Monetary Policy and Interest Rates

Here is the link to the Money Sense article needed to complete the assignment (will be given out next week):

http://www.moneysense.ca/spend/real-estate/mortgages/us-federal-reserve-interest-rate-hike-impacts-canadians/

National Debt Quiz to try

American Quiz
http://www.pbs.org/newshour/rundown/quiz-u-s-government-get-money/

Link to interactive surplus and deficit chart

Click here for interactive chart

News clips on Canada's debt and deficit situation

http://news.nationalpost.com/news/canada/canadian-politics/john-ivison-with-federal-budget-liberals-have-consigned-canada-to-118-6-billion-deficits-into-next-decade

Causes of Business Cycles

Business cycles are caused by fluctuations in Aggregate Demand.

Other causes and contributing factors are the following:

• Fluctuations in Investment spending
• the Multiplier effect
• Fluctuations in Exports
• other events such as war, disaster, and shocks such as the banking collapse/financial crisis in 2008

Read this recent news article from Australia about the multiplier effect that government spending can have in an economy:
ABC news story

Business Cycles

The business cycle refers to the ups and downs of AD over time.  There are 5 phases to the business cycle:
Trough
Recovery
Expansion
Peak
Recession (defined as 2 successive quarters of negative GDP growth)

Two Models of the Economy

We can think of the economy in 2 ways:

1) AD/AS model - The economy is like our demand and supply model used in microeconomics, except that we add all the demand in the economy to get Aggregate Demand, and all the supply in the economy is Aggregate Supply

2) Income-Flow Model - also called Circular Flow Model - the economy is like a tire that expands and contracts.  Leakages from the circular flow make the economy contract.  These leakages are Taxes (T), Savings (S), and Imports (M).  Injections into the circular flow make the economy expand.  These injections are Government Spending (G), Real Investment Spending (I), and Exports (X).

Chapter 9 Quiz or Assignment?

You choose!
Either do page 214 Q. 8 and hand in by Wednesday, November 30 at 10:30 AM or write the quiz.

CBC interactive unemployment chart

CBC interactive unemployment chart

Venezuela - highest inflation rate in the world

Click here to view BBC documentary

Despite their vast oil reserves, Venezuela is experiencing a political and economic crisis.

OPTIONAL Reflection to do and hand in:
1.  Describe 3 of the problems the country faces. (9 marks)
2.  What are the effects of high inflation on a country?

What are Market Structures?

How is the market for a good or service structured?  See p. 153 for a good overview.

Perfect Competition and Monopolistic Competition
- competitive
- there many small players who are price takers

Oligolpoly and Monopoly
- a few (or one!) large dominant players
- the firms are price makers

Types of Business Ownership

This is found in Chapter 6 of the textbook.
Read p. 120 - 130.
Do p. 123 q. 1 (Check your Understanding), p. 128 q. 1, p. 133 Q. 1

Be sure to know the advantages and disadvantages to the following types of business ownership:

• Sole proprietorship
• Partnership
• Corporation

Other topics covered:  primary, secondary, and tertiary industries, horizontal and vertical integration.


Refer to list of terms given in class.

What is elasticity of supply?

Elasticity of supply refers to the change in quantity supplied in response to a change in price.

Firms who produce products with elastic supply can increase or decrease their production levels quickly and easily.  Examples are telemarketing firms or candy companies.

Firms who produce products with inelastic supply cannot change their quantity supplied quickly.  Examples are perishable goods.

What is elasticity of demand?

Elasticity refers to the responsiveness of demand to a change in price.

Inelastic goods are goods that people buy at about the same amount no matter if the price goes up or down.  Examples are gasoline and cigarettes.

Elastic goods are things that people will really change their purchases of in response to changes in price.  Examples are vacation packages and house cleaning services. 

Link to Marketplace clip - Sunscreen

Marketplace - Sunscreen

https://youtu.be/pXoZYyag9-0

QUESTIONS

a)      What is happening to the demand for higher SPF sunscreens?  Why is this?  Draw a graph.

b)      Is the price of higher SPF sunscreens higher than that of lower SPF sunscreens? (Ask another person if you are not sure)

c)       We have talked about the importance of information in effective markets.  Do consumers know all the information they need to know about sunscreens, according to this program?  How can businesses capitalize or even take advantage of consumers if consumers are not informed?  Do you think they are doing this?

d)      Apply the concept of diminishing returns to sunscreen SPF levels.

