AAA-ch 14-MACRO-FA2010

AAA-ch 14-MACRO-FA2010 - 12:30 class: Final exam is in this...

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Unformatted text preview: 12:30 class: Final exam is in this room. in Chapters 14 – Modern Chapters Macroeconomics and Monetary Policy Thurs., Dec. 9, 3 - 5 p.m. Same format Bring 2 PENCILS and FSU ID and in ch. 15…only pp. 332 – end ch. 15… (The Phillips Curve) Your final will cover chapters 1-3, 7-17 NO OFFICE HOURS FINALS WEEK: How to figure your average: PMA: What causes inflation? 12:30 class: Grade on one Midterm Grade on other Midterm Average on Bb Quizzes* Grade on Final Exam Grade Percentage Weight ____________ X .2 = ____________ X .2 = ____________ X .2 = ____________ X .4 = Total those up for your final average If you missed any midterm, take that line out of the above and increase your final exam percentage by the weight of the missed exam. For example, if you only took one midterm, delete one of those lines and add 20% to your final exam weight. So now your final exam would count as 60% instead of 40%. If you didn’t take ANY midterms, your final counts 80% and Bb quizzes count 20%. 1. Labor unions 2. A decrease in unemployment 3. An increase in the growth rate of the money supply 4. 5. 6. 7. over and above any increase in real output. OPEC A decrease in taxes An increase in Government spending An increase in government borrowing financed by selling bonds to the general public. BRING PRINTOUT OF YOUR GRADES IF YOU COME TO MY OFFICE TO ASK ABOUT GRADES… *Drop 4 of your Bb quizzes. Monetarist’s Theory of Monetarist’ Inflation • Equation of Exchange MV = PQ M = nominal money supply (the NUMBER of dollars in circulation) V = velocity (the average no. of times each dollar is spent) P = The average price level (measured by CPI) Q = real output (the NUMBER of things produced.) Tautology (true by definition) Tautology TS = TR Thus: MV = PQ But TS is just MV And TR is just PQ Quantity theory of money: • Equation of Exchange + 2 assumptions: – Velocity is relatively constant • Based on monthly payments • Is relatively stable – Q (Real GDP) is relatively stable • 3% per year is the LR growth rate of Q Quantity theory of money: Quantity To repeat: Thus, if V & Q are not changing, any increase in M leads to a DIRECT and PROPORTIONAL increase in P. P. • Equation of Exchange + 2 assumptions: – Velocity is relatively constant • Based on monthly payments • Is relatively stable – Q (Real GDP) is relatively stable • 3% per year is the LR growth rate of Q Thus, if V & Q are not changing, any increase in M leads to a DIRECT and PROPORTIONAL increase in P. Sustained increases in the money supply lead to sustained increases in the APL which IS inflation! To repeat: Sustained increases in the money supply Sustained increases lead to sustained increases in the APL sustained which IS inflation! IS And THAT is the monetarist’s theory of monetarist’ inflation! However, suppose Q is NOT constant: MxV=PxQ MxV=PxQ But if you look at the percentage CHANGE … ____ Then any change in M could be impacted by a change in P or a change in Q… Q… ____ ____ ∆M+∆V=∆P+∆Q %∆ M + % ∆ V = % ∆ P + %∆ Q And THAT is the monetarist’s theory of monetarist’ inflation! Changes in M lead directly and proportionally to changes in P. Rules Monetary Policy • Gold Standard • Matching increases in M to increases Thus, what causes inflation? Any increase in M OVER AND ABOVE any increase in Q (real output or real GDP) (PMA) What causes inflation? (PMA) 1. 2. 3. in Q (real output, real GDP) Deflation: do we want it? 4. 5. 6. 7. Labor unions A decrease in unemployment An increase in the growth rate of the money supply over and above any increase in real output. A decrease in taxes. OPEC An increase in government spending. Greedy businesses (PMA) What is the miracle of (PMA) compound interest? 1. That saving EARLY is one of the most important keys to becoming financially wealthy. 2. That investing in a safe, low yield investment, like a savings account, is the key to becoming financially wealthy. End Chapter 14 ...
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This note was uploaded on 04/02/2012 for the course ECO 2013 taught by Professor Slate during the Fall '10 term at Florida State College.

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