04/01/14 Phillips Curve

• Phillips Curve- deals with inflation and unemployment. 
• 3 generalizations about inflation and unemployment. 
• - Inverse relationship between unemployment and inflation. 
• - Aggregate Supply shocks can cause both higher rates of inflation and higher rates of unemployment. 
• - No significant trade off between inflation and unemployment in the long run. 
•  If inflation persists and the expected rate of inflation rises, then the entire SRPC moves upwards (stagflation is possible or probable.)
• If inflation persists and the expected rate of inflation rises, then the entire SRPC moves upwards (stagflation is possible or probable) 
• If inflation expectation drops due to new technology, than the SRPC moves downward. 
• SRPC= short run Phillips curve.
• Increase in AD= Up/left movement doing SRPC. 
• Decrease in AD= down/right along SRPC. 
• Increases in SRAS, SRPC shifts to the left. (Decreasing) 
• LRPC is vertical at full employment.
• AKA natural rate of unemployment
• Seasonal, frictional
• Major LRPC assumption is that more workers benefits create higher natural rates of unemployment and fewer benefits create lower natural rate of unemployment. 
• Shifts in LRPC
• Tech advancement (Like LRAS)
• Misery Index- Combination of inflation and unemployment in a given year.  Single digit misery is good/
• Ideal # of unemployment is 4-5%
• Ideal # of inflation rate is 2-3%

03/30/2014 Unit 5 SRAS

• SRAS
• Time too short for wages to adjust to the price level because workers may not be aware of changes in their real wages due to inflation, therefore they adjust their labor decisions accordingly as well as wage demands. 
• Nominal wage- The amount of money received per day, per hour, per year. 
• Behavior of the SRAS Curve

• Long run AS- Time long enough for wages to adjust to the price level. 
• Key assumption:
• -wages and price is flexible. 
• -change in wage and price offset each other. 
• -LRAS is represented by a vertical line. 

Unit 4 Graphs

03/19/14 Expansionary V. Contrationary

03/23/14 Blog Response

Overall, I think that the videos were very helpful on the information it was explaining. Even though some of the information the lady talked about was already given to us in class, it helped clear things up on anything you didn't understand and the examples that were given helped clarify any misunderstandings I had. I think that by hearing the information again and having a visual of the graphs and information helped me remember them better. 

I learned that the supply of money does not vary based on interest rates, therefore it is vertical. To stabilize interest, the Feds can increase the money supply, moving it to the right. To decrease interest in the money market, the Fed's increase money supply. Fed's try to stabilize interest rates because without it, they cannot predict the amount of investments, level of consumer spending, and cannot regulate aggregate demand. The supply of loansable funds come from the amount of money people have in the bank, which means it is dependent on savings. Banks also create money by making loans.

All of the information was very helpful to me! 

03/17/14 Monetary Policy

• Monetary Policy
• Controlled by the Feds.
• Influencing the economy through changes in reserves which influences the money supply and available credit.
• Is a banker's bank.
• 4 Options of Monetary Policy
1. Reserve Requirement
• Percent that is set by the Fed if the minimum reserve a bank must have.
2. Discount rate
• Banks borrow money from the federal reserve
• Usually as a last resort. 
3. Federal Fund Rate
• Banks loan each other overnight funds.
4. OMO (Open Market Operation)
• Buy or sell securities (bonds) 
• If Feds buy bonds; increase money supply (expansion)

03/07/14 Multiple Deposit Expansion

• Reserve Requirement
• The Fed requires banks to always have some money readily available to meet consumer's demand for cash.
• The amount, set by the Fed, is the required Reserve Ratio.
• The required reserve ratio is the % of demand deposits (Checking account balances that must not be loaned out.)
• Typically the reserve requirement ration is 10%
• The Money Multiplier
• Similar to the spending multiplier, the money multiplier shoes us the impact of a change in demand deposits on loans and eventually the money supply. 
• To calculate the money multiplier, divide 1 by the required reserve ratio
• Money multiplier= 1/reserve ratio
• Ex: If the reserve ratio is 25%, then the multiplier is 4.
• The three types of Multiple Deposit Expansion Question
• Type 1- Calculate the initial change in excess reserves.
• a.k.a the amount a single bank can loan from the initial deposit.
• Type 2- Calculate the change in loans in the banking system.
• Type 3- Calculate the change in the money supply
• Sometimes type 2 and type 3 will have the same results (i.e. no fed involvement)
• A formula for all seasons 
• <{[Deposit- (rr% x Deposit)] x 1/rr} + $ of OMO
• <Maximum change in money supply>
• [Initial change in excess reserves]
• (Required reserve)