This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Adjustment Mechanisms: 1. Flexible prices + wages. 2. Flexible interest rates. Proportional decreases of both wages + prices would still maintain real output, and real income will remain the same, as will purchasing power (simply at lower prices). The idea was that competition among potentially unemployed would still ensure full employment, even at lower wage. Antitrust policy seeks to prevent or restrict market power Autonomous consumption amount of consumption independent from income. Balanced budget - gov. spending = income. Only one promise maintained tax cuts (taxes lowered 25% over 3 years). Balance of trade trade surplus: X > M or trade deficit M > X. Trade deficit is $700 Billion / year. Biggest trade deficit country is China at $220 Billion. Trade is based upon comparative advantage and specialization. Through trade, countries can reach levels 'beyond their frontier'. Barriers to trade Tariffs, Quotas, Licensing procedures, and Trade embargos Board of Governors-Major policy making governing body in charge of setting monetary policy. 7 of them, 14 year term. President selects two members of board of government per term. President usually selects someone who has same idea about monetary policy. Budget Deficit = G > T. Budget Surplus = T > G. Capacity Utilization using resources below to capacity. Capital - includes all man made aids to productions Capital Gains: Selling of an asset after a set period of time. Ceteris Paribas - the assumption of nothing else changing; D^ = P^ Q^, Dv = Pv Qv, S^ = Pv Q^, Sv = P^ Qv Chairman of the Fed -> Ben Bernanki. Prior to him, Alan Greenspan. Greenspan was reappointed over and over due to his good work, as he allowed the economy to grow and prosper w/o inflation. Classical Theory (used 1776-1930's): Famously used by Adam Smith, who wrote Wealth of Nations, which discussed the invisible hand. The idea was government was invisible, and the economy would fix itself. This is also known as laissez fair. Idea also believed economy would naturally gravitate toward full employment. Classical theorists believed: in saving more, interest levels would rise, as interest rates decline, more is invested. Consumer Confidence surveys 5,000 households nationwide to see if they are confident in the market. Core CPI the CPI w/o food + energy (these two are the most volatile) CPI Consumer Price Index. This tends to overstate inflation. It's possible that inflation is only up by 1.5 2%. New products aren't quickly added to the CPI. There have been insufficient allowances for quality change. List prices often are used, though many customers don't pay it. Tax brackets, business space leases, There have been insufficient allowances for quality change....
View Full Document
This note was uploaded on 08/14/2008 for the course ECON 101 taught by Professor Bansak during the Fall '07 term at San Diego State.
- Fall '07
- Interest Rates