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1. EconomicsWeek 7 Thisweek, Exports and Imports (macroeconomics) Week 8 – Review of all material coveredby Mr. Paul and Mr. Steve Week 9 – Assessment, multiplechoiceexam
2. Exports/Imports - Introduction Exports are goodsthat are made(manufactured, produced) in a country, and soldto a companyorperson in another country Example: Fishfats and oils
3. Top 20 PeruvianExports 1 Copper Ores 2 RefinedCopper & Alloys 3 Gold 4 Zinc Ores 5 MeatFlourforAnimals 6 Non-CrudeOil 7 CrudeOil 8 Molybdenum Ores 9 Coffee 10 Silver
4. Top 20 PeruvianExports 11 Lead Ores 12 Iron Ores & Concentrates 13 Knitted Sweaters 14 Fresh Vegetables 15 Tin 16 Zinc 17 CopperWire 18 KnittedMens & BoysShirts 19 Prepared Vegetables 20 FishFats & Oils
5. Exportsaddtothe GDP of Perú ThePeruviancompanyexportingthegoodcountstheexports as sales (all sales of allcompaniesisthe GDP of a country)
6. Whateffectdoes a change in yourcountry´scurrencyhaveonyourcountry´sexports? – If I am an American and wanttobuy a Peruviangood, I havetopayforthegood in Soles – So, I havetotakemy American dollars and buy Soles first
7. Example I am buying a bottle of fishoilfor S./100 Theexchangerateis 2.50 Soles to 1 US dollar I need 40 US dollarstoobtain S./100 Thenwiththe S./100 I nowhave I buythebottle of fishoil
8. Example So, whatifthedollargoesdown(Nuevo Sol goes up), howdoesthataffectthe American companythatisbuying a bottle of fishoilfromPerú? Weneedto do a new calculationtofindouthowmanydollarsittakestoget S./100 becauseitisnowdifferent
9. New calculation New exchangerateis 2.00 Soles foreach US dollar So toget 100
10. Recap of the Definition of Economics What is the Economic Problem? We (you, me, the people of this school, Peru, the World) have unlimited wants and yet finite resources with which to achieve them. We cannot have everything we want. This is called a scarcity (limit of) resources so we must decide what we will produce/consume
11. The Demand and Supply Curve Economic Model Objectives: Understand the demand curve Understand the supply curve What happens when supply and demand meet and what causes an increase or decrease in one or the other?
12. Can of Coke How much are you willing to pay for an ice cold can of Coca Cola, that I will allow you to drink in class? Let´s graph the result
13. Can of Coke 100 soles? 20 soles? 12 soles? 8 soles? 5 soles? 50 centimos? Whatt do wehave? Gotonextslide
14. The Demand Curve As the price increases (goes up) the quantity demanded decreases (goes down) = MOVEMENT ALONG THE CURVE However, some things can actually move the curve, examples: Changes in income (how much they people get paid) Changes in consumer preference Competitor prices
15. Movement (increase or decrease) of the demand curve Practice: In which direction (right = increase or left = decrease) does the demand curve move in the following situations: People get a pay rise (or in our example, your parents give you more money to bring to school) A competitor decreases its prices
16. Movement (Increase or decrease) of the demand curve You have a very successful advertisement on TV The government increases income taxes Ther product is found to be harmful to your health
17. The Supply Curve How much you would have to be paid (in soles, by other students) to be make a Mother´s Day Card that you will make yourself (to sell to other students for their moms) For each card, 250 soles, 40 soles, 20 soles, 8 soles, 4 soles, 1 sol What do we have? Go to next slide
18. The Supply Curve As the price increases, supply increases = MOVEMENT ALONG THE CURVE However, some things can actually move the supply curve to the right (= increase)or tothe left (= decrease) Raw materials become cheaper New machinery Labor costs go up Energy costs increase
