‘Macroeconomics’ Notes Traverse City West Senior High Introduction To Economics

Barter Economy An economy in which trades are made in goods and services instead of money. An economy in which trades are made in goods and services instead of money. –Problem: »The people you want to trade with may not want to trade with you

Money A good that is widely accepted for the purposes of exchange and in the repayment of debt. –Gold, silver, copper, rocks, cattle, shells, paper

Functions Of Money Medium Of Exchange Medium Of Exchange –Anything that is generally accepted in exchange for goods and services Unit Of Account Unit Of Account –A common measurement used to express values Store Of Value Store Of Value –Something with the ability to hold value over time

Credit Cards Act as a loan from a bank to purchase goods and services Act as a loan from a bank to purchase goods and services Loans are paid back with interest. Loans are paid back with interest. Credit cards don’t pay off debt, they cause it. Credit cards don’t pay off debt, they cause it.

Credit Card Rules Credit Card Rules These Rules will help establish your credit These Rules will help establish your credit –Open 1 credit card account at the age of 18 –Keep your limit low ($500 or less) –Use your card for small purchases that you can pay off or in case of emergency –Pay off the balance each month

What Things Might We Look At To Gauge A Nation’s Economic Health? Circular Flow Circular Flow –Fast or Slow? Business Cycles Business Cycles –Peak, Contraction, Trough, Recovery, & Expansion Economic Indicators Economic Indicators –GDP, Unemployment, Inflation, Average Income

The Circular Flow Shows the relationship between different economic groups based on economic activity Shows the relationship between different economic groups based on economic activity –Households »Buy goods from businesses »Pay taxes to the government –Businesses »Buy resources from households »Pay taxes to the government –Government »Provide benefits to households and businesses

The Circular Flow (Cont’d)

The Business Cycle Peak Peak Contraction Contraction Trough Trough Recovery Recovery Expansion Expansion

Economic Indicators GDP (Gross Domestic Product) GDP (Gross Domestic Product) Unemployment Unemployment Inflation Inflation Average Income Average Income

Gross Domestic Product (GDP) The total market value of all goods and services produced annually within a country (by both citizens and non- citizens) The total market value of all goods and services produced annually within a country (by both citizens and non- citizens)

Unemployment Rate The percentage of the civilian labor force (persons that are 16 years of age and older and willing / able to work) that is unemployed. The fewer people working= less money to spend on goods and services

Inflation An increase in the price level, or average level of prices An increase in the price level, or average level of prices –The price of milk 50 years ago was much cheaper than it is today

Average Annual Income The average amount of money that the population in a given society makes per year

How Can We Control The Problems Of Inflation & A High Unemployment Rate? Fiscal Policy Fiscal Policy –Changes the Government makes in spending or taxation to achieve particular economic goals Monetary Policy –Changes the Fed makes in the money supply

Fiscal Policy Changes the Govt. makes in taxing and spending Changes the Govt. makes in taxing and spending –Expansionary »Increase spending and decrease taxes to reduce unemployment –Contractionary »Decrease spending and increase taxes to reduce inflation

Government Taxing & Spending Types of Taxes Types of Taxes –Personal Income »Individuals Pay –Corporate Income »Businesses Pay –Social Security »Individuals & Businesses Pay –Excise »Sin Taxes –Property »Value of Property (Homes) –Sales »Placed on the purchase of goods (6% in MI) Spending ($2.5 Billion) –National Defense »21% to Military –Income Security (Welfare) »14% to Welfare –Social Security »21% to Retirees –Medicare »12% to Medical Insurance –Interest On National Debt »7% in Interest

Monetary Policy Changes the Fed makes in the money supply –Expansionary »Increase the money supply to reduce unemployment –Contractionary »Decrease the money supply to reduce inflation

The FED (Federal Reserve System) The Central Bank of the United States The Central Bank of the United States –The chief monetary authority Run by a Board of Governors Run by a Board of Governors –7 members –Headed by a chairman » Currently Ben Bernanke The United States is broken up into The United States is broken up into 12 Federal Reserve District Banks

Boston Boston New York New York Philadelphia Philadelphia Cleveland Cleveland Richmond Richmond Atlanta Atlanta Chicago* Chicago* St. Louis St. Louis Minneapolis Minneapolis Kansas City Kansas City Dallas Dallas San Francisco San Francisco

Functions Of The FED Control the money supply –More or less? Supply paper money –Supplied by district banks Hold bank reserves –For commercial banks Provide check clearing services –All transactions go through the FED Supervise member banks –Check on loans made, records, etc. Serve as a lender of last resort –For banks that are having cash management problems