Link to 60 Minutes - China's Real Estate Bubble

60 Minutes - China's Real Estate Bubble

https://youtu.be/VaNAfGBIw1s

Article - updated information on this issue

QUESTIONS

a)      Which sector of the Chinese economy has become prominent in the last number of years as a driver of growth?

b)      What are Chinese people investing in?  Why?

c)       What is this doing to the demand for housing?  Show on a graph and explain what this is doing to the price.

d)      Urbanization means people are moving from the country to the city.  Does this affect the graph in the previous question?  Do they have a demand for these apartments?  Explain.

e)      What has happened to the supply of condo housing in China?  What has happened to the supply of low-income housing in China?

f)       Explain the one-apartment policy in China.  Draw a graph to show how this has affected prices.

g)      How are developers getting the money to finance all this building?

h)      What is a bubble? (You may need to research this)

i)        We have learned about some of the drawbacks of a command economy.  Give an example of one of these from the video.

Indiana Jones lesson - Demand, Supply, and Changing Equilibrium

A good review on Demand, Supply, and Changing Equilibrium

Click here to see video

How can we use demand and supply curves to show changes in equilibrium price and quantity?

We have been using graphs and working through many examples, both straightforward and more complicated.

Do. p. 88 Q. 1-3, p. 90 Q. 1,2, and questions from exercise sheet.

What is equilibrium?

It is the point where the demand curve and the supply curve intersect. A better description of equilibrium price is the market-clearing price. Everything brought to market at that price is sold.

Excess supply/surplus occurs when the price is above the equilibrium price.

Excess demand/shortage occurs when the price is below the equilibrium price.

Alfred Marshall's quote appears on page 79.

What is Supply?

The supply of goods or services in a market is the amount that producers are willing to put on the market for sale. It is not necessarily the total stock of goods, as sometimes producers hold back for various reasons (eg. to influence the price, or in anticipation of higher future prices).

The supply curve is upward sloping, as there is a direct relationship between the price and the amount supplied. Ceteris paribus, if price goes up, supply goes up.

Microeconomics - Markets and Demand

Here are 3 lectures that are very similar to what we went over this week. She gets into a bit more math than I do in the first one but the ideas and even how she does her graphs are exactly what I was taught and what I will be teaching you! All are under 10 minutes long and although they are not meant to be entertaining they are a really good overview of the topics.

Lecture #1 - DEMAND
http://www.youtube.com/watch?v=Zlg8JCSWdrA

Lecture #2 - DETERMINANTS OF DEMAND
http://www.youtube.com/watch?v=JWuHCaqDmck&feature=relmfu

Lecture #3 - SHIFTING DEMAND CURVES
http://www.youtube.com/watch?v=3tybNSz7thI&feature=relmfu

Economic Goals for Canada

These include full employment, economic freedom, environmental stewardship, and keeping the level of government debt at a low, manageable level. Some of these will conflict (eg. full employment and low inflation) and tough choices need to be made.

What are the advantages and disadvantages of the command and market systems?

See page 33 in your textbook for a good organizer for thinking about economic systems.Read up to page 37 in your textbook.

Red Army Reflection

After viewing the film, answer the following reflection questions and hand in.  You may do this using paper, email, or ugcloud.
1.  The early days of this film recollect the Soviet Union in the 1970s and 80s.  Name 3 differences in lifestyle experienced by regular people in the USSR as compared to what we experienced in North America.
2.  Describe the differences in philosophy behind the hockey training in the USSR compared to North America.
3.  Give your impressions of the movie in general.  Was there anything that really stood out to you?  Give your evaluation of the movie.

What are the 4 types of economic systems?

We have studied the traditional economic system, of which there are very few today.

The command economic system is an extreme form where the government owns all the factors of production and makes all the decisions for the economy (i.e. the 3 basic questions).

