04 02 2013 26 February 2013 Macroeconomics Expenditure approach to measure GDP Y C I G NX Evaluating the economy Look at consumption investment government spending and net exports If we spend more money there s growth limited DEBT Recession If GDP goes down for Q quarters 6 months consecutively Not a useful definition bc we cant really tell if GDP is falling for several months Leading economic indicators forecasting variables Consumer sentiment survey people they do a good job at guessing Leading economic index a completion of multiple indicators into index Fiscal Policy Implemented by government Changes in taxing and spending to affect the economy Expansionary to fix a recession Contractionary to prevent overheating worried about inflation sustainability Discretionary Fiscal Policy Deliberate reaction to economic situation Stimulus spending Payroll tax holiday Putting a little more money on paycheck to stimulate spending Must be well time or it will miss and make things worse Automatic Stabilizers Built into the structure of taxing and spending Income tax During expansion incomes rise and you pay more in taxes surplus The reverse occurs during recessions Monetary Policy In the hands of the bank not government Changes in interest rates and money supply to affect the economy Expansionary easy policy cutting interest rates Contractionary tightening policy raising taxes Central Banks US Federal reserve Chairman Ben Bernanke Control monetary policy Supposed to be mostly independent of government control targets inflation rates at 3 Money Gold Bullion Standard A promise by the government If you took 1 you d get 1 of gold Various gold and silver systems in history Bretton Woods System summer of 1944 Countries were required to set monetary policy to maintain exchange rates The Nixon Shock Nixon pulls out deal allows exchange rate to FLOAT Fiat Money the value depends on what we think Inflation The decline in the purchasing power of a currency over time Determined assessed by consumer price index A little inflation 2 4 is a good thing stimulates spending Hyperinflation BAD Makes your money worthless don t save Deflation BAD Discourages investment Zimbabwe incredibly 8 inflation Unemployment Unemployment rate only looks at those actively looking for jobs The labor force Underemployed people who for example work 2 hours week at Starbucks employed Discouraged workers 6 12 months without jobs no benefits Types of Unemployment Classical wages are too high market is out of equilibrium Cyclical Recession there are periods of expansion and contraction natural Structural Industry decline Frictional Between jobs Season Different need for labor from season to season i e selling x mas trees Government Welfare and Social Security RIGHT government hurt employment trickle down economics LEFT Taxes regulation and spending done properly help BOTTOM LINE Government is bad at fixing things Entitlements Guaranteed benefits rights for those who qualify I E Medicare Medicaid Social Security Difficulty to budget because costs depend on how many qualify Politically very dangerous to reform Politics The Right cut spending except defense cut taxes The Left Maintain increase spending raise revenues taxes Sequestration A hard cap on spending placed in 2011 If more than set is spent then there are automatic cuts 1 2 trillion over 10 years The Left this is catastrophic The Right somewhat split its not bad just needs to be done smartly Taxation Progressive taxes as income increases the tax rate increases Income tax Regressive Taxes As income increases the tax is same The relative burden decreases i e license fees Sales tax State Government 5 March 2013 World War II Morgenthau Plan Return German to a Pastoral state Destroy or internationalize industry Prohibit or restrict industrial production Make another war impossible Marshall Plan Economic growth to rebuild Europe and make war economically unattractive Liberalize trade policies modernize trade practice Develop industry not directly rebuild Prevent the spread of communism The Cold War Many proxy wars but no direct fighting If you didn t have the U S fighting directly Korea The United Nations and the united states were actively involved with warfare The soviets were not however the soviets were providing weapons and soldiers This was a secret If everyone would truly know what would that do It would escalate to possibly nuclear warfare Vietnam The U S was overly actively involved with the soviets who are fighting the Chinese who are sending supplies and forces over to the Vietnamese Afghanistan The U S was not actively involved with the U S in the 1980 s The soviets actively in Afghanistan We let the locals do that for the Massive Massive spending Spends millions of dollars on large programs competing with each other Star Wars Program in the 1980 s with the Regan administration that states warfare Now this program is put forth to compete over in the next frontier in states The soviets were scared of this so they started producing more and more also Rise of the military industrial complex Eisenhower spent more and more money on warfare We have really developed a defense force U S feels we need to protect before the next threat Communism Berlin wall collapsed This was a gradual process by certain reforms put forth in Russia Current Challenges Terrorism Violence civilian targets and asymmetric warfare We usually think about a relatively small groups like gorilla groups Political agenda is violence Non state actors Does not involve the government Definition of Terrorism Globalized economy and trade Internet and technology What is war A large number of cyber hacks have been tracked back to China in one city who are train and target the U S War used to be gun to gun but now we see these cyber attacks How do we fight cyber warfare Environmental issues Policy Tools War Chuck Able is the new secretary in defense Money Financial aid can be for warfare purposes or development Israel is the top recipient in foreign aid Words Mixed statements send letters give speeches Statements directly in the public without spending money Posturing Engage in very simple acts to make our opinions clear When we want to make a statement we can send an aircraft carrier saying Hey we are watching you guys Iraq and Afghanistan 9 11 01 WMD We first invaded Iraq and the Afghanistan to remove WMD s Weapons of Mass Destruction State sponsored terrorism You broke it you fix it Iran Developing nuclear
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