19. TODAY´S CLASS – 4.1 & 4.2 Objective: Solidifyourknowledge of Demand and Supply Curve Economicmodel And……teachtheabsentstudentsaboutthemodel…..Studentsabsentlastweekwillbetutoredbyclassmates, and willtake a 10 minute quiz at theend of theclass
20. TODAY´S CLASS – 4.1 & 4.2 Group (Team) Project TOP Team – 3 GoodHouse Marks foreachteammember, and 3 extra pointson mid-termexam 2nd place Team - 2 GHMs, 2 extra points 3rd place Team – 1 GHM, 1 extra point
21. TODAY´S CLASS – 4.1 & 4.2 GROUP PROJECT – TWO PARTS (50% EACH PART) 1) Makethebest poster(s) possible, explainingthedemand and supply curve economicmodel 2) TUTORS…..PLEASE TEACH YOUR STUDENT LAST WEEK´S LESSON…….. SO THAT HE/SHE CAN SUCCESSFULLY COMPLETE THE 10 MINUTE QUIZ at theend of class
22. TODAY´S CLASS – 4.1 & 4.2 HOW WILL THE WINNING TEAMS BE DETERMINED? 50% - YOUR POSTER(s) (0-20 grade) 50% - THE GRADE OF THE STUDENT OF THE GROUP ON THE SHORT QUIZ (0-20 grade)
23. TODAY´S CLASS – 4.1 & 4.2 SCHEDULE FIRST, A VERY BRIEF REVIEW OF LAST WEEK (5 MINUTES) THEN, THE GROUPS ARE ANNOUNCED THEN, IN YOUR GROUPS, DECIDE WHO WILL TUTOR THE STUDENT, WHO WILL DO THE POSTER, ETC.. AND GET STARTED
24. QUIZ QUIZ STARTS AT 9:53AM FOR 4.2 QUIZ STARTS AT 10:33AM FOR 4.1 POSTERS AND QUIZZES ALL TURNED IN WHEN THE BELL RINGS
25. Review REVIEW
26. PuttingtheDemand and Supply Curves Together Wedrew a demand curve Wedrew a supply curve Whenweputthemtogetherwehave a modelfor a MARKET FOR A PARTICULAR GOOD OR SERVICE, WHERE BUYERS (DEMAND) AND SELLERS (SUPPLY) MEET
27. Demand and Supply Curves meet Thepoint of equilibrium, wherethetwo curves meet, ormarketclearingprice(point A)iswherethequantitydemandedequalsthequantitysupplied at a certainprice
28. Now, how do thefourdifferentpossibilities look? 1. Increase in demand - DEMAND CURVE SHIFTS TO THE THE RIGHT INCREASE IN INCOME, DECREASE IN TAXES, INCREASE IN THE PRICE OF FANTA, ESPECIALLY HOT WEATHER END UP AT EQUILIBRIUM POINT B, with a higherprice and a higherquantitydemanded
29. Decrease in Demand 2. Decrease in demand - DEMAND CURVE SHIFTS TO THE LEFT INCREASE IN TAXES, DECREASE IN INCOME, A NEW JOB THAT PAYS LESSS, DECREASE IN PRICE OF COMPETITORS PRODUCT (FANTA), COLD WEATHER ALL SUMMER END UP AT EQUILIBRIUM POINT C, with a lowerprice and lowerquantitydemanded
30. Increase in Supply 3. Increase in supply - SUPPLY CURVE SHIFTS TO THE RIGHT RAW MATERIALS TO MAKE THE MOTHERS DAY CARD ARE CHEAPER, YOU GET SOME NEW SCISSORS OR MARKERS OR TAKE AN ART CLASS ANY OF WHICH MAKE YOU ABLE TO MAKE THE CARDS QUICKER, YOUR TEACHERS GIVE YOU EXTRA TIME TO MAKE THE CARDS IN CLASS, FOR COKE COULD BE A NEW DISCOVERY THAT MAKES THE PROCESSS TO MAKE COKE CHEAPER, OR THE TAXES THEY HAVE TO PAY TO THE GOVERNMENT DECREASE, OR THEIR WORKERS BECOME MORE EFFICIENT IN MAKING COKE END UP AT EQUILIBRIUM POINT E, with a higherprice and lowerquantitydemanded
31. Decrease in Supply Decrease in supply – SUPPLY CURVE SHIFTS TO THE LEFT THE COST OF THE RAW MATERIALS INCREASE, YOUR SCISSORS BREAK AND YOU HAVE TO USE OLD SCISSORS OR BAD MARKERS, OR YOUR TEACHERS DONT GIVE YOU ANY TIME TO MAKE THE CARDS IN CLASS. FOR COKE, COULD BE INCREASE IN THE TAXES THEY HAVE TO PAY, OR THEIR MACHINERY BREAKS, OR THEIR EMPLOYEES SAY THEY WANT TO BE PAID MORE MONEY.. END UP AT EQUILIBRIUM POINT F, with a lowerprice and lowerquantitydemanded
32. 4.2 Group Project Results Diego´s group - 3 GHMs, 3 extra points Carlos Siles´ group - 2 GHMs, 2 extra points Santiago´s group - 1 GHM, 1 extra point toofewgroups(onelessthanplanned) confusiononstudents´ names (hadtochangegroups) confusiononwhatwasrequired poorexamresultsforthegroupproject, etc…
33. 4.1 Group Project StarPerformers Exam Tilsa 18 Adriana 17 Poster Adriana´sgroup 20 Mariano´sgroup 20 Camila´sgroup 17
