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econ exam notes - Lecture 12 Review -Cyclical Unemployment...

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Lecture 12 – Review -Cyclical Unemployment – due to business cycles -Frictional Unemployment – due to workers searching for job -Structural Unemployment – due to workers finding their job obsolete -Market rate = expected real rate + expected rate of inflation -Demand side equilibrium requires: Y = C + I + G +X-IM Lecture 13 – Supply Side Economics; Federal Taxes and Expenditures -AS shifts rightward because of positive production shocks -Supply-siders are anti-discretionary and want tax system to favor S and I Higher S causes lower real interest rates and higher I -favor less govt spending and less regulation and want to reduce marginal tax rates -reductions in tax on savings decreases national savings -tax cuts increase AD and not really AS -lower MTR increase incentives -distortions of behavior due to taxes are excess burdens of tax (type of deadweight loss) -laffer curve -VAT tax is consumption tax, tax base = Δ b/w what firm pays for its materials and sells it for Lecture 14 – Taxes; Deficits and Surpluses -Keynesians concerned with AD and Supply Siders with AS -Structural Deficit – deficit at full employment -Cyclical Deficit – result of lower tax receipts and higher transfer payments -federal deficit = cumulative of all deficits -deficit spending stimulates AD and will cause inflation -Crowding in is I, stimulated by the increased G, causing increased GDP to improve -Deficits at full employment and peacetime is bad, but improving productivity -New Classicists and Supply Siders see looking at deficit is deceptive, economy trends to full employment; G spending is what matter -index SS benefits to inflation, not wages -Fix SS changing revenues, benefits, privatize Lecture 15 – Social Security and Medicare -changing demographics of work force, many more non-whites -Keynerisans want counter cyclical demand management while Supply Siders oppose -problems with counter cyclical policy: lags, forecast, flexibility of programs, crowding in -stock market facilitate transfer of Sp to I; allocate resources to best use; monetary policy -M1: checkable accounts, currency held outside banks, travelers’ checks -M2 = M1 + Svngs accts + CD’s <$100k + MMMF (individual) + MMDA + overnight repos -M3 = M2 + CD’s >$100k + Repos longer than overnight + MMMF held by institutions Lecture 16 – T-Accounts and Money Creation; the Fed -multiplier for money creation = 1/RR -MS = deposits + currency outside of banks -Fed monetary agent (affects MS and interest rates), buys/sells U.S. T securities regulates banks -The U.S. Treasury is the fiscal agent, sells Bonds, Bills, and Notes to finance deficits
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-Open Market Operations: 1. Buys U.S. government securities to expand the MS (reduce interest rates) 2. Sells U.S. government securities to contract the MS (increase interest rates) Lecture 17 – Fed and OMO; MS and Interest Rates -Fed can affect MS through changing RR, which affects the excess reserves a bank holds
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This note was uploaded on 05/29/2008 for the course ECO 101 taught by Professor Elizabethc.bogan during the Spring '08 term at Princeton.

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econ exam notes - Lecture 12 Review -Cyclical Unemployment...

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