Marginal Utility Video (Jason Welker)

Marginal Utility Video (Jason Welker)

It's Marginal Utility/ P !!

Equation of Exchange (Quantity Theory of Money)

Quantity Theory of Money

Equation of Exchange

Lorenzo in Hong Kong @ AIS wants to know about
Equation of Exchange and how has it been tested.

Monetarists believe that inappropriate Fiscal policy will cause macroeconomic instability.

Formula  

MV = PQ

M*V = P*Q

(Money Supply (times) the Velocity of Money) = (Price * Quantity or Nominal GDP)

Monetarists want the V (velocity of money) to be stable

(no sudden increases in the money supply)

1) If the PL is 4 and the velocity of money is 8, 

real output is $4,000 then the money supply must be?

M*V = P*Q

so,

M(?) * 8 = 4 * $4,000

then the MS must be $2,000,

as 

($2,000 * 8) = (4 * $4,000)

If the money supply rises faster than the rate of growth then we will have inflation

If the Money Supply doubles the Price Level doubles

1995 - 0 questions

2000  #40

Answer - A - Income velocity of money increased

Remember that the Equation above is an (Identity), 

meaning that both sides must equal each other.

If the MS decreases and the NGDP doesn't change the only thing that could have changed is the Velocity of money must have decreased.

2005 #58 

Answer - E the price level will increase

The Velocity of Money and the RGDP are often considered constant, so if the MS increases and Velocity and RGDP are constant the only thing that could have increased is the Price level.

2008 #21

Answer - B Nominal National Incomes

Recognise that National Incomes are the 

Y = Incomes on the bottom of your AD/AS graphs.

If velocity is stable, meaning that the factors affecting it change gradually and predictably, changes in M lead directly to changes in Nominal GDP (PxQ)

2010 #16

Answer - A increase in nominal output

Nominal Output = Nominal GDP

If the economy is expected to grow at 2 percent in a given year, the Fed should allow the money supply to increase by 2 percent. The Fed should be bound to fixed rules in conducting monetary policy because discretionary power can destabilize the economy.­

2012 #59

Answer - E Long Run RGDP

Practise Test Question (No idea where it is from)

Answer - A Monetarists believe V is stable

People have a stable desire to hold money relative to other financial assets. 

If the money supply is stable and V, velocity is stable then total spending is stable

From Chinese Booklet (no idea where it came from)

Answer - A.

If the money supply increases at the same rate that velocity falls, the NGDP is unaffected.

Answer - E

If the demand for money decreases the NIR will decrease, the money supply is constant so no change.

Wow, Just Wow!!!!

Reffonomics 

Micro Review - http://reffonomics.com/FRQMicroReview.html

Macro Review - http://reffonomics.com/FRQMacroReview.html

SEND ME YOUR QUESTIONS?

I have some time before the AP exams,, if you have questions send me an e-mail and let me help.
Charles

wcwaugh@aol.com

or leave a question on the blog

Tax Incidence Cheat Sheet

Tax Incidence Cheat Sheet

Multiplier Cheat Sheet Updated (3/4/2017) MPC & MPS

Multiplier Cheat Sheet Updated (3/4/2017) MPC & MPS

Ok, so added some of the tax multiplier information on the bottom of the cheat sheet. 

2008 Macro Multiple Choice (Comparative Advantage & TOT)

2008 Macro Multiple Choice (Comparative Advantage & TOT)

(If you are given a graph, Make a Chart. If given a chart make a graph.)

A has an absolute advantage in both grain and steel as it can produce more of both using available resources. (look at the graph or the chart)

1st -  Is this an output or an input problem.

From the Cheat sheet here.

Producing two goods, using all of their available resources.

This implies to me,, that this is an output problem as the inputs used are not specified while the outputs are specific.

Output problem cross-multiply 

over = output 

output = over

Look in the columns (Grain) & (Steel) and find the lowest opportunity cost & circle it.

A has the lowest opportunity cost in Grain as 1<2

&

B has the lowest opportunity cost in Steel as .5<1

Answer - (A)

Alpha should produce (export) grain as they have the lowest opportunity cost in the production of grain and trade (import) steel.

B should produce (export) steel as they have the lowest opportunity cost in the production of steel and trade (import) grain.

It is very important that you know how to read the chart after you have found the opportunity cost!!!!

Answer - B

A (gives up) 1G for 1S

B (gives up) 1G for 2S

Answer - (B)

Graph the chart of opportunity costs.

Understand that the countries will accept a terms of trade if the trade is below their opportunity cost (what they can make it themselves)

Really you need to just recognise that if you have graphed the opportunity costs correctly that the countries will accept anything between their respective curves.