ࡱ>   )(  !"#$%&'0*+,-./23456789:;<>?@ABCDEFGHJKLMNOPQRSTUVWXYZ[\]^_`Root Entry( JrYyMatOST2pYyMMMN0I/  !"#$%&'()*+,-./01256789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghkNDTuS&T bT D-T VT&Arial D-T VT&Arial D-T ZT ZT ZT  ZT   R\T 5kT7kTkTHkTfTeTeTeTeTeTeTeTeTeT eT 1$oTPTMatadorObject4 ( Jr2p2pMMMN0E Ole 3gTtA.8A.8#TA.8&%Which/whenDoes whatAD willWeaknessesFiscal policy, boom%DECR govspending or INCR taxes DECRXBudgets are decisions which affect one year, but economic changes can be quicker.Fiscal policy, slump%INCR govspending or DECR taxes INCR Monetary policy, boom/DECR money supply or INCR interest rates DECRDemand for loans is also dependant on consumers' and firms' future prospects. Low interest rates encourage speculators to move their funds to other countries.Monetary policy, slump.INCR money supply or DECR intrest rates INCR Foreign income, boom4Foreign income DECR or the exchange rate INCR DECRHHigh taxation encourages labour force and firms to locate abroad.Foreign income, slump4Foreign income INCR or the exchange rate DECR INCR Expectations, boomCExpected inflation, expected income or expected profits DECR DECROne effect of devaluation is increased prices of imports -> import-price-push inflation. Those exporters who use imported factors of production also suffer from devaluation.Expectations, slumpCExpected inflation, expected income or expected profits INCR INCR  Exchange rate  Revaluing money -> X DECR  DECR One effect of devaluation is increased prices of imports -> import-price-push inflation. Those exporters who use imported factors of production also suffer from devaluation.    Devaluing money -> X INCR  INCR  factoTuS&T bTF&T VT&ArialF&T VT&ArialF&T ZT ZT ZT  \TMatOST 2p2pOlePres000 OlePres001MatadorObject5 ( Jr2p2p) #PCL5MSHP DeskJet 850CLPT1: D- R h "--   6  "Arial- l" 3333eeeeeeeee"Arial-2  3Which/when'  !-2  3Does what !-2 3AD will ! -2  5Weaknesses'-"2 88Fiscal policy,     2 i8boom%-)2 <<DECR govspending or     2 k <INCR taxes  -2 kkDECR-b2 <:<Budgets are decisions which affect one year, but economic              $  .2 k<changes can be quicker.     -"2 Fiscal policy,     2 slump %-)2 INCR govspending or     2  DECR taxes -2 INCR -2 8 8Monetary # 2 i 8policy, boom  %-+2 <<DECR money supply or  $    (2 k<INCR interest rates     -2 kkDECR-e2 < Demand for loans is also dependant on consumers' and firms' $        $  $ h2 <> future prospects. Low interest rates encourage speculators to               A2 k$ move their funds to other countries.$          -2  Monetary # 2  policy, slump   %-+2 INCR money supply or  $    &2 DECR intrest rates    -2 INCR -2 Foreign   2 8income, % 2 iboom%-)2  Foreign income DECR   $  +2 < or the exchange rate      2 k INCR -2 kkDECR-b2 <:<High taxation encourages labour force and firms to locate         $    2 k<abroad. -2 5Foreign   2 5income, % 2 5slump %-.2 5Foreign income INCR or   $   &2 5the exchange rate     2 5DECR-2 5INCR - 2 jjExpectations,   2 jboom%-)2 ??Expected inflation,      (2 n?expected income or   $  +2 ?expected profits DECR    -2 DECR-e2 ?<?One effect of devaluation is increased prices of imports -> !            $   h2 n>?import-price-push inflation. Those exporters who use imported $           $  X2 3?factors of production also suffer from devaluation.          $    - 2 gExpectations,   2 4gslump %-)2 gExpected inflation,      (2 gexpected income or   $  +2 6gexpected profits INCR    -2 66gINCR -2  Exchange  2 rate-+2 Revaluing money -> X    $   2 DECR-2 DECR-e2 q<qOne effect of devaluation is increased prices of imports -> !            $   h2 >qimport-price-push inflation. Those exporters who use imported $           $  X2 3qfactors of production also suffer from devaluation.          $    -+2 gDevaluing money -> X    $   2 6gINCR -2 66gINCR D-x < h "--Ӵ   "Arial-  11RR77hhXX%%"Arial-2  XWhich/when  -2 Z YDoes what  -2 %AD will  -2 ( &Weaknesses -"2 X2Fiscal policy, 2 !X2boom -)2 [Y2DECR govspending or 2 ![ Y2INCR taxes -2 !!