Macroeconomics Fall 2013 (BECO 1)

MacroeconomicsMacroeconomicsFall 2013Fall 2013

(BECO 1)(BECO 1)

Dr. Andrew L. H. ParkesDr. Andrew L. H. Parkes““A Macroeconomic Understanding for use in A Macroeconomic Understanding for use in

Business”Business”

卜安吉卜安吉

October 31, 2013October 31, 2013 Economics I (BECO 1)Economics I (BECO 1) 22

Conditional Convergence Conditional Convergence HypothesisHypothesis

PossibilitiesPossibilities

– The difference in international real GDP per The difference in international real GDP per capita tends to narrow over time, holding capita tends to narrow over time, holding education, infrastructure, the same.education, infrastructure, the same.

– Relatively poor countries have high growth Relatively poor countries have high growth rates and relatively wealthy countries have rates and relatively wealthy countries have low growth rates, so that per capita living low growth rates, so that per capita living standards will narrow over time. … p. 606standards will narrow over time. … p. 606


Paradox of ThriftParadox of Thrift

During hard times, households During hard times, households tend to save more and spend less.tend to save more and spend less.

Less spending means less Less spending means less consumption and the economy consumption and the economy declines.declines.

The paradox: A “good intention” The paradox: A “good intention” turns out making everyone worse turns out making everyone worse off.off.

p. 541


Government Spending 2010Government Spending 2010

Total spendingTotal spending

– The next slide is a pie chart representing spending The next slide is a pie chart representing spending by category for the US budget for 2010by category for the US budget for 2010

– Further information: Further information: Government spendingGovernment spending

– The President's budget for 2010 totals $3.55 The President's budget for 2010 totals $3.55 trilliontrillion.. Percentages in parentheses indicate Percentages in parentheses indicate percentage change compared to 2009. This budget percentage change compared to 2009. This budget request is broken down by the following request is broken down by the following expenditures:expenditures:



Mandatory spending: $2.184 Mandatory spending: $2.184 trilliontrillion (+15.6%) (+15.6%) – $677.95 billion (+4.9%) – $677.95 billion (+4.9%) – Social SecuritySocial Security – $571 billion (−15.2%) – Other mandatory $571 billion (−15.2%) – Other mandatory

programs programs – $453 billion (+6.6%) – $453 billion (+6.6%) – MedicareMedicare – $290 billion (+12.0%) – $290 billion (+12.0%) – MedicaidMedicaid – $164 billion (+18.0%) – Interest on $164 billion (+18.0%) – Interest on National DebtNational Debt

– $11 billion (+$11 billion (+275%) – Potential disaster 275%) – Potential disaster costscosts

Source: http://en.wikipedia.org/wiki/2010_United_States_federal_budget



Discretionary spending: $1.368 trillionDiscretionary spending: $1.368 trillion (+13.1%)(+13.1%) – $663.7 billion (+12.7%) – $663.7 billion (+12.7%) – Department of DefenseDepartment of Defense (including (including

Overseas Contingency OperationsOverseas Contingency Operations) ) – $78.7 billion (−1.7%) – $78.7 billion (−1.7%) –

Department of Health and Human ServicesDepartment of Health and Human Services – $72.5 billion (+2.8%) – $72.5 billion (+2.8%) – Department of TransportationDepartment of Transportation – $52.5 billion (+10.3%) – $52.5 billion (+10.3%) – Department of Veterans AffairsDepartment of Veterans Affairs – $51.7 billion (+40.9%) – $51.7 billion (+40.9%) – Department of StateDepartment of State and Other and Other

International Programs International Programs – $47.5 billion (+18.5%) – $47.5 billion (+18.5%) –

Department of Housing and Urban DevelopmentDepartment of Housing and Urban Development – $46.7 billion (+12.8%) – $46.7 billion (+12.8%) – Department of EducationDepartment of Education– … ….. Source: http://en.wikipedia.org/wiki/2010_United_States_federal_budget


Tax RevenueTax Revenue

Total receiptsTotal receipts– Estimated Estimated receiptsreceipts for fiscal year 2010 are for fiscal year 2010 are

$2.381 trillion, an estimated decrease of 11% $2.381 trillion, an estimated decrease of 11% from 2009.from 2009. $1.061 trillion – $1.061 trillion – Individual income taxesIndividual income taxes $940 billion – $940 billion – Social SecuritySocial Security and other and other payroll taxpayroll tax $222 billion – $222 billion – Corporation income taxesCorporation income taxes $77 billion – $77 billion – Excise taxesExcise taxes $23 billion – $23 billion – CustomsCustoms dutiesduties $20 billion – $20 billion – EstateEstate and and gift taxesgift taxes $22 billion – Deposits of earnings $22 billion – Deposits of earnings $16 billion – Other $16 billion – Other

