UNIT 5-

  Phillip's curve

a.    Short run

·         Represents the relationship between employment and inflation

·         Trade off between inflation and unemployment that only occurs in the short run

·         There is an inverse relationship between unemployment and inflation

·         Has relevance to Okun's law.

·         Since wages are sticky, inflation changes, move the points on the SRPC

·         If inflation persists and the expected rate of inflation rises, then the entire SRPC moves upward due to stagflation

·         If inflation expectations drop, due to new technology or economic growth, then the SRPC moves downward

b.    Long run

·         Long run Phillips curve occurs at the natural rate of unemployment 

·         Represented by a vertical line

·         No trade off between unemployment and inflation in the long run, which means that the economy produces at the full employment level

·         Will only shift if the LRAS curve shifts

·         Structural, seasonal, and frictional unemployment

·         Full employment is around 4-5%

·         Major LRAC assumption is that more worker benefit create higher natural rates. Fewer worker benefits create lower natural rates.

·         Whatever shifts PPC, will shift LRAS

Unit 4

1)      Money is any asset to purchase goods or services

2)      3 uses of money

a)      Medium of exchange

b)      Unit of account

·         How do you compare prices

c)       Store of value

3)      3 types of money

a)      Commodity money

 (1)    Salt

(2)    Olive Oil

(3)    Gold

b)      Representative money

 (1)    IOU

c)       Fiat Money

·         Money because the government says so

(1)    Paper currency and coins

4)      6 characteristics of money

a)      Durability

·         How long it will last

b)      Portability

·         Travel

1)       Divisibility

·         Divided out

2)      Uniformity

3)      Limited supply

4)       Acceptability

·         Take it anywhere

5)      Money supply

6)      Total value of financial assets available in the US economy

7)        M1 money

(1)    Liquid assets

(2)    Easily converted to cash

(3)      Cash

(4)    Paper currency

(5)   Coins

(6)  Checkable deposits or Demand Deposits (check or checking accounts)

(7)    Travelers check

8)       M2 money

(1)    M1 Money + Savings account and money market account

(a)    It isn’t sent immediately

·         Financial institution

a)      Store money

b)      Save money

c)       Loan money

·         Credit card

·         Mortgages

7)      4 ways to save money

a)      Savings account

b)      Checking accounts

c)       Money market accounts

d)      Certificate of deposit (CD)

8)      Loans