%2DECR -b2 (:&2Budgets are decisions which affect one year, but economic   .2 !(&2changes can be quicker.-"2 22XSFiscal policy, 2 B2XSslump -)2 2[Y2SINCR govspending or  2 B[ Y2SDECR taxes -2 BB%SINCR -2 c cXMonetary 2 s cXpolicy, boom -+2 c[YcDECR money supply or  (2 s[YcINCR interest rates -2 ss%DECR -e2 S(<&SDemand for loans is also dependant on consumers' and firms'    h2 c(>&Sfuture prospects. Low interest rates encourage speculators to  A2 s($&Smove their funds to other countries. -2  XMonetary 2  Xpolicy, slump -+2 [YINCR money supply or   &2 [YDECR intrest rates -2 %INCR -2 XForeign 2 Xincome,  2 Xboom -.2 [YForeign income DECR or   ,2 [Ythe exchange rate INCR -2 %DECR -b2 (:&High taxation encourages labour force and firms to locate  2 (&abroad.-2 XForeign 2 Xincome,  2 Xslump -.2 [YForeign income INCR or   ,2 [Ythe exchange rate DECR -2 %INCR - 2 X8Expectations, 2 'X8boom -)2 [Y8Expected inflation, (2 [Y8expected income or  +2 '[Y8expected profits DECR -2 ''%8DECR -e2 (<&8One effect of devaluation is increased prices of imports ->  h2 (>&8import-price-push inflation. Those exporters who use imported    X2 '(3&8factors of production also suffer from devaluation. - 2 HHXiExpectations, 2 XHXislump -)2 8[Y8iExpected inflation, (2 H[Y8iexpected income or  +2 X[Y8iexpected profits INCR -2 XX%iINCR -2 y yXExchange 2 yXrate-+2 y[YyRevaluing money -> X  2 [YyDECR -2 %DECR -e2 i(<&iOne effect of devaluation is increased prices of imports ->  h2 y(>&iimport-price-push inflation. Those exporters who use imported    X2 (3&ifactors of production also suffer from devaluation. -+2 [YDevaluing money -> X  2 [YINCR -2 %INCR MMMN0 4 Ole iMatOST2p2p!kTkT kT4kT fTeTeTeTeTeT1$oTPTgTtA.8A.8#TA.8&%Type of UNEMeaning what?V or IV?-Measures to deal with this kind of UNE  Frictional ^There will be people switching between jobs & those who enter or re-enter labour force.HV for those switching between jobs. For school-leavers mainly IV.Government could reduce the search tiem by improving the flow of information between employers & job seekers. Reduced UNE benefits reduce the search time.  StructuralOccurs when the structure of the economy changes. This kind of UNE is also caused when human skill is replaced by machines, there is a shift in production to abroad or when there is a sustained decrease in demand for a good.AV; if workers refuse jobs which do not match their skills.1) Market-oriented (people-to-jobs)-approach: the increased relative poverty of depressed region would encourage workers to move. 2) Interventionists (jobs-to-people)-approach: direct action to bring jobs to the depressed region (eg. subsidies. purchases,6 state-owned firms etc)  SeasonalaOccupations which are weather-dependant; there is a busy working season and a slack seasonFV; the UNE people could find odd jobs for the rest of the year.SThe measures are very similar to those used to reduce structural employment.  "Demand-deficient = cyclicalFDuring recission reduced AD leads to reduced demand for labour.                                                                 ( JrMicrosoft Works MSWorksWPDoc9qOlePres0001uOlePres001=PCompObjjU) #PCL5MSHP DeskJet 850CLPT1: F&  I "--   6  "Arial- Z TeeTbbT''TTTxxvvTT"Arial-2  xgType of UNE  -2 | zgMeaning what?#  !-2 vgV or IV?  -@2 z#xTgMeasures to deal with this kind of #   !       2 3zxTgUNE-2 i ixdFrictional    -:2 i|zidThere will be people switching         12 |zidbetween jobs & those who       :2 |zidenter or re-enter labour force.       -,2 iivdV for those switching       &2 ivdbetween jobs. For     ,2 ivdschool-leavers mainly    $   2 ivdIV.  -@2 iz#xiTdGovernment could reduce the search !$      82 zxiTdtiem by improving the flow of $  $     A2 z$xiTdinformation between employers & job  $    $    82 zxiTdseekers. Reduced UNE benefits      .2 %zxiTdreduce the search time.   $ -2 f fx)Structural -72 f|zf)Occurs when the structure of !       