Modern Monetary Theory
Spending and Income, Deficits and
One entitys spending is always someone elses
If someone is spending more than their income, they
are running a deficit (spending down previous savings
Hawks, Doves, and Owls:
Perspectives on the U.S.
Federal Budget Deficit
What is the Deficit?
Govt. spending (G) - Tax receipts (T)
G > T : Deficit
G < T : Surplus
G = T : Balanced Budget
Financing the Deficit and the
1) Print Money:
202 MIDTERM REVIEW
This review is designed to help you prepare for the test. In addition to this review, you should
also study your textbook, notes, homework and quizzes. The test will include multiple choice and
short answers. You can expect several ques
HW 3: Type your answers. You may hand-draw graphs.
Questions 1-4 are based on Ch 8 in the textbook.
1) Use the chart above:
a. Derive a consumption
function equation from
the data above.
b. Graph the consumption
What is money?
Orthodox - medium of exchange money is what money does
Heterodox - social relation (credit/debt)money is what money is
Orthodox: Origins of Money
Barter Economy: C-C
- Money emerges spontaneously out of a
barter economy to make
1) What is a demand curve?
2) Demand for Widgets
(A) Use this table to draw the demand curve for widgets. (B) What is the slope of the
curve? (C) Explain what the slope indicat
Endogenous Money Supply
(Heterodox Monetary Policy)
Wray, Reading from
Understanding Modern Money
What Does the Fed Do?
Orthodoxy: The Fed controls the money supply
Controlling the amount of reserves
Historically: At first it was targeting rate
The General Theory 1936
Classical Model is wrong. The economy is likely to reach
equilibrium at less than FE.
(1) Says Law: Demand constrained economy
(2) Loanable Funds: Savings are not channeled to
(3) Labor mar
The Myth of Barter from Debt: The First 5000 Years by David Graeber
Type Your Answers
(1) Economists, from Adam Smith to the present, argue that money evolved out of a barter
economy. How do they arrive at this conclusion? Explain their
Final Exam Study Guide: Econ 202
The exam will be cumulative, but material that we covered from before the midterm will
be verbatim off of the midterm exam. Additionally, an essay question may ask you to
draw on material that we covered prior to the midte
Private producing units in our society
Decide what, how much and for whom to produce
The ability to organize and get something done
The consumers wishes determine whats produced
Its whats left ove
The formal and informal rules that constrain human economic behavior
Include laws that protect ownership of property and legal system to enforce and interpret
An economic system based on private property and the market
Every economy must solve three main coordination problems
1. What, and how much, to produce
2. How to produce it
3. For whom to produce it
The Production Possibility Model
Coveys trade-offs society faces
Also shows why people specialize in what they do a
Law of Increasing Opportunity Costs (of the Trade-Off)
In order to get more of something, generally one must give up ever-increasing quantities
of something else
Initially the opportunity costs are low but it increases the more we concentrate on the
Economics is the study of how human beings coordinate their wants and desires given the
decision-making mechanisms, social customs, and political realities of the society.
Coordination refers to how the three central problems facing any economy are solve
Forces that guide individual actions even though these actions may not be in an
individuals selfish interest
Legal directives that direct individuals actions
Play a major role in deciding whether to let market forces oper
A Guide to Economic Reasoning
Economic Reasoning involves addressing almost all issues using a cost/benefit
Only focus on important aspects by creating a simple model of the issue or problem
Marginal Costs and Marginal Benefits
Marginal = Additi
Econ Lesson 4 (09/28)
Howard Zinn: A Peoples History of US said history is written by people who have the power.
1. Mercantilism: Fixed stock of Wealth (Exchange, trade restriction )
2. Adam Smith (1776)
Wealth come from production
value> Human Labor
Econ Lesson 5
1. Change in Demand vs Change in Quantity demanded?
2. Difference between microeconomics and macroeconomics
e.g. market of computer vs to the nation.
3. micro>macro: Fallacy of composition (problem): falsely concluding what is true of a part
Review Quiz 3
Fiscal Policy - the use of government spending and taxes to influence the nations
spending employment, and price level.
Discretionary Fiscal policy - the deliberate use of changes in government spending
or taxes to alter aggregate dema
Review Quiz 4
Expansionary/Contractionary Monetary Policy - a policy that increase or decrease
the money supply.
Govt. Deficit - exists when tax revenues are less than the government spending.
Government Debt - the total amount owned by the federal
Econ Lesson 6
1. GDP Shortcomings
- only captures market activities excludes unpaid work
- Ignores the distribution of income
- Ignores the kind and quality of products
- GDP is a quantitative rather than a qualitative measure of the economy.
- Neglects l
Macro 202: Review Quiz 1
Macroeconomics: The branch of economics that studies decision making for the economy
as a whole.
Economics (neoclassical): Study of the allocation of scarce resources among competing
Economics (heterodox): Study of the
Econ Lesson 8
Business Cycles and Unemployment (Ch. 6)
26 Oct Exam
Ch. 7 Inflation
1. What causes the business cycle?
- Changes in total aggregate expenditures (AE) are the causes of the business cycle
- The most vo
Economic Lesson 14
1. Video: adjunct professor
- classical model is wrong. the economy is likely to reach equilibrium at less than FE
- Rejects says law: savings are not channeled to investment
- involuntary unemployment exists because