Posts tagged macroeconomics
Supply Side Policies – Guiding Questions
Nov 2nd
1) How can we define supply side policies?
http://www.bized.co.uk/reference/glossary/Supply-side-policy
http://www.bized.co.uk/virtual/bank/business/external/policy/expl.htm
2) Why have supply-side policies been so appealing to governments? How could this be shown on a graph?
3) How does the supply-side economists’ approach differ in general from the Keynesian economists’ approach?
4) What policies exist and how can we categories them?
Summary of some supply side policy concentrating on increasing the productivity of firms. NOTE: UK bias!
http://www.tutor2u.net/economics/content/topics/supplyside/product_markets.htm
Summary of supply side policy concentrating on increasing the quantity and quality of labour. NOTE: UK bias!
http://www.tutor2u.net/economics/content/topics/supplyside/labour_policies.htm
Your text book(s) should be a key resource here.
5) What are the advantages and disadvantages of supply side policies?
India Case-Study – Skim-read this article and briefly summarise how the author perceives India has been successful with supply-side policy. What has the policy concentrated on? Give one fact to show its success. Be sure to skim read to the bottom.
http://www.blonnet.com/2005/08/23/stories/2005082300271000.htm
What is meant by Reagonomics? You can read about it here:
http://en.wikipedia.org/wiki/Supply-side_economics
See also the further resources listed below.
6) Why are supply-side policies difficult to evaluate?
Additional Resources
pajholden on Supply Side Policies:
http://www.youtube.com/watch?v=v9HEm8w5nL8
BrynJonesOnline gives us this useful analysis, with points of evaluation:
This next video is a documentary excerpt uploaded by socialontology gives an idea of what is meant by government intervention in an economy and the associated administrative barriers (red tape), etc. – these barriers to productivity are what ought to be removed through deregulation and market-oriented policies:
A good written summary of the main issues:
http://economicsonline.co.uk/Global_economics/Supply-side_policies.html
Here is a printable worksheet to check your overall understanding of supply-side policy. http://www.bized.co.uk/virtual/bank/business/external/policy/worksheet3.htm
Applied Macroeconomics – Evaluating Demand Side Policies
Nov 2nd
Aims:
· To recap the Paper 1 Mark Scheme
· To revise learning on the macroeconomic equilibrium, Keynesian and neoclassical perspectives and demand side policies.
· To apply the above learning to examples, both theoretical and real-life.
· To develop critical analysis and evaluation skills.
Step 1 – Recap Exam Technique
· Remember the Paper 1 Mark Scheme
· Remember the tips on evaluation
Step 2 – Analyse a Theoretical Scenario.
Image: Some rights reserved by APMus
You should ideally work in a pair or three and, as a team, will analyse the likely macroeconomic impacts of one of the following scenarios.
1) Government announces a large increase in spending on health and education.
2) Chancellor announces tax exemption scheme on new investments for small to medium sized firms.
3) Average wage rises way above inflation for the third month running.
4) Exchange rate appreciation knocks export hopes for manufacturing.
5) Institute of Directors (IOD) latest survey shows clear signs of optimism for the future of the economy
6) Central Bank signals rise in interest rates of ½%
- You should include at least one diagram.
- You should evaluate the likely effects – how strong will the impact be?
- There may not be one single answer – you simply need to be able to justify your predicted outcomes. Evaluation often needs to look at the assumptions we start with – you should be clear about what you are assuming.
Prepare a presentation (using for example Google Docs Presentation on MS Powerpoint) and prepare between two and four slides to show and explain the effects.
Step 3 – Analyse a Real Life Scenario.
Image: Some rights reserved by RambergMediaImages
You ideally need to form different pairs / threes in which you will be able to offer feedback to each other.
Each pair focuses on a region of the world, and each person selects a separate and current headline and article related to a demand side policy that has been introduced by the government there.
