PART 2: MACROECONOMICS WK 3-1: MACRO ECONOMICS TOOLS

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PART 2 MACROECONOMICSWK 3-1 MACRO ECONOMICS
TOOLS
AGRICULTURAL ECONOMICS
2
ECONOMICS
ECON PROCESS
0
ECON SYSTEM
BUSINESS FORMS
MACROECONOMICS
ConceptCausesCasesConsequences
CORPORATION
TRADITIONAL
COMMAND
SOCIALISM
CAPITALISM
RECESSION
PROPRIORSHIP
INFLATION
PARTNERSHIP
COMMUNISM
MARKET
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SUMMARY
WK 2-5 ECONOMIC PROBLEMS
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• RECESSION

INFLATION
PEOPLE NOT WORKING
CONCEPT
RISING PRICES
INSUFFICIENTDEMAND
EXCESSIVEDEMAND
CAUSE
FRICTIONAL CYCLICAL SEASONAL STRUCTURAL TECHNICAL
COST-PUSH DEMAND PULL STRUCTURAL SOCIAL
CASES
CONSEQ
POOR USE OF RES DRAIN ON GOVT BUD SOCIAL
PROBLEMS PSY IMPACT SPECIAL PROBLEMS
1 BUY LESS BENEFITS DEBTOR HURTS FIX
INCOME HURTS INSURANCEINC LAND PRICES
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Part 2 Macroeconomics

• Wk 1-5 Circular Flow Of Money
• Wk 2-1 Money
• Wk 2-2 Federal Reserve System
• Wk 2-3 Gauging Economic Activity
• Wk 2-4 Econ Goals Bus Cycles
• Wk 2-5 Economic Problems
• WK 3-1 POLICY TOOLS
• Wk 3-2 Critique Of Policy Tools

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Lesson Objectives
Wk 3-1 Prescriptive Economics

• After Completing This Lesson The Student Should
  Be Able To
• 1. Review The Concept, Causes, Cases
  Consequences Of Recession And Inflation
• 2. Discuss How The Federal Reserve Uses Monetary
  Policy To Fight Recession And Inflation
• 3. Discuss How Congress Uses Fiscal Policy To
  Fight Recession And Inflation

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I. Prescriptive Economics For Recession
Concept, Causes, Cases Conseq Of Recession
Obj
1
A. Concept Of Recession
People Not Working Because People Are Not Buying
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2. Cyclical
Concept, Causes, Cases Conseq Of Recession
Obj
1
B. Causes Of Recession
1. Insufficient Demand
2. Excess Supply
C. Cases Of Unemployment
1. Frictional
3. Seasonal
4. Structural
5. Technological
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D. Consequences
Concept, Causes, Cases Conseq Of Recession
Obj
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1. Poor Use Of Human Resource
2. Drain On Govt Budgets
3. Psychological Impact
4. Under Utilization Of Capital

• 5. Social Deterioration

6. Special Problems
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Keys To Ending A Recession
Concept, Causes, Cases Conseq Of Recession
Obj
1
1. Restore Consumer Confidence

• 2. Getting
• People To
• Buy More

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E. Counter Cyclical Policy
CONCEPT, CAUSES, CASES CONSEQ And CURES OF
RECESSION
Obj
1

• 1. Automatic Stablizers

A. Progressive Income Tax
Lower Income Lower Tax Bracket
Lower Taxes More Money To Spend
B. Welfare Payments Go Up So People Have More
Money To Spend
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Discuss How Congress Uses Fiscal Policy To Fight
Recession
Obj
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2. Discretionary Policy Tools
A. FISCAL Policy By CONGRESS
1. Lower Taxes
A. Consequence
Less Money Taken Out Of Paychecks, So People Have
More Money To Spend
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Discuss How Congress Uses Fiscal Policy To Fight
Recession
Obj
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2. Discretionary Policy Tools
A. FISCAL Policy By The CONGRESS
2. Increase Govt Spending Gds Serv

• Consequence HIGHER GOVERNMENT
• Spending Puts More Money In
• Peoples Pockets, So They Can Buy
• More Goods And Services

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B. Expansionary Monetary PolicyBy The Federal
Reserve
Discuss How Fed Reserve Uses Monetary Policy To
Fight Recession
Obj
2
1). Lower The Discount Rate
A) CONSEQUENCE LOWER INTEREST RATES INVITE MORE
AND LARGER LOANS
More Credit Encourages More Purchases
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2). Lower Reserve Requirement
Discuss How Fed Reserve Uses Monetary Policy To
Fight Recession
Obj
2

• A). Consequence Banks Have To Keep Less Required
  Reserves From Each Demand Deposit

So They Can Make More Larger Loans
More Credit Encourages More Purchases
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3). Open Market Operations
Discuss How Fed Reserve Uses Monetary Policy To
Fight Recession
Obj
2

