Macroeconomics Fall 2013 (BECO 1)

1. MacroeconomicsFall 2013(BECO 1) Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” 卜安吉

2. Conditional Convergence Hypothesis • Possibilities • The difference in international real GDP per capita tends to narrow over time, holding education, infrastructure, the same. • Relatively poor countries have high growth rates and relatively wealthy countries have low growth rates, so that per capita living standards will narrow over time. … p. 606 Economics I (BECO 1)

3. Paradox of Thrift • During hard times, households tend to save more and spend less. • Less spending means less consumption and the economy declines. • The paradox: A “good intention” turns out making everyone worse off. p. 541 Economics I (BECO 1)

4. Government Spending 2010 • Total spending • The next slide is a pie chart representing spending by category for the US budget for 2010 • Further information: Government spending • The President's budget for 2010 totals $3.55 trillion.Percentages in parentheses indicate percentage change compared to 2009. This budget request is broken down by the following expenditures: Economics I (BECO 1)

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6. Government Spending 2010 • Mandatory spending: $2.184 trillion (+15.6%) • $677.95 billion (+4.9%) – Social Security • $571 billion (−15.2%) – Other mandatory programs • $453 billion (+6.6%) – Medicare • $290 billion (+12.0%) – Medicaid • $164 billion (+18.0%) – Interest on National Debt • $11 billion (+275%) – Potential disaster costs Source: http://en.wikipedia.org/wiki/2010_United_States_federal_budget Economics I (BECO 1)

7. Government Spending 2010 • Discretionary spending: $1.368 trillion (+13.1%) • $663.7 billion (+12.7%) – Department of Defense (including Overseas Contingency Operations) • $78.7 billion (−1.7%) – Department of Health and Human Services • $72.5 billion (+2.8%) – Department of Transportation • $52.5 billion (+10.3%) – Department of Veterans Affairs • $51.7 billion (+40.9%) – Department of State and Other International Programs • $47.5 billion (+18.5%) – Department of Housing and Urban Development • $46.7 billion (+12.8%) – Department of Education • …. Source: http://en.wikipedia.org/wiki/2010_United_States_federal_budget Economics I (BECO 1)

8. Tax Revenue • Total receipts • Estimated receipts for fiscal year 2010 are $2.381 trillion, an estimated decrease of 11% from 2009. • $1.061 trillion – Individual income taxes • $940 billion – Social Security and other payroll tax • $222 billion – Corporation income taxes • $77 billion – Excise taxes • $23 billion – Customsduties • $20 billion – Estate and gift taxes • $22 billion – Deposits of earnings • $16 billion – Other Source: http://en.wikipedia.org/wiki/2010_United_States_federal_budget Economics I (BECO 1)

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10. Oil Prices 1990 to 2010 Economics I (BECO 1)

11. So What’s the Fiscal Cliff • $607 billion in mandated spending cuts and tax increases starting Jan. 1, 2013 • $120 Billion deficit in October of 2012 already • larger than economist forecasts for a $114 billion gap and • up from $98 billion in October of 2011 Economics I (BECO 1)

12. So What’s the Fiscal Cliff The wider October deficit was due to a shift in payment dates in the same month in 2011, which led to lower outlays in the year-ago period, the Treasury said. Lower corporate taxes also contributed to the expanded deficit last month. Economics I (BECO 1)

13. So What’s the Fiscal Cliff • The 2012 budget gap was $1.089 trillion, smaller than last year's deficit of $1.297 trillion largely because of higher corporate income tax receipts and less spending. • The United States had reported a budget surplus for September Economics I (BECO 1)

14. Economics I (BECO 1) http://en.wikipedia.org/wiki/United_States_fiscal_cliff

15. Economics I (BECO 1) http://en.wikipedia.org/wiki/United_States_fiscal_cliff

16. So What’s the Fiscal Cliff • The deficits add to national debt, which will most likely hit the $16.4 trillion limit at the end of December, with extraordinary measures enabling the U.S. to meet its obligations “until early in 2013,” the Treasury Department said on Oct. 31. Economics I (BECO 1)

17. So What’s the Fiscal Cliff • Yields on 10-year Treasuries dropped the most in one day since May to 1.62 percent after Obama’s re-election Nov. 6. A figure below 1.7 percent indicates that investors expect gross domestic product to shrink by 0.3 percent next year as the so- called fiscal cliff takes effect, according to JPMorgan Chase & Co. http://www.bloomberg.com/news/2012-11-13/treasuries-see-u-s-over-cliff-as-yields-converge-correct-.html Economics I (BECO 1)

18. Tax Increases • Obama and Congressional Democrats want to let tax cuts expire for individual incomes above $200,000 a year, while Republicans advocate extending them for all levels. The president wants to boost the two top rates from the present 33 percent and 35 percent, to the levels they reached when Bill Clinton left office in 2001 -- 36 percent and 39.6 percent. He also wants higher taxes on capital gains and dividends and a smaller estate tax exemption and higher rate. Economics I (BECO 1)

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20. The Fed • The Fed has been the main driver of low yields, after buying $2.3 trillion of Treasuries and mortgage-related bonds since 2008 in two rounds of quantitative easing, or QE. The central bank said Oct. 24 it would continue its stimulus measures by purchasing $40 billion of home-loan securities a month until the labor market improves “substantially. Economics I (BECO 1)