· North America
· South America
· Europe
· Africa
· Asia (not Thailand)
· Thailand
You need to summarise:
· Why there was a need for the demand-side policy
· The likely impact and successes / shortcomings of the policy.
· Include reference to at least one diagram
Try to use all of the techniques needed for a top scoring evaluation based essay.
Create a Google doc (or some similar document) that you will share with your partner(s).
A suggested site to search on: http://news.google.co.uk/
Here is the evaluation spreadsheet to provide feedback with. Make a copy and share it with your partner to offer them feedback with.
Aggregate Supply and Macroeconomic Equilibria
Nov 1st
This title refers to a lot of theory which it is worth having explained to you first by a teacher of Economics. Having looked at Aggregate Demand, we now introduce Aggregate Supply which gets a bit complicated with two different schools of thought, and we also need to refer to three possible different equilibrium situations (at full employment, the deflationary (or recessionary) gap and the inflationary gap). Equilibria is simply the plural of equilibrium.
Here are the syllabus requirements:
• Aggregate supply
a) short-run
b) long-run (Keynesian versus neo-classical approach)
• Full employment level of national income
• Equilibrium level of national income
• Inflationary gap
• Deflationary gap
Make sure you can define each of these as well as explain them.
To recap on inflationary and recessionary (deflationary) gaps, refer to this video by ACDCLeadership but note that it explains it from a neo-classical perspective. He then goes on to explore fiscal and monetary policy responses, which we will explore in more detail later, but is worth watching now.
A quick and very useful summary of some of the key differences is given by ACDCLeadership in his video Classical vs. Keynesian Aggregate Supply- Macroeconomics. He is delivering this to an AP audience (as opposed to IB). Notice that he combines Keynesian, Intermediate and Classical ranges into what we can simply think of as the Keynesian AS curve.
This next clip could also help understanding already reached in class / revised through the text book.
pajholden on Keynesian Vs Monetarist on the LRAS curve
He refers to those holding the neo-classical perspective as ‘monetarists’. Good for understanding how the market for labour is understood under each perspective. Notice the simplified (original) Keynesian AS curve which he starts off with for the Keynesian perspective.
http://www.youtube.com/watch?v=QG56sFoNNa8
BrynJonesOnline on Aggregate Demand & Aggregate Supply
Notice that his AS curve is very similar to the Keynesian version. So he assumes a Keynesian perspective (without saying it), and it is good for showing the three different phases / segments along it. Note that at 2 minutes 10 seconds, he is now mentioning supply side bottle necks (again without actually saying it). For now, you do not need to view any further from 2 minutes 45 onwards (after the interlude) as he now moves on to AS changes – (a) increased costs and (b) successful supply side policy which we explore later.
From http://reffonomics.com, this slideshow also combines the Keynesian and neoclassical perspectives on to one graph whereas we have preferred to keep them separate. However, this is very good for getting the history of thought behind these two perspectives, including the name of influential economists, and for seeing the simple differences between the Keynesian and Neo-classical view of AS. Note also that they put Yfe (Full employment level of national income – what they say is 97%)) at the vertical segment whereas some text books prefer to think of that as the maximum level of employment (100%).
Click here: Aggregate Supply Ranges
Finally, from the same website, this slideshow is excellent for summarising where we are and indicating where we are headed next with possible government policies
Aggregate Demand Part 1
Nov 1st
Relevant Syllabus Points:
3.3. Macroeconomic Models: Aggregate demand—components
3.4 Demand-side and supply-side policies: Shifts in the aggregate demand curve/demand-side policies [fiscal policy, interest rates as a tool of monetary policy]
Questions:
- What is Aggregate Demand?
- What are the components of Aggregate Demand?
- What shape does the curve have and why? How are the axes labelled?
- What causes a movement along the AD curve?
- What factors affect Aggregate Demand, causing it the curve shift? Categorise your answers under the four main components. Give examples and show the effects in diagrams.
