DEFINTION
- INFLATION- a general rise in the price level
- DEFLATION- a general decline in the price level
- DISINFLATION- a decrease inflation rate over time.
- STAGFLATION- unemployment and inflation increasing at the same time.
- SUPPLY SIDE ECONOMICS- change AS not AD. Determines the level of inflation, unemployment rates, and economic growth
- SUPPLY SIDE ECONOMIC – support policies that promote GDP growth by arguing that high marginal tax rates along with the current system of transfer payments such as unemployment compensation or warfare programs , provide disincentive to work , save , innovate , and undertake enterperal ventures.
- Lower Marginal tax rates – induce more work , this causes as to increase. Al6 makes leisure more expensive, and work more attractive.
INCENTIVE TO SAVE AND INVEST
-High marginal tax rates reduce the rewards for saving and investment.
-Consumption might increase , but investment depends upon savings
- Lower marginal tax rates encourage savings and investment
LAFFER CURVE
- Theoretical relationship between tax rates and government revenue.
- As tax rates increase from 0 , government revenues increase increase from 0 to
- Criticisms :
A.)Research suggests that the impact of tax rates on incentives to work , save , and invest are small.B.) Tax units also increase demand, which can fuel inflation, and demand may exceed supply
C.) Where the economy is actually located on the curve , is difficult to determine
4/26/16
• BALANCE OF PAYMENTS
-measure of money inflows and outflows between then US and the post of the world (grow)
• The balance of payments is divided into 3 accounts
- Inflows = credits
- Outflows = debits
1. Current account
2. Capital / financial account
3. Official reserves account
• Double entry bookkeeping
• Current account
- Balance of trade or net exports
- Exports of goods / services-import of goods /services
- Exports create a credit to the balance of payments
- Imports create a debit to the balance of payments
• Net foreign
- Income earned by US owed foreign assets – income paid to foreign held US assets
- Ex: interest payments on US own Brazilian bonds – interests payments on German owed US treaty bonds• Net transfer (tend to be unilateral)
- foreign aid a debit to the current account
****Ex : Mex . Migrant workers send $ to farm in Mexico
- CAPITAL/ FINANCIAL ACCOUNT
- Includes the purchase of both real and financial assets
- Direct investment in the US is a credit to the capital account
- Toyota factory in San Antonio (EX)• Direct investment in the US firms (individual in a foreign country are debits to the capital account
- the Intel factory in San Jose , Costa Rica• Purchase of domestics financial assets by foreigners represents a credit to the capital account
- The United Arab Emirates Sovereign wealth funds purchases a large stake in the NASDAQRELATIONSHIP BETWEEN CURRENT AND CAPITAL ACCOUNT
- double entry bookkeeping
- The current account and capital account should sew each other out
- That is…. If the current account has a negative balance (DefIcit)
OFFICIAL RESERVES
- The current foreign currency holdings of the US federal reserve system
- When there is a balance of payments supply the federal accumulate foreign currency and debits the balance of payments
- When there is reserves of foreign currency and credits the balance of payments
- The official reserves sew out the balance of payments
ACTIVE VS. PASSIVE OFFICIAL RESERVES
• The US is passive in its use of official reserves. It dives not seek to manipulate the dollar exchange rate
• The people republic of China is active in its use of official reserves. It actively buys and sells dollars In order to maintain a steady exchange rate with the US
BALANCE OF TRADE
Goods + Goods
Exports Imports
BALANCE ON GOODS AND SERVICES
Goods + Service + Goods
Exports Exports Imports
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