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Portfolio2

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Sonny Bautista
Sonny Bautista

This document summarizes Sonny Bautista's semester 2 portfolio covering topics in macroeconomics including: 1. Macroeconomic models, economic growth, full employment, and price stability. 2. The circular flow of income and gross domestic product. 3. Boom and bust economic cycles and factors that influence GDP. 4. Demand-side fiscal and monetary policies and supply-side policies.

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SEMESTER 2 PORFOLIOSonny Bautista
Macroeconomic ModelsEconomic growth and developmentFull employmentPrice stability
Circular Flow of incomeA simplified model of the economy that shows the flow of money through the economy S MHouse HoldsTGGovernmentYCTGFirmsX IS M
Gross Domestic ProductThe total money value of all final goods and services produced in an economy in one yearReal GDP: Adjusted for inflationNominal GDP: not adjusted for inflation
Boom and Bust Cycle (Business cycle)In developed economies, we often see a cyclical pattern to growth in real GDP, following four phases: boom, recession, trough, and recoveryBOOMBOOMRECESSIONRECOVERYTROUGHDEPRESSION
factors of GDPC + I + G + (X M)Private Consumption: The value of goods and services acquired and consumed by householdsGovernment Expenditure:The sum of government spending Exports and Imports:Represents gross exports and imports of an economyInvestments: Includes business investments on equipment
Demand-Side Policy: FiscalFiscal Policy: The use of government spending and taxation to influence AD, raise revnue, redistibute income and influence consumption patterns. Problems: Time lags, financial inflexibility, budget deficits, and crowding out
Demand-Side Policy: MonetaryMonetary Policy: the use of the rate of interest predominantly to influence AD (the money supply control can also be used)Problems: Investment is interest inelastic, one policy fits all, disintermediation
Supply-side PoliciesAim: To increase economys productive potential Increasing labour mobilityIncreasing incentives/decreasing disincentives to workIncreasing the productivity of labourIncreasing investment, innovation and enterprise
UnemployedUnemployed: People who are registered as willing, able and available for work at the market clearing wage, but who are unable to find work. ARTICLE: http://www.bbc.co.uk/news/business-13568334 Housing market fears due to unemployment
Cost of unemploymentLoss of outputWaste of productive potentialGovernment financesSocial problemsLoss of consumer spending
Involuntary UnemploymentPeople fired involuntarily from jobsArticle: http://www.floridatoday.com/article/20110528/BUSINESS/105280324/Engine-maker-lay-off-69Engine markets lay-off 300 employers in florida
Cures for Involuntary Unemployment Fiscal PolicyCut TaxesIncrease government spendingMonetary PolicyReduce rate of interestIncrease money supply
Supply-Demand Work-Force DiagramAS labourReal WageLabour ForceW1AD labourL1 L2Labour
InflationA constant rise in prices over a given time periodCosts of Inflation:Redistribution of incomeDevaluation of moneyReduction of investmentReduction of international competitivenessmenu costs
Cost-Push InflationCost-Push Inflation: When there is an increase in the costs of factors of production, such as wage increases or increases in oil prices, then firms costs are pushed upwards, the SRAS curve shifts from SRAS1 to SRAS2, and the average price level rises from P1 to P2.SRAS2 SRAS1P2P1Average Price LevelY2 Y1GDP
Demand-pull InflationAn increase in AD, caused by a sustained increase in any of the components of AD will shift the AD curve from AD1 to AD2 and the average price level will rise from P1 to P2. SRAS1P2P1Average Price Level AD2AD1Y1 Y2GDP
Inflation/Unemployment Trade-off Stagflation: with a standard se tof AD and AS curves, there is an inverse relationship with inflation and unemployment. Keynesian theorist, increase AD to reduce unemploymentCaused -> Stagflation
StagflationStagflation: A persistent high inflation combined with a high unemployment and stagnant demand in a countries economySRAS2SRAS1P2P1Average Price LevelAD1Y2 Y1GDP
Viewpoints: MonetaristBeliefs:Markets workEconomies tend towards full employmentInflation is caused by excessive money supply growthGovernments should intervene really only to control inflation by controlling money supply growth
Monetarist AS curveLRASPrice levelSRASAD will be purely inflationary in the long run, and so policy should focus on increasing ASGDP
Viewpoint: KeynesianBeliefs: Markets are slow to adjust (time lags)An economy can be in equilibrium below full employmentGovernments should and can effectively intervene to stabilize an economyFiscal is more effective than monetary policy
Keynesian AS curveLRASPrice levelSRASAD will increase output/income without increasing inflation as long as the economy is below full employment.GDP