34. Whichmeans……. Adriana´sgrouphadthehighestoverallpoint total Adriana´sgroup - 3 GHMs, 3 extra points Mariano´sgroup - 2 GHMs, 2 extra points Tilsa´sgroup - 1 GHM, 1 extra point
35. 4.1 and 4.2 - ANSWER KEY AND WIKISPACES Answerkeybeinghandedouttoday Powerpointisonwikispaces Please be readyforanyexamquestion, and asktheteacherifyouneedhelp Wewillhavetwoexamslaterthisterm (2 assessments)
36. Economics – Rest of Term Week 4 – Today Week 5 – Holiday, no class Week 6 – 1st Assessment, 35% of Term´s Grade Week 7 – Macroeconomicscontinued Week 8 - 2nd Assessment, 35% of Term´s Grade Week 9 – ChineseWhisperGame, 4 GHMs/4 extra Pointstowinningteam
37. ImportantMacroeconomicLecture – 5 InterrelatedTopics Interest rates and Inflation (closely linked) Unemployment the Business Cycle Leading and Lagging Indicators
38. ThePartyisgoing fine Level of EconomicActivity = amount of spendingbybusinesses and people, and howmanypeople are employed and spendingtheirearningsongoods and services Rate of Inflation Amount of Borrowing bybusinesses and consumers Level of InterestRates
39. Danger! Thingsstill ok, butmaybepartyingtoomuch Level of EconomicActivity = amount of spendingbybusinesses and people, and howmanypeople are employed and spendingtheirearningsongoods and services Rate of Inflation Amount of Borrowing bybusinesses and consumers Level of InterestRates
40. Uh oh, wepartiedtoomuch - Recession Levelof EconomicActivityUNEMPLOYMENT GOES UP TOO HIGH CAUSING ECONOMIC ACTIVITY TO START TO REVERSE (RECESSION IN WORST CASE) Inflationis TOO HIGH SO THE Amountof Borrowing DECREASES InterestRates GO UP TOO MUCH
41. InterestRates Itisthecost of money, itiswhatyoupaytothebankoranotherpersonwholendsyoumoney You are theborrower and get a loan, and youmustpaythemoney back tothelender(thebank) Theterms of your loan (howmanyyearsisthe loan for, and theinterestrate) will be put in a contractcalled a promissary note, whichsaysthatyoupromisetopaythemoney back tothelender
42. Why do youhavetopayinterest? Anybankorcompanyorpersonthat has money can do somethingthemselfwithitand earnmoney Money is a toolthatallowsustomake more money (likebuying a businessthatthenbecomeprofitable and letsyouearn more moneythanyouhadbefore) So ifyou are goingto use theirmoneyinstead of lettingthem use theirown YOU OF COURSE HAVE TO PAY THEM FOR USING YOUR MONEY
43. Interestrates So borrowingmoneyislike RENTING money, likeifyourent a house in Asia (Perú) forthesummer, youpayrentbecausetheowner of thehousecouldeither: A) spendthesummertherethemself B) Let a friend of familymemberstaythere B) rentitouttosomeoneelse and collectrent
44. NextDefinition - Inflation Inflation –istherate of increase in theprices of goods and services in aneconomy (each country takes a basket of approximately 30 goodsandservices) Every country has itsowninflationrate, calculatedmonthly and annually In therare case thatprices are going DOWN, itiscalleddeflation
45. Goods and Services included in the US inflation rate (called the Consumer Price Index) RECREATION (televisions, cable television, pets and pet products, sports equipment, admissions) EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories) OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses)
46. Goods and Servicesincluded in the US inflationrate(calledtheConsumer Price Index) FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals and snacks) HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture); APPAREL (men's shirts and sweaters, women's dresses, jewelry) TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
47. Inflation Question: Iftheinflationrate in 2011 was 3.2% and theinflationrate in 2012 was 2.4%, in 2012 didprices: A) godown in 2012 B) go up at a lesserrate in 2012 than in 2011 C) go up at a fasterrate in 2012 than 2011