22 |zf)the economy changes. This  $    42 |zf)kind of UNE is also caused         82 |zf)when human skill is replaced  $     =2 "|!zf)by machines, there is a shift in  $       72 Q|zf)production to abroad or when       82 |zf)there is a sustained decrease        +2 |zf)in demand for a good.  $    -+2 ffv)V; if workers refuse     &2 fv)jobs which do not      (2 fv)match their skills.$      -(2 fzxfT)1) Market-oriented  #    :2 zxfT)(people-to-jobs)-approach: the      82 zxfT)increased relative poverty of        =2 z!xfT)depressed region would encourage       C2 "z%xfT)workers to move. 2) Interventionists   $       I2 Qz)xfT)(jobs-to-people)-approach: direct action         D2 z&xfT)to bring jobs to the depressed region          F2 z'xfT)(eg. subsidies. purchases, state-owned         2 z xfT)firms etc) $  -2 ++xSeasonal -,2 +|z+Occupations which are !     82 Z|z+weather-dependant; there is a      22 |z+busy working season and a       2 | z+slack season  -&2 ++vV; the UNE people      /2 Z+vcould find odd jobs for       +2 +vthe rest of the year.      -F2 +z'x+TThe measures are very similar to those  $    $    C2 Zz%x+Tused to reduce structural employment.      $ $ -%2 xDemand-deficient %   2 ' x= cyclical   -52 |zDuring recission reduced AD        52 %|zleads to reduced demand for    $  2 T|zlabour.  F&  J "--Ӵ   "Arial- w   qqCCtttxtx3t3tt"Arial-2  x!Type of UNE -2 { y3!Meaning what?  -2 64!V or IV?  -@2 #!Measures to deal with this kind of  2 !UNE -2 " "xrFrictional -:2 "{y"3rThere will be people switching   12 2{y"3rbetween jobs & those who    :2 B{y"3renter or re-enter labour force.-,2 "64"rV for those switching  &2 264"rbetween jobs. For  ,2 B64"rschool-leavers mainly  2 R64"rIV. -@2 "#"rGovernment could reduce the search  J2 2*"rtiem by improving the flow of information     =2 B!"rbetween employers & job seekers.    ;2 R "rReduced UNE benefits reduce the  2 b "rsearch time. -2 s sxStructural -72 s{ys3Occurs when the structure of  22 {ys3the economy changes. This  42 {ys3kind of UNE is also caused  82 {ys3when human skill is replaced  =2 {!ys3by machines, there is a shift in  72 {ys3production to abroad or when  82 {ys3there is a sustained decrease +2 {ys3in demand for a good. -+2 s64sV; if workers refuse  &2 64sjobs which do not  (2 64smatch their skills. -(2 ss1) Market-oriented  I2 )s(people-to-jobs)-approach: the increased C2 %srelative poverty of depressed region A2 $swould encourage workers to move. 2)   %2 sInterventionists I2 )s(jobs-to-people)-approach: direct action D2 &sto bring jobs to the depressed region F2 's(eg. subsidies. purchases, state-owned  2  sfirms etc) -2 xDSeasonal -,2 {y3DOccupations which are  82 {y3Dweather-dependant; there is a 22 ${y3Dbusy working season and a  2 4{ y3Dslack season-&2 64DV; the UNE people  /2 64Dcould find odd jobs for +2 $64Dthe rest of the year.-F2 'DThe measures are very similar to those   C2 %Dused to reduce structural employment.  -%2 EExuDemand-deficient  2 U Exu= cyclical-52 E{yE3uDuring recission reduced AD  52 U{yE3uleads to reduced demand for  2 e{yE3ulabour.uS$"/,@@,4t,t,t,,oA.Sd,T"tX.,-T Economics: MACROECONOMIC ARGUMENTS - part 1 (Glanville pp. 196-251) ~ Notes by Minna 200302 NATIONAL INCOME - National income is the sum total of all final goods and services produced in a year and measured in money terms. - Family incomes = wages + rent + interest + profit (over a period of time) - In a very simplistic model of circular flow of income, the household owns and provides factors of production and the firm offers them goods & services. The firm pays wages, interest, rent and profit to households, and households buy goods & services from the firm. - Leakages (taken from households) = Savings, taxes and imports - Injections (given to firms) = Investment, government spending and exports NATIONAL OUTPUT, - EXPENDITURE and - INCOME - If the flow of goods and services are added together over a time period of one year, the sum would be National Output. Only final goods are added, so intermediate goods will not be counted twice. (Putting a meter on the line of g&ss from firms to households!) - Putting a meter on the line of