Kathy's AP Macroeconomics Blog

Unit 7: Comparative & Absolute Advantage (05.16.18) Absolute Advantage who can produce more with the same resources / who can produce the same output with less resources one can produce both products ex: Papa Johns producing 20 pizzas while McDonalds only produces 4 Comparative Advantage who can produce with the lowest opportunity cost lowest opportunity cost = smallest number only one individual/nation can produce Input vs. Output input: # of hours to do a job # of gallons of paint to paint a house # of acres to feed a horse output: miles per gallon tons per acre words per minute apples per tree computers produced per hour

Unit 7: Foreign Exchange Market Foreign Exchange Market the buying and selling of currency Appreciation value of currency is strong the dollar buys more of another currency which results in less expensive imports and more expensive exports imports increase because they're cheaper and creates a trade deficit Depreciation a weak dollar the dollar buys less of another currency and results in a more expensive import and less expensive exports brings about trade surplus Graphs two graphs: U.S. market other (foreign) market m

Unit 7: Balance of Payments (05.14.18) Balance of Payments a measure of money inflows & outflows between the U.S. & the rest of the world inflows are referred to as credits outflows are referred as debits the balance of payments is divided into 3 accounts: current account capital / financial account official reserves the capital & current account must zero each other out ! 1. Current Account net exports (balance of trade) exports = credit or asset imports = debit or liability income earned by U.S. owned foreign assets net foreign income or net investment encompasses income paid to foreign held U.S. assets net transfers (foreign aid) unilateral 2. Capital / Financial Account the balance of capital ownership includes the purchase of both real & financial assets real = real estate financial = stocks & bonds direct investment in the U.S. is a credit to the capital account ex: Toyota factory in San Antonio (Toyota is Japan-...

Unit 5: Phillips Curve (05.04.18) Phillips Curve represents the relationship between unemployment & inflation there is a tradeoff between inflation & unemployment in the short run in the short run, inflation increases as the economy expands during a recession, unemployment increases because the economy slows down Long Run Phillips Curve (LRPC) occurs at the NRU represented by a vertical line there is no tradeoff between unemployment & inflation in the long run the economy produces at the full employment output level LRPC will only shift if LRAS shifts equivalent to the NRU NRU = frictional, seasonal, & structural unemployment Supply Shocks a rapid & significant increase in resource cost Stagflation where inflation & unemployment increase at the same time Shifts of the Phillips Curve if AD changes, we will move points on the SRPC if SRAS changes, we will move the SRPC Misery Index a combination of inflation ...

Unit 4: Loanable Funds (04.17.18) Loanable Funds the market where buyers & savers meet to exchange funds at the real interest rate both the demand & the supply for loanable funds comes from households, firms, the gov't, & the foreign sector https://www.youtube.com/watch?v=FdtBj1juEQs

Unit 4: Money Market (04.17.18) Money Market the market where the Fed and the users of money interact, thus determining the nominal interest rates money demand comes from households, firms, the gov't, & the foreign sector the money supply (MS) is determined only by the Federal Reserve Bank Two Types Of Money Demand Transaction Demand demand for money as a medium of exchange Asset Demand demand for money as a store of value dependent upon the interest rate Money Demand downward sloping because at high interest rates, people are less inclined to hold money and more inclined to hold stocks & bonds Money Supply determined by the Fed because the Fed has a monopoly over money supply because of this, the money supply has a vertical curve independent of the interest rate Expansionary Monetary Policy Contractionary Monetary Policy MS will shift to the right (-->) i ↑ Discount rate ↓ Reserve ratio ↓ Buy bonds (more $)...

Unit 4: Money (04.09.18) Uses Of Money Medium of exchange ex: bake cakes instead of paying cash Unit of account economic value ex: amount per product in package Store of value interest value Types Of Money Commodity money ex: gold & silver Representative money ex: IOUs exchange of items of perceived value (fix computer for a dog) Fiat money has value bc the gov't said so Characteristics Of Money Durability Portability Divisibility Uniformity money is supposed to look the same (one $5 bill looks like another) Scarcity Acceptability places that don't accept cash Money Supply M1 Money consists of cash, coins, currency, traveller's checks, & demand or checkable deposits (DD/CD, aka checking accounts) 75% M2 Money consists of M1 money + savings accounts M3 Money consists of M2 money + money market account + CDs (certificate of deposits) Liquidity easy to convert to cash M2 & M3 money is...

Unit 4: Balance Sheets (04.11.18) Balance Sheet: summarizes the financial situation of a bank at a certain time Assets (what you own) Liabilities (what you owe) 1. RR (required reserves) 2. ER (excess reserves) 3. Bank property 4. Securities or bonds 5. Loans DD & CD (checking accounts) DD: cash deposits from the public; these are a liability bc they belong to the depositors & can be withdrawn by the depositors Net worth or owner’s equity Value of stock that is held by the public ownership of bank shares RR + ER = DD Fractional Reserve Banking System the banks have to keep a fraction of the total money supply that is held in reserve as currency bank can't loan out everything in the vault; must keep a fraction of everything they get in