48. Answer B) go up at a lesser rate in 2012 than in 2011 Now rising at 2.4% instead of 3.2%
49. What determines interestrates? 1) The amount of time you have the money The longer the amount of time, the higher the interest rate because there is more of a chance that something could go wrong and you cannot pay back the money
50. Interestrates – Length of time Company A borrowsfor 1 year Interestratemightbe 6% Company A borrowsfor 20 years Interestratemightbe 10%
51. What determines interestrates? 2) The general level of interestrates in aneconomy, which are determinedbytheinflationrate Ifthereishighinflation, you are losingpurchasingpower of yourmoney, so youdemandto be paid a higherinterestrate so as protectyoufromthatloss in purchasingpower
52. LostPurchasingPower? Itmeansthatyourmoneyislosingitsvalue (calledlostpurchasingpower) Iftheinflationrateis 2%, yoursame $1.00 has toworth $1.02 tobuythesameamoung of thingsoneyearlater Thatiswhyyoursalarymustgo up by at leastthesameamount as therate of inflation, oryou are worse off
53. And lostpurchasingpoweraffectsthelenders - Why? SO THEY DON´T GET PAID BACK WITH LESS MONEY THAN THEY LENT
54. Example Jan 2014 - borrow $10.00 2014 inflationrate = 8% December 2014, pay back the $10 tothebank, you are onlypayingthebankabout $9.20
55. What determines theinterestrates? 3) Theriskiness of makingthe loan (whotheborroweris) Forexample, Microsoft is a lessriskycompanytomake a loan tothan a smallVenezuelancompanythat has notbeenprofitable (has beenlosingmoney)
56. More onInflation A highinflationrateisverybadforaneconomy (hurtsgrowth) Deflation can also be bad Leavinguswiththefactthatthereisan ideal rate of inflation, nottoohigh, nottoolow, around 2 to 3%
57. Inflation can be causedtwoways 1) Demand pull - the economy is growing too fast (so the demand curve keeps shifting up to the right for all products), increasing prices 2) Cost Push - an event that makes the price of some important goods in the economy go up (and supply curve of many products shifts to the left)
58. Example of CostPushInflation If there were a war in the middle east between Iraq and Iran, the price of oil would go way up, and it would affect the inflation rate of almost all countries
59. Inflation Inflation in LEDC´sisalmostalwayshigherthaninflation in MEDC´s TheMEDC´shave more matureeconomies and thereislessgrowth and/orfluctuation in theeconomy, leadingthelower, more stableinflationrates
60. Inflationrates LEDCs - 5.5% average MEDCs - 2.2% average http://www.tradingeconomics.com/country-list/inflation-rate
61. Inflation – isitgoodforanyone? Itisonlygoodforpeoplethathaveinvestments, like in real estate (a home orbuilding)
62. AND NOTE -- There are goodsthat are havelimitedsupply, and theywill be immunetoinflation The 1913 Libertynickle (5 cents in USA) isworth $3 milliondollarsbecausethere are so few of thecoinsthatexist
63. Whyisanincrease in inflationbad? It makes interest rates go up (lenders need to charge higher rates to protect themselves from inflation)
64. Why is an increase in interest rates bad? If interest rates rise too much, businesses stop borrowing money for projects and expanding (which is what leads to the growth in an economy), and consumers stop borrowing also That makes the economy grow at a slower rate, or, when interest rates become really high, it causes a recession
65. It causes a recession in theworst case! A recessionis a DECLINE in economicactivityfor at leastsixmonths (twoconsecutive 3-month quarters)
66. Recession A recession causes people to lose jobs and have hard times
67. So why do youthinkdeflationisalsobad? Thinkabout a companythatwouldliketocharge more foritsproduct in 2014 thanitischarging in 2013 tomake more profit……..
