ECON100 Final

UWRF John Walker

4 phases of the business cycle

Contraction, trough, expansion, peak

Contraction

low inflation, high unemployment

Trough

low inflation, high unemployment

Expansion

high inflation, low unemployment

Peak

high inflation, low unemployment

Neoclassical view

Government should not intervene, allow self adjustment

Keynesian view

Government must intervene to boost aggregate demand

Say’s Law

Supply creates its own demand

Keynes view on Say’s Law

Argues Say’s Law does not hold, aggregate demand can fall short because the economy has rigidities

Aggregate demand

An inverse relationship between the price level and real GDP

Aggregate demand real income effect

A fall in the price level increases the real income of households (and vice versa)

Aggregate demand interest rate effect

A fall in the price level will also reduce interest rates (and vice versa)

Determinants of aggregate demand

Changes in consumption by households, investment by firms, net exports, fiscal policy, and monetary policy

Long run aggregate supply

Assume prices are fully flexible

Short run aggregate supply

Assume prices are rigid or fixed

Determinants of short run aggregate supply

Changes in nominal wages of workers, changes in prices of raw materials, pandemic, productivity, war, famine

Determinants of long run aggregate supply

Technology, productivity, labor changes, capital changes

Stagflation

High inflation, high unemployment, low economic growth

Animal spirits

Human behavior

Would Keynes have agreed with the 2008 stimulus package?

Yes

Reagan program components

25% tax cut, deregulation of markets, balance the federal budget

Which supply would the Reagan program support?

Shifts long run aggregate supply to the right

Reagan program on GDP

Growth in GDP

Reagan program effect on employment

Growth in employment

Reagan project effect on inflation

Lower inflation due to greater productivity

Freidman’s rule

Fed should increase money supply at the same rate that the GDP is growing

Keynesian counter-cycle fashion

Promoted stabilization

Deficit

When spending is greater than the revenue

2024 US Deficit

$1.8 trillion

National debt

Amount of money the country borrowed

2024 national debt

$7.9 trillion

The six economic arguments for balancing the budget

Reduce national debt, stabilize economic growth, lower interest rates, fiscal responsibility, protect future generations, keep economy growing

The Keynesian counter arguments regarding the budget

Increase government spending and lower taxes

The Chinese Exclusion Act

1882

Johnson-Reed Act

1924

Hart-Cellar Act

1965

Immigration and Reform Act

1986

Labor Market Effects When Immigrants are Substitutes

Decrease the wages of unskilled workers

Labor Market Effects When Immigrants are Complements

Higher wages and increased employment opportunities

Problems with clean coal

Burning coal releases toxins and heavy metals, and may cause birth defects and other reproductive issues

Alternatives to coal

Renewable energy, natural gas, nuclear power

4 types of earnings discrimination

Wage, Employment, Occupational, Human Capital

Earnings difference between men and women

-19%

Earnings difference between African Americans vs all

-21%

Earnings gap between hispanics vs all

-25%

Earnings gap between asian Americans vs all

+1.2%

Minority

A group with less access to higher positions in society

Prejudice

A pre-judgement based on stereotypes and hearsay plus the refusal to consider evidence of the contrary

Discrimination

An action that treats individuals differently on the basis of an arbitrary characteristic

3 common forms of pollution

Air, water, land

Goal of “cap and trade”

Gov sells pollution permits that allows them to pollute to a limit