• A. Buy Securities

Consequence People Give Up A Piece Of Paper And
Get Money
More Money Encourages More Spending
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Fed Monetary Tools their Effects on the Money
Supply
FightRecession
FightRecession
FightRecession
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4). Decrease Margin Requirement
Discuss How Fed Reserve Uses Monetary Policy To
Fight Recession
Obj
2

• A) CONSEQUENCE PEOPLE DO NOT HAVE TO MAKE AS
  LARGE DOWN PAYMENT WHEN THEY BUY STOCKS

5). Moral Persuasion
Plead With Banks To Raise Or Lower Reserves With
Threat Of Policy Action
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A. Concept
Concept, Causes, Cases Conseq Of Inflation
Obj
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II. Prescriptive Economics For Inflation
Sustained Increase In The General Price Level
B. Causes Of Inflation
1. Excessive Demand
2. Insufficient Supply
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C. Cases Of Inflation
Concept, Causes, Cases Conseq Of Inflation
Obj
1
1. Demand-pull
2. Cost-push
3. Structural
4. Social
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D. Consequences Of Inflation
Concept, Causes, Cases Conseq Of Inflation
Obj
1
1. Benefits Debtors
2. Real Estate Prices Go Up
3. Amount Of Investment Increases

• 4. Profits Go Up

5. Holder Of Life Insurance Suffer
6. Hurts People On Fixed Incomes
7. Wages Buy Less
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Key To Ending Inflation
CONCEPT, CAUSES, CASES CONSEQ And CURES OF
INFLATION
Obj
1
Getting People To Buy Less
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E. Counter Cyclical Policy
CONCEPT, CAUSES, CASES CONSEQ And CURES OF
INFLATION

• 1. Automatic Stablizers

A. Progressive Income Tax
Higher Income Higher Tax Bracket
Higher Taxes Less Money To Spend
B. Welfare Payments Go Down
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Discuss How Congress Uses Fiscal Policy To Fight
Inflation
Obj
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2. Discretionary Policy Tools
A. FISCAL Policy By The Congress
1. Raise Taxes
A. Consequence MORE MONEY TAKEN OUT OF
PAYCHECKS, SO PEOPLE Have Less Money To Spend
2. Decrease Govt Spending Gds Serv

• Consequence LOWER GOVERNMENT
• Spending Puts Less Money In
• Peoples Pockets, So They Can Buy
• Less Goods And Services

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B. Contractionary Monetary PolicyBy The Federal
Reserve
Discuss How Fed Reserve Uses Monetary Policy To
Fight Inflation
Obj
2
1). Raise The Discount Rate
A) CONSEQUENCE HIGHER INTEREST RATES DISCOURAGE
LOANS
Less Credit Encourages Less Purchases
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2). Raise Reserve Requirement
Discuss How Fed Reserve Uses Monetary Policy To
Fight Inflation
Obj
2

• A). Consequence Banks Have To Keeep More
  Required Reserves From Each Demand Deposit

So They Can Make Fewer Loans
Less Credit Encourages Less Purchases
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3. Open Market Operations
Discuss How Fed Reserve Uses Monetary Policy To
Fight Inflation
Obj
2

• A. Sell Securities

Consequence People Get A Piece Of Paper And
Give Up Money
Less Money Encourages Less Spending
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4). Increase Margin Requirement
Discuss How Fed Reserve Uses Monetary Policy To
Fight Recession
Obj
2

• A) CONSEQUENCE PEOPLE HAVE TO MAKE A LARGER DOWN
  PAYMENT WHEN THEY BUY STOCKS

B). People Have Less Money To Spend
5). Moral Persuasion
Twists Banks Armsto Raise Reserves And/Or
Interest Rates With Threat Of Policy Action
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Summary
Wk 3-1 Policy Tools

• 1. The Key To Fighting Recession Is To Get People
  To Buy More

2. The Key To Fight Inflation Is To Get People To
Buy Less
3. Automatic Stablizers Reduce The Magnitude Of
The Swings
4. Congress Can Fight Both With Tax Or Spending
Changes I.E., Fiscal Policy
5. The Fed Res Can Change Discount Rate, Reserve
Req, Buy/Sell Securites Or Margin Req To Fight
Either
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Fed Monetary Tools their Effects on the Money
Supply
FightInflation
FightInflation
FightInflation
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ECONOMICS
ECON PROCESS
0
ECON SYSTEM
BUSINESS FORMS
MACROECONOMICS
INC TAXES
DEC SPEND
CORPORATION
TRADITIONAL
COMMAND
SOCIALISM
CAPITALISM
DEC RES REQ
RECESSION
PROPRIORSHIP
INFLATION
DEC DIS RATE
BUY SEC
MONETARY POLICY
FISCAL
PARTNERSHIP
COMMUNISM
MARKET
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• EVALUATION OF MACROECONOMIC POLICY TOOLS