Global economic

march 12
NATIONAL INCOME ACCOUNTING

fundamental goal of organizing = increase standard of living, measure by GDB per capita
NIA=better understanding, with the system and fed.
Related directly with current framework.

Aggregate demand function

Y<-- GDP -- standard of living
Y=C+I+G+NX
C= Consumption "about 70% in US"
I= Investment "shift out PPF, I=S Saving"
G= Goverment spending
NX= Export - Import "about 70% in Japan"
U.S vs Japan

US fell 6.2% economy last year, factor = 65% consumption from 70%
consumption based economy,
has negative Net Export,
has 3% growth rate speed limit of economy
-change in population, population growth rate 1%
-change in productivity, 2%
--------------------------------------------------
3%

Inflation = positive raise in Price, when increase in GDP, Wage price Spiral true fear of inflation.
Inflation distort true values. Lead to Miss allocation of resources, ex. housing market.
FEDERAL RESERVE - US central bank, Ben bernenki
Tools-
Monetary Policy: Interest rate policy a.k.a federal fund rate, its the guidance rate bank follows.
Nation is "overheating" raising GDP, increase interest rate.
National is "recession" slowing GDP, lower interest rate.
last year, 5.25% federal interest rate, now 0%
federal used this tool to increase or decrease growth, in attempt to reduce volitarity, increase stability and maximum employment

Money supply
inelastic goods, if lots of money available, its worth decreased.
Inflation, decrease money supply.
Open market activity- purchase or sale bond

FISCAL POLICY - government spending
Spending + Taxation
deficit spending likely to bring inflation
government make these decision. take time, tend to react with a lag.
Fiscal tend to aggregate business cycle. ex. stimulus packages.


Japan has most debt on the planet.


Japan fell 12.1% economy export based economy what is Y, how is it behave
Bank of Japan - Central bank