factor incomes to households for a year (= wages+rent+interest+profit) -> National Income - National income = national output = national expenditure DEFINITIONS - Gross Domestic Product = sum of all economics activity within the geographical boundaries of a country - Gross National Product = GDP minus the interest, rent and profit payments that a foreign company sends back to its homeland - C = spending of consumers, I = -- of investors, G = -- of government, X = -- of foreigners, M = value of intermediate goods, X = exports, Z = imports, Tc = indirect taxes - GDP at factor cost = C + I + G + X - Z - Tc - GDP at market price = C + I + G + X - Z - National income at factor cost = National income calculated at the prices it costs to produce goods - National income at market prices = National income calculated at the prices the goods are sold at the market (the prices differ from factor cost because of government intervention and taxation) - Prices rise+value of money falls = inflation, prices fall+value of money rises = deflation - Nominal national income: When calculating it, the prices used are the prices of the current year are the ones used - Real national income: The prices are adjusted to match the inflation/deflation which has occurred USING STATISTICS - To what are N. I. statistics used? Forecasting changes, providing data to test hypotheses, making comparisons betwen countries, making judgements about welfare - Why GDP per capita is not a good way to measure economics welfare? 1) Unequal distribution of wealth (Brazil vs. Hungary) 2) The economic structure of a country can change within time 3) Things like leisure, pollution and human rights (things that affect well-being) are outcluded 4) Existence of parallel markets 5) GDP doesnt tell what is produced (military vs. consumer goods) 6) Age structure may affect a lot 7) Exchange rate affects a lot 8) If nominal GDP per capita is used, differences between countries purchasing power are not taken into account. MACROECONOMIC POLICIES + DEFINITION OF AD - Macroeconomic policy objectices are economic growth (increase in national output), full employment, price stability and external equilibrium (balance of payments to and from abroad.) - AD = sum total of all goods and services produced in an economy, and related to price level through schedules and graphs = C + I + G + X - M - Change in price level causes movement along the AD curve, change in other variables causes the AD curve to shift. AD - Higher prices -> lower incomes -> people can spend less -> AD falls - AD is inversely proportional to price level. - If price level falls, what do people switch from to buy more g&ss? 1) The net export effect: Prices rise -> imports are favored, while exports fall 2) The real balance effect: Prices rise -> value of bank balances fall -> people might react by cutting back on their spending. 3) The interest rate effect: Prices rise -> people may also try to prevent cutting their spending too much by increasing their borrowing -> intrest rates rise -> investment spending and spending on durable goods fall AS Short-run aggregate supply: - Relationship between the aggregate supply of final goods and services and the price level - If AD increases, producers find it profitable to increase production and prices. - Goods market equilibrium occurs where AD = SRAS. - In a graph price level vs. real GNP: - Horizontal section = output changing withoutp rice level changing (depression) - Sloping section = where an economy would normally operate; as price level rises, real GNP rises also. - Vertical section = physical limit to the output that an economy is able to produce Long-run aggregate supply: - Relationship between real output and the price level at full employment - Long run = the period of time when all amrkets are in equilibrium - LRAS is below the physical limit of production - LRAS is vertical because in the long run factor prices adjust to equilibrium - Real wages are constant along the LRAS THE KEYNESIAN 