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

October 31, 2013Economics I (BECO 1)2 Conditional Convergence Hypothesis Possibilities 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

October 31, 2013Economics I (BECO 1)3 Paradox of Thrift During hard times, households tend to save more and spend less. During hard times, households tend to save more and spend less. Less spending means less consumption and the economy declines. Less spending means less consumption and the economy declines. The paradox: A “good intention” turns out making everyone worse off. The paradox: A “good intention” turns out making everyone worse