68. ANSWER Ifthereisdeflation, thenthecompanywillhave a hard time increasingitsprices And willmakelessmoney, and that can affectmanycompanies and thewholeeconomy
69. ANSWER And ifmanycompanies are notmaking as muchmoneythentheycannotemply as manypeople and wehavehigherunemployment
70. UnemploymentRate Itisthe % of workers (overtheage of 18) in aneconomythat do nothave a job, and are activelylookingfor a job Thegovernment of each country calculatesthisbytakingpolls of people and businesses
71. When do weseehighunemployment and lowunemployment? A lowrate of unemploymentis GOOD, and weseeitwhentheeconomyisdoingwell and inflationisnot a problem A highunemploymentrateisBAD and happenswhenwehave a recession, and ittakes a whilefortheunemploymentratetostartfallingagain
72. US unemploymentrate, 1965 topresent http://www.tradingeconomics.com/united-states/unemployment-rate THE SPIKES UP REPRESENT THE TIME WE HAD A RECESSION, THEN THE SLOW DECLINE IN UNEMPLOYMENT RATE REPRESENTS GROWTH PHASES Otherstatisticsforfutureclasses http://www.tradingeconomics.com/peru/indicators
73. Types of unemployment Frictional– the normal movement of variousworkersfromonejobtoanother, ithappens in every country Seasonal– Ifthereis a rainyseasonorverycoldwinter, therewill be lesseconomicactivityduringthat time, more unemployment Cyclical – MOST IMPORTANT TYPE - Whenunemploymentincreasesdueto a recession Structural– whenpeople do nothavetheproper training toget a new jobaftertheirjob has beenchangedoreliminateddueto new technology
74. The Business Cycle – 5 Stages
75. TheBusiness Cycle 5 Stages…. Growthphase –economyis in lowtomediumgrowthmode. Itlastslongperiods, about 2 to 10 years
76. The Business Cycle Peak – The highest growth rate, but it lasts a short time. This level of growth cannot be maintained, a recession will follow because the economy is going too fast, there is inflation,and interest rates are too high
77. The Business Cycle Recession –Thisis a decline in economicactivity, thereal GDP goesdownfortwoconsecutivequarters (3 monthperiods) Whatis 1) GDP and 2) real GDP? 1) GrossDomesticProduct and 2) GrossDomesticProductadjustedforinflation
78. Howlong do recessionslast? Onaverage, about 11 monthsonly (compare to 2 to 10 yearsforgrowthphase)
79. The Business Cycle Trough- Thelargest decline in economicgrowth (theworst performance of theeconomy) Itis a short period (lastmonths) becausebythis time the Central Bank of a country has startedtodecrease short terminterestrates in orderto try to revive theeconomy
80. The Business Cycle Recovery– Theeconomybeginstogrowagain Usuallyitisthehighestgrowthphase of theentirebusinesscycle (maybe as high as 7% for a MEDC), butsoonthatgrowthlevels off to a more sustainablerate of growth (around 2% to 3%)
81. The Business Cycle So aftertherecoveryphase WE ARE BACK AT THE GROWTH PHASE, REPEATING THE CYCLE ALL OVER AGAIN
82. How does an economy get out of a recession? Extreme measures? http://www.youtube.com/watch?v=fuNGh3MC44Y
83. The Central Bank has to take the role of Kevin Bacon and Julia Roberts What do they do?
84. First, what is the Central Bank? Independent of the government, they set the monetary policy (issue the money, monitor the banks, and control SHORT TERM INTEREST RATES) IMPORTANT ---- BUT LONG TERM INTEREST RATES ARE DETERMINED IN THE MARKET (FOLLOWING THE SUPPLY AND DEMAND CURVES WE LEARNED)
85. Whatdoesthe Central Bank do? Theydecrease short terminterestrates (theratestheyhave control of) This leads to a decrease in mediumtolongterminterestrates (bymarketforces), whichenablescompanies and peopletoborrowagain
86. Whencompanies and peopleborrowagain Consumersstartspending more Companiesdoingprojectsforgrowth (expandingtheirbusiness). Whenthey are spending and building/expanding more, then more workers are needed (unemployment declines)
87. Central Bank totherescue The new workers, the ones that previously had lost their jobs then have more income They start spending their new money, and that helps the businesses that they purchase from Those businesses, with new customers, then have to hire more workers, etc…..
88. Central Bank tries to revive theeconomy Sometimes the Central Bank has to cut interest rates several times before hte economy responds, but we eventually get a response AND RECOVERY
89. Central Bank at work http://www.youtube.com/watch?v=xzwZJ0PHe-E
90. Leading and LaggingIndicators– theRollerCoastercomparison Leadingindicators are statisticsthatEconomists look at tomeasureeconomic performance, whichwillstarttochangeBEFORE THE ECONOMY REACHES THE NEXT STAGE OF THE BUSINESS CYCLE
91. Leading and Lagging Indicators The roller coaster example
92. LeadingIndicators– example – new buildingpermits Whenconstructioncompanieswanttobuild new buildings, theyhavetoget a permitto do that, so theygoto a government office togetthepermit Buttheywon´tstarttheconstructionuntiltheyhavethepermit, and once theyhavethepermittheywillbeemployingworkers and orderingmaterialsto do theconstruction
93. LeadingIndicators Thegovernmentkeepstrack of howmanypermitshavebeenappliedforeachmonth Thisisanexample of a leadingincidcatorbecausethenumber of permitswillgo up BEFORE thelevel of economicactivitygoes up (new jobs, purchasing new materials)
94. LeadingIndicators Leadingindicatorsshould be thought of as thefirst car of a rollercoaster car Otherexamples of leadingindicators – Averageweeklyhours, Consumerconfidenceindex
95. LaggingIndicators Theopposite of leadingindicators, theywillchange AFTER theeconomy has startedtochange Examples: Consumer Price Index (inflation), Total value of loansoutstanding