Chapter 5: Introduction to Macroeconomics Flashcards
Pax Britanica dates
1820s-1930s
1870-1914 (Height)
Levels of Pax Britanica
Domestic Level: Business Cycle (supply and demand specifically in the labor market)
International Level: Gold Standard (supply and demand)
Ideology: Say’s Law
Periphery: Coercion
Gross Domestic Product (GDP) All Output is either…
Consumption: Goods consumed immediately
Investment goods: Goods used to make other goods
Zero sum game
Increase in one side occurs at the cost of the other side
Business cycle
Period of ups and downs through peaks, upturns and downturns
Contraction
Peak to trough
Expansion
Through to peak
Steps of Business Cycle
1: Wages are falling
2: Trough: Not much economic activity, unemployment is up, wages are down, zero sum game
3: Investment by private business owners pulls you out because wages are low enough to invest. (business demands labor) expansion/boom
4: Peak: Economic growth, wages up, output up
5: Recession/contraction: Investment starts to decline because wages are too high, sticky prices
2 Political Assumptions of the Business Cycle/Gold Standard
1: Perfectly flexible prices (especially with wages)
2: Automatic (no government intervention)
Sticky prices
Prices that don’t change with supply and demand
The Gold Standard
Money linked to gold
Equilibrium between trade:
1) Countries are at an equilibrium
2) Country 1 imports more than exports and pays in gold when money runs out (prices down, amount imported down, amount exported up)
3) Country 2 starts importing more (because the price is down) and exports less because domestic prices rise
4) Countries are at an equilibrium
Why the Gold Standard Failed
1) Not enough gold to keep up with international trade
2) Prices will just keep falling as wages increase
Pax Americana dates
1944 to 1971
Levels of Pax Americana
Domestic Level: Keynesian Productivity Deal
International Level: Breton woods system
Ideology: Keynesianism (Government should intervene)
Periphery: Economic Development
In the Breton Woods. System, all countries agreed to…
1) Fix exchange rate
2) Hold reserves in central bank
3) International Monetary Fund (If any country imports more than exports, they can borrow money from the IMF but must allow government intervention)
4) Devalue (devalue currency with approval by IMF)
Keynesian Productivity Deal
Assumes that wage is sticky downward
Deal: Tie the rate of growth of wages to the rate of growth of productivity
- Fix shares, wages go up as long as productivity goes up
- Private Business allows productivity to increase, businesses can also pay more -> wages go up, with increased profits
Kanes wrote what book in what year?
“The General Theory of Employment, Interest, and money” 1936 Now called macroeconomics
Fine-tuning
The prose used by Walter Heller to refer to the government’s role in regulating inflation and unemployment
Monetary Policy
The tools used by the Federal Reserve to control the quantity of money, which in tern affects interest rates
Stagflation
A situation of both high inflation and high employment
Fiscal Policy
Government policies concerning taxes and spending
National Bureau of Economic Research
Calculates the Business Cycle expansions and contractions
Bureau of Labor Statistics
Calculate the unemployment rate, output per hour of all persons and real compensation per hour in the business economy graph
John Maynard Keynes is from where?
Great Britain (He’s a British economist)
French economist Jean-Baptist Say, the first professor of political economy on the European continent, published a book called A Treatise on on Political Economy in 1803 in which he argued that…
The act of producing a commodity immediately creates demand for another (supply and demand)