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Portfolio2

  • 2. Macroeconomic ModelsEconomic growth and developmentFull employmentPrice stability
  • 3. Circular Flow of incomeA simplified model of the economy that shows the flow of money through the economy S MHouse HoldsTGGovernmentYCTGFirmsX IS M
  • 4. Gross Domestic ProductThe total money value of all final goods and services produced in an economy in one yearReal GDP: Adjusted for inflationNominal GDP: not adjusted for inflation
  • 5. Boom and Bust Cycle (Business cycle)In developed economies, we often see a cyclical pattern to growth in real GDP, following four phases: boom, recession, trough, and recoveryBOOMBOOMRECESSIONRECOVERYTROUGHDEPRESSION
  • 6. factors of GDPC + I + G + (X M)Private Consumption: The value of goods and services acquired and consumed by householdsGovernment Expenditure:The sum of government spending Exports and Imports:Represents gross exports and imports of an economyInvestments: Includes business investments on equipment
  • 7. Demand-Side Policy: FiscalFiscal Policy: The use of government spending and taxation to influence AD, raise revnue, redistibute income and influence consumption patterns. Problems: Time lags, financial inflexibility, budget deficits, and crowding out
  • 8. Demand-Side Policy: MonetaryMonetary Policy: the use of the rate of interest predominantly to influence AD (the money supply control can also be used)Problems: Investment is interest inelastic, one policy fits all, disintermediation
  • 9. Supply-side PoliciesAim: To increase economys productive potential Increasing labour mobilityIncreasing incentives/decreasing disincentives to workIncreasing the productivity of labourIncreasing investment, innovation and enterprise
  • 10. UnemployedUnemployed: People who are registered as willing, able and available for work at the market clearing wage, but who are unable to find work. ARTICLE: http://www.bbc.co.uk/news/business-13568334 Housing market fears due to unemployment
  • 11. Cost of unemploymentLoss of outputWaste of productive potentialGovernment financesSocial problemsLoss of consumer spending
  • 12. Involuntary UnemploymentPeople fired involuntarily from jobsArticle: http://www.floridatoday.com/article/20110528/BUSINESS/105280324/Engine-maker-lay-off-69Engine markets lay-off 300 employers in florida
  • 13. Cures for Involuntary Unemployment Fiscal PolicyCut TaxesIncrease government spendingMonetary PolicyReduce rate of interestIncrease money supply
  • 14. Supply-Demand Work-Force DiagramAS labourReal WageLabour ForceW1AD labourL1 L2Labour
  • 15. InflationA constant rise in prices over a given time periodCosts of Inflation:Redistribution of incomeDevaluation of moneyReduction of investmentReduction of international competitivenessmenu costs
  • 16. Cost-Push InflationCost-Push Inflation: When there is an increase in the costs of factors of production, such as wage increases or increases in oil prices, then firms costs are pushed upwards, the SRAS curve shifts from SRAS1 to SRAS2, and the average price level rises from P1 to P2.SRAS2 SRAS1P2P1Average Price LevelY2 Y1GDP
  • 17. Demand-pull InflationAn increase in AD, caused by a sustained increase in any of the components of AD will shift the AD curve from AD1 to AD2 and the average price level will rise from P1 to P2. SRAS1P2P1Average Price Level AD2AD1Y1 Y2GDP
  • 18. Inflation/Unemployment Trade-off Stagflation: with a standard se tof AD and AS curves, there is an inverse relationship with inflation and unemployment. Keynesian theorist, increase AD to reduce unemploymentCaused -> Stagflation
  • 19. StagflationStagflation: A persistent high inflation combined with a high unemployment and stagnant demand in a countries economySRAS2SRAS1P2P1Average Price LevelAD1Y2 Y1GDP
  • 20. Viewpoints: MonetaristBeliefs:Markets workEconomies tend towards full employmentInflation is caused by excessive money supply growthGovernments should intervene really only to control inflation by controlling money supply growth
  • 21. Monetarist AS curveLRASPrice levelSRASAD will be purely inflationary in the long run, and so policy should focus on increasing ASGDP
  • 22. Viewpoint: KeynesianBeliefs: Markets are slow to adjust (time lags)An economy can be in equilibrium below full employmentGovernments should and can effectively intervene to stabilize an economyFiscal is more effective than monetary policy
  • 23. Keynesian AS curveLRASPrice levelSRASAD will increase output/income without increasing inflation as long as the economy is below full employment.GDP