In the pure market system there is no government involvement or regulation and market forces (i.e. prices and supply and demand) determine how the 3 basic questions are answered.

In reality all countries have a mixed form of economic system where there are elements of both market and command systems in varying degrees. In our mixed market system we find the private sector, public sector, volunteer sector, and an active underground economy.

How are goods and services allocated in society?

This goes back to the 3rd basic question - for whom are goods/services produced in our economy?
Different methods include appearance and personality, by force, by the government, by first-come-first-served, and by market forces of price, supply, and demand.

What are the 3 basic questions that every society must answer?

• What to produce
• How to produce it
• For whom are goods and services produced.

Seems simple but the answering of these questions is the basis of many of our human conflicts.

What are the 4 economic resources?

Also known as "factors of production".
Land - all natural resources
Labour - includes education and health levels of the people as well as total working population
Capital - all tools, equipment, and machinery used in producing goods and services
Entrepreneurship - a willingness to take risks and create.

Chapter 1 Quiz

This will occur on Wednesday September 21.



If you want some textbook review, read Chapter 1 and do p. 14 #1,2,3, 5, and p. 24 #5, 10, 11.


Help is available at noon in Room 2033 on Monday and Wednesday this week.

What is the Law of Diminishing Returns? What are Economies of Scale?

Law of Diminishing Returns - We will get less and less extra output when we add additional doses of an input while holding other inputs fixed.


Economies of Scale - Bigger is better when we can divide tasks and specialize.

What is the Production Possibility Curve?

The PPC is a model of an economy that only produces 2 goods. It is used to illustrate scarcity, choice, and opportunity cost.

What are positive and normative statements?

Positive statements deal with facts (i.e. The unemployment rate in Canada now stands at 8.7%).Normative statements deal with opinions and values (i.e. Canadians should save a higher percentage of their income).We also learned about 4 types of graphs - descriptive, historical series, graphs that depict a direct relationship, and graphs that depict an inverse relationship.

Why do economists use models?

Answer: To simplify a complicated reality. Models contain hypotheses and assumptions.They may be expressed as graphs or equations.

What is opportunity cost?

When a choice is made, there is always a cost or sacrifice to this choice. You can't have everything.
Opportunity cost is what is sacrificed/given up when choosing one option over another.

Video to explain opportunity cost

Ben and Jerry's Flavour Graveyard - the opportunity cost of new flavours

What is the basic economic problem?

The basic economic problem is SCARCITY.
Our needs and wants are unlimited while our resources are limited.
This forces people and societies to make choices.
Today we studied some of the ways that people make choices, such as listing the costs and benefits or using a decision making grid.

Decision-making takes energy - having too many choices is tiring and may lead to poorer decision-making after a while.

Game theory illustrates that your decision-making often must take into account what you think others are choosing as well!

Here are some videos to illustrate:
Should Jerry steal cable or not? Cost benefit analysis.
Scarcity example

Welcome Back!

Welcome back to CW this fall!

Here are some inspirational videos for the first day of economics:

Appolos Hester motivation

Guy living with no money

Ideas for Grade 12 essays

You will come up with ideas based on the book you have read.  The discussion on Monday, January 16 will have guided questions that can lead to ideas as well.  Your essay must have a thesis, a description of the situation, and arguments to prove your thesis.

Examples:

Personal finance should be a mandatory course in high school.

Payday loan companies such as Money Mart only prey on the unfortunate and should be banned.

Payday loan companies provide a necessary service in society.

The CPP should be increased.

The CPP should be shut down and instead people should be responsible for their own retirement savings.

If everyone does as the personal finance writers say and start to save more and spend less, Canada will quickly go into recession.

There is no such thing as "good" debt.

You should save some money every week/ month, no matter what your age or income.

The very best investment you can make is to buy a house.

You should never rent if you can afford to buy a home.

Renting a home instead of buying can be a wise financial choice for life.

When making decisions, considering opportunity cost can help you make wiser decisions
.
Gail Vaz-Oxlade and others suggest a cash only system for people with money troubles.  As money is becoming more abstract, people will lose track of their spending and struggle more financially.

Managing your spending is becoming easier thanks to e-banking and mobile apps such as Mint.