficit: 2008-2009. Original projection: $550 billion (earmarks only 18 million) Recession: $100 billion Bailout: $250 billion Second stimulus:$ 100 billion New deficit is $1,000 billion or >7% of GDP. This is the largest ratio of deficit to GDP since 1946. Capital gain is the profit margin; if in 1980 your shares were worth $1,000, and in 2008 they were worth $1,500, then the capital gain is $500 dollars. (Bill) Clinton platform 1. Decrease middle class taxes 2. Increase government spending 3. Decrease deficit He did not implement the middle class tax cut as the three platform items form an impossible trilemma. The reason Clinton addressed the deficit was because of the FEEDBACK MECHANISM....
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Macro Lecture Notes - Macroeconomics ECO2013 Fall 2008 Exam...

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