Foreign exchange (FOREX)
The buying and selling of currency

=> Consumer Taste
=> Relative income
=> Relative Price Level
=> Speculation

Appreciation of the dollar causes American goods to be relatively more expensive and foreign goods to be relatively cheaper thus reducing exports and increasing imports

Depreciation of the dollar causes American goods to be relatively cheaper and foreign goods to be relatively more expensive thus increasing exports and reducing exports

Specialization
Individuals and countries can be made better off it they will produce in what they have a comparative advantage and then trade with others for whatever else they want/need

Absolute and Comparative Advantage
Absolute Advantage
The producer that can produce the most output or requires the least amount of inputs (resources)

Comparative Advantage
The producer with least opportunity cost

Countries should trade if they have a relatively lower opportunity cost. They should specialize with the good that is "cheaper" for them to produce

Distinguishing input from output problems the output problems presents the data as products produced given a set of resources
An input problem present the data as amount resources needed to produce a fixed amount of output (example number of labor unions to produce 1 bushel)

May 8. 2017

Balance of Payments
measure of money inflows and out flows and flows between the united the united states and the rest of the world (row)
inflows are referred to as CREDITS
outflows are referred to as DEBITS
The balance of payments is dividend into 3 accounts current account
capital/ financial account 
official reserves account 
Currernt Account - balance of Trade or net Exports
-exports of goods and services
-import of goods and services
-export create a credit to the balance of payments
-importance a debit to the balance of payments
Net foreign Income
-Income earned big U.S owned foreign assets
Income paid foreign held U.S assets

Net Transfer (tend to be unilateral)
foreign aid => a debit to the current account
Example: Mexican migrants workers send to family in Mexico

Capital / Financial Account
The balance of capital ownership
INCLUDES the purchase of both real and financial assets
Direct investment by U.S firms/ individuals in a foreign country are debts to the capital account

The Factory in San Jose Costa Rica

Capital / Financial Account
Purchase of Foreign financial assets represents a debit to the capital account
Example Warren Buffet buys stock in Petra china

Purchase of domestic financial assets by foreigners represents a credit to the capital account

The united ARAB emirates sovereign wealth fund purchases a large stake

Relationship between Current and Capital Account
Remember double  entry bookkeeping
The current account and the capital account should zero each other out
That is.. it the current Account has a negative balance (deficit), then the capital account should then have a positive balance (surplus)

Official Reserves
The foreign currency holding of the United States federal Reserve system
When is a glance of payments surplus the fed accumulates foreign currency and debit the balance of payments

When is a balance of payments deficit the depletes the reserves of foreign currency and credit the balance of payments

The official Reserve Zero out the balance of Payments

Balance of Goods
Good exports- Good imports
Balance of goods and services
Good exports plush services exports - Good imports plus Services import
Current Account an own answer from this  (arrow pointing up) plus net investment

Balance of Capital Account
U.S purchases aboard plus foreign purchases in the U.S

Official Reserves
Current Account (+, - )
Plus
Capital Account ( +, -)
=
0 Theoretically

Supply-side economics or Reganomics 

A policy design to stimulate incentive to work. SAVE and INVEST 

These many include tax cuts which would increase disposable income

Luffer Curve Theortical relationship between tax rate and government revue ( as tax rises to a unknown level) no one will pay it

Criticism of the Laffer Curve 

1. Imperial suggest that the impact an incentive save and invest are small 

2. Tax cut increase demand which can find inflation 

3. Where is the economy is actually on the same is different to determine

The Phillips Curve
There is a trade off between inflation and unemployment in the short run.  (inverse relationship)
Ad increase upward pressure on prices which cause unemployment decrease and inflation to increase. When AD decrease downward pressure on prices which cause unemployment to increase and inflation to decrease.

Since wages are steady inflation changes moves the point on the SRPC if inflation persist and the expected rate of inflation rise and the entire SRPC move upward. Stagflation is where unemployment and inflation simultaneously rises.
If inflation expected drops due to new technology or efficient SRPC will move downward

Occur at the natural rate of unemployment it is represented by a vertical line there is a no trade between inflation and unemployment in the long run.

Because the economy produces at the full employment output level
LRCP will only shift if LRAS shifts analogous
increase in unemployment will shift LRPC =>
Decrease in unemployment will shift LRPC <=
IF the NRU changes the LRPC moves
NRU is frictional, structural, and seasonal

The MISERY INDEX is a combination of inflation
SINGLE DIGIT MISERY IS GOOD

3/3/2017

TOOLS OF MONETARY

Reserve Requirement
Open Market Operation
Discount Rates
The RR- The fed sets the amount sets the amount
There is a recession, what should the fed  does the reserve requirement
Decrease the reserve  ratio
RR decrease MS increase i decrease I increase  AD increase

Inflation what should the fed do?
Increase RR
RR increase MS decrease I decrease AD decrease

Open Market Operations is when the fed buys or sells government bonds (securities) this is the most important and widely used montary policy if the Feds buy bonds out of the economy and replaces them with money ms increase. If the fed sells bonds it takes money and gives security to the investor MS increase

The discount rate is the interest rate that fed charges commercial banks for short term loans. The federal fund rate is the interest rate that banks charge one another for overnight loans

Prime rate is the interest rate that banks charge their most credited worthy people

Loanable funds markets
Private sector supply and demand of loans brings together those who want to lend money shows effect R interest rate

O

3/23/2017 - 3/24/2017

Fractional reserve system

Demanded deposit are created by FRS 

FRS is the process in which bank keep a portion of their deposits in reserves, and loan out the excess 

The money, the bank keeps on hand is called Required reserves ratio (percentage of cash kept back) 

Banks must keep reserve deposit in there vaults or at the fed (federal reserves bank) 

Total reserves or Actual reserves = RR + ER 

New VS Existing Money

If the initial deposit in a bank comes from the FED or bank purchase of a bond or other money out of (buried treasure), the deposit immediately increases the money supply

The deposit then leads to further expansion  of the money supply through the money creation process

Total change in MS if initial deposit is new $  = deposit plus money created by banking system 

If a deposit in a bank is existing (already counted in  M1; example currency or checks, depositing the amount does not change the MS immediately because it is already counted.
Existing Currency changes on deposited into a checking account only the composition of the money supply from coins/paper $ to checking account deposits.
Total change in the MS of deposits is depositing $ banking system created money only.

A Single bank can create $ by the amount of its reserve
The banking system as  a whole can create $ by multiple of the excess reserves
MM X ER= expansion of money
Money Multiplier = 1/RR