Overview of the Aggregate Demand Curve:
CuteChadz gives a 2 minute overview. Note that figures given are UK based and the 2nd bullet point on Consumption is a bit confusing and so can be ignored:
mjmfoodie on AD and AS. Watch the first 4 minutes (we can use the last 1 and a half minutes later when we cover Aggregate Supply)
Why does the Aggregate Demand Curve slope downwards?
econsteve12 gives quite a thorough and clear explanation here:
Reffonomics on Slope of Aggregate Demand
What factors affect aggregate demand?
CuteChadz gives a 10 minute overview, referring to such things as loose, tight, fiscal, and monetary policy.
Specifically, what influences Consumption, the main component of AD?
pajholden gives a 7 minute 15 seconds overview:
Distribution of Income – All in One Go
Sep 15th
In just one post, I include resources for the section of the IB Eco syllabus (2005 version) called 3.6 Distribution of Income.
The topic includes the following points:
• Direct taxation
• Indirect taxation
• Progressive taxation
• Proportional taxation
• Regressive taxation
• Transfer payments
Higher level extension topics
• Laffer curve
• Lorenz curve and Gini coefficient
Use the following resources to learn about these sub-topics:
Direct versus Indirect
Compare these two definitions:
http://en.wikipedia.org/wiki/Direct_tax
http://en.wikipedia.org/wiki/Indirect_tax
Can you explain the difference between direct and indirect tax with example taxes?
Progressive, Regressive, and Proportional Tax
ONE Massachusetts (ONEMassPPI) demonstrates the different types of taxes:
Specific Examples of Taxation
This mjmfoodie video includes specific examples of US taxes, then a section on how taxes relates to the government’s budget (which is worth understanding in general terms) and finally a section reviewing the general types of taxes.
Testing Your Understanding of Taxes
A ‘tic tac toe’ game which puts some of the above to the test but you may also need to use your common sense and a bit of guesswork. Play as two people.
Sort different types of taxes using reffonomics here.
Transfer Payments
Check wikipedia on the matter.
And there is a brief definition courtesy of BusinessDictionary.com here
This is interesting on the increasing % spent on Transfer payments in the US since 1930:
http://mjperry.blogspot.com/2011/08/chart-of-day-transfer-payments.html
Laffer Curve
by pajholden
by
Lorenz curve and Gini coefficient
Use this video by pajholden.
And this one by EconInstructor:
Or this very short one:
The Phillips Curve
Sep 14th
Be warned. This one’s quite tricky. We’ll rely heavily on the truly excellent http://www.reffonomics.com website for this topic, but these activities will be best used following some prior learning of the Phillips Curve. I like the approach that reffonomics take, it is thorough and helps to give a good recap of general ASAD macro models. This takes things to quite an advanced level though.
First, learn about (or recap) the topic by visiting this eye-catching interactive.
Second, run through this presentation and see if you give correct answers for the short series of questions.
Third, try your hand at this quiz.
Fourth, explore how different scenarios impact on the ASAD graph and the Phillips Curve Graph here.
Fifth, try 20 multiple choice questions here. Some of them are tricky, but you’ll get instant feedback at the end.
Lastly, try your hand at some of these activities here – have a go by moving the lines and A, B and C points, and then see the suggested answers. You might not understand how to do the first one or two, but when you see their animated answers you should hopefully begin to get the hang of it.
Advanced activity:
Step 1 – download this ‘free response’ worksheet and answer using good old pencil / ruler combo.
Step 2 – check your answers against these suggested answers.
Calculating Inflation
Aug 31st
2 handy and thorough videos. The first by pajholden takes a UK perspective:
inflation rates – how they are calculated
Secondly, ACDCLeadership takes a US slant:
This one by Mindbitesdotcom is good on the key differences between the GDP deflator and Consumer Price Index, and the way that different approaches to calculating an index can lead to different values (good for evaluation):