Source: http://en.wikipedia.org/wiki/2010_United_States_federal_budget


Oil Prices 1990 to 2010Oil Prices 1990 to 2010


So What’s the Fiscal CliffSo What’s the Fiscal Cliff

$607 billion in mandated spending cuts $607 billion in mandated spending cuts and tax increases starting Jan. 1, 2013and tax increases starting Jan. 1, 2013

• $120 Billion deficit in October of 2012 already

• larger than economist forecasts for a $114 billion gap and

• up from $98 billion in October of 2011



The wider October deficit was due to a shift in payment dates in the same month in 2011, which led to lower outlays in the year-ago period, the Treasury said. Lower corporate taxes also contributed to the expanded deficit last month.



The 2012 budget gap was $1.089 The 2012 budget gap was $1.089 trillion, smaller than last year's trillion, smaller than last year's deficit of $1.297 trillion largely deficit of $1.297 trillion largely because of higher corporate income because of higher corporate income tax receipts and less spending.tax receipts and less spending.

• The United States had reported a budget surplus for September

October 31, 2013October 31, 2013 Economics I (BECO 1)Economics I (BECO 1) 1414http://en.wikipedia.org/wiki/United_States_fiscal_cliff

October 31, 2013October 31, 2013 Economics I (BECO 1)Economics I (BECO 1) 1515http://en.wikipedia.org/wiki/United_States_fiscal_cliff



The deficits add to national debt, which will The deficits add to national debt, which will most likely hit the $16.4 trillion limit at the most likely hit the $16.4 trillion limit at the end of December, with extraordinary end of December, with extraordinary measures enabling the U.S. to meet its measures enabling the U.S. to meet its obligations “until early in 2013,” the obligations “until early in 2013,” the Treasury Department said on Oct. 31.Treasury Department said on Oct. 31.


So What’s the Fiscal CliffSo What’s the Fiscal Cliff Yields on 10-year Treasuries dropped the most Yields on 10-year Treasuries dropped the most

in one day since May to 1.62 percent after in one day since May to 1.62 percent after Obama’s re-election Nov. 6. A figure below 1.7 Obama’s re-election Nov. 6. A figure below 1.7 percent indicates that investors expect gross percent indicates that investors expect gross domestic product to shrink by 0.3 percent next domestic product to shrink by 0.3 percent next year as the so- called fiscal cliff takes effect, year as the so- called fiscal cliff takes effect, according to JPMorgan Chase & Co.according to JPMorgan Chase & Co.

http://www.bloomberg.com/news/2012-11-13/treasuries-see-u-s-over-cliff-as-yields-converge-correct-.html


Tax IncreasesTax Increases

Obama and Congressional Democrats want to Obama and Congressional Democrats want to let tax cuts expire for individual incomes let tax cuts expire for individual incomes above $200,000 a year, while Republicans above $200,000 a year, while Republicans advocate extending them for all levels. advocate extending them for all levels. The The president wants to boost the two top rates president wants to boost the two top rates from the present 33 percent and 35 percentfrom the present 33 percent and 35 percent, , to the levels they reached when Bill Clinton to the levels they reached when Bill Clinton left office in 2001 -- 36 percent and 39.6 left office in 2001 -- 36 percent and 39.6 percent.percent. He also wants higher taxes on He also wants higher taxes on capital gains and dividends and a smaller capital gains and dividends and a smaller estate tax exemption and higher rate. estate tax exemption and higher rate.


The FedThe Fed

The Fed has been the main driver of low The Fed has been the main driver of low yields, after buying $2.3 trillion of yields, after buying $2.3 trillion of Treasuries and mortgage-related bonds Treasuries and mortgage-related bonds since 2008 in two rounds of quantitative since 2008 in two rounds of quantitative easing, or QE. The central bank said easing, or QE. The central bank said Oct. 24 it would continue its stimulus Oct. 24 it would continue its stimulus measures by purchasing $40 billion of measures by purchasing $40 billion of home-loan securities a month until the home-loan securities a month until the labor market improves “substantially. labor market improves “substantially.

Macroeconomics Fall 2013 (BECO 1)

Documents

Transcript of Macroeconomics Fall 2013 (BECO 1)