Chapter 10 Business Cycles
These slides supplement the textbook, but should not replace reading the textbook
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• Monetizing the debt • > in the price of oil • > in public union benefits • Detailed laws • Emphasis on green technology • Unfunded liabilities • Interest on national debt • Taxes • Tariffs • Health care
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What was the Employment Act of 1946?
Mandated the government to: 1) Balance the budget 2) Favorable balance of payments 3) Stable prices and full
employment 4) Coordinate monetary and fiscal
policies
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What did the 1970s teach us?
A move to the left of the aggregate supply curve can only be solved by supply side remedies
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What is investment? The purchase of new plants, equipment, buildings, and net additions to inventories
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Why is the investment sector so unstable?
• Expectations can change • Inconsistent accelerator • A change in the rate of
growth determines swings • Govt. policies can cause
economic bubbles
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What are pro-cyclical
government polices? Policies that can accentuate the swings of the business cycle because of lag effects and emphasis of anti-growth policies
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What is the Financial Stability Oversight Council? As part of the Financial
Reform Bill of 2010 (Dodd-Frank Bill) the council decides which nonbank financial institutions might cause instability in the U.S. financial system
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What is the significance of the FSOC?
All banks with assets of more than $50 billion and any other financial businesses deemed large enough will be regulated by the Fed and protected with promise of bailouts if they get into financial trouble
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What past examples of government protecting
big business? • Fannie Mae and Freddie Mac • Bail out of banks in 2008-09 • General Motors and Chrysler
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How do we compare real GDP as a percent
from year to year? We take the percent increase from year to year and compare
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What is the circular flow of income and
expenditures? A model that shows the income and expenditures in the economy
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At what point is equilibrium reached in
the circular flow model? Where planned leakages equal
planned injections
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What are two examples of equilibrium in the
circular flow of money? Internal - banks
External – foreign exchange market
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