45 LINE - On a graph consumption vs. expenditure - Consumption depends on incomes - Average propensity to consume (APC) is the relationship between consumption and incomes; APC = C/Y. - Marginal propensity to consume (MPC) = change in consumption/change in income. - Keynesian 45 line displays all the points at which an economy is in equilibrium (AD=AS) - In Keynesian analysis I, G and X are autonomous (= they dont vary with the income) - Multiplier effect: if I, G and X are changed, the MPC curve will be steeper than 45. - Multiplier = 1/1-MPC. SHIFTS IN THE AD  - If AD shifts to the left -> real GDP is below the full employment level -> prices fall -> firms will negotiate input costs at a lower level -> as factor prices change, the SRAS curve shifts to the right -> LRAS = SRAS = AD and the ratio of costs to final prices will be the same as it was at the starting point. SHIFTS IN THE AS Factors which can shift the AS are 1) quantity and quality of capital investment; an increase in the stock of capital will increase the productivity of the labour force and the output it produces. 2) quantity and quality of labour; the larger the labour force the larger the output 3) supply side policies; taxes, allowances and such are made in order to encourage or discourage work, risk-taking or investment 4) legislation (laws); like laws on the school leaving age - The SRAS curve is plotted with the assumption ceteris paribus, including factor prices. If these change, the whole AS curve shifts (Factor prices increase -> AS shifts to the left) (Note: the LRAS will not be affected by such a situation.) - AS shifts to the right if the labour force increases, capital stock increases, technological change increases the productivity of labour and capital or incentives are strenghtened. MACROECONOMIC EQUILIBRIUM - Macroeconomic equilibrium occurs at the price level where AD = AS - Macroeconomic equilibrium occurst where SRAS = AD - The economy is at full employment when it is on the LRAS curve - (Note: important graphs & stuff on pp. 233-240!) UNEMPLOYMENT (hereafter referred to as UNE) - Labour force = total number of ppl who have jobs + those who are UNE - Unemployment rate = (Number of UNE ppl / labour force) * 100% - Costs of UNE: much less income for the UNE, lowering self-esteem and living standards, worsening of personal relationships, vandalism&crime, the economy will be operating inside its PPF - Benefits of UNE: resources can be moved and rearranged according to the economys new needs -> natural rate of UNE PROBLEMS WITH UNE Problems of measuring unemployment 1) UNE is a stock concept 2) official statistics for UNE are very sensitive politically 3) official figures may differ greatly from the definition above 4) only UNe people who are registered as UNE will appear in national statistics Problems of using UNE statistics: 1) The incentive to register as UNE differs between countries (the unempoloyment benefit is an incentive) 2) Some people may work at the same time when they receive UNE benefits 3) Differences in UNDE and disguised UNE 4) There may be a difference in the distribution of income (differences between ethnic groups, sexes, levels of education, public & private sector, age groups and regions) TYPES OF UNE  oku; busshu perhonen chouchou; batafurai perjantai kinybi persikka momo peruna poteto; imo&K`egv#z{uoioc]cWcioioio8  ,q|B_rysymgmgmyayaysayay8 r3Z ( M s 5 G n 1 3 5 k ysysysysysysysmysysys8 k m  , 1 s u 1 Z ysysysysysysysmsysysy8  Bju!5Qysysysymygysysysyms8  )e{Z]!GIKysymygymsyc]ymsys 8 KCE3B <ysysysymysysysgsysy8 <E79;Nz5Jysysysymgysysysysys8   B D e!g!!ysmsgsgsgsgsgsgsgsg8 !!!!""""""ysysmyiye 8  1cegxz=Iqqiiiiiiiiiiii @ :u Dt5X 3 5 G I 3 k / s wwwwwwwwwwwwwwwwwwwwww @ + - / 1 \ ^ #%l5wwooowwwwwowwwwwwwwow  @i~  'r9ce}wwwwwwwwwwwwwwwwwwoww  @27wwwwwwwwooooooooowwww  @#%ICwowwwwwwwwwwowwwwwooo  @9z7 B e!!!""wwwwwwowwwwwwwwwwwwwo  @""""""wwwo  @rk K<!"FGHIJKLMNO ""PQRSTUVWakao kaappiMOMOMOMO!!'" ,#(" ,Times New Roman Verdana3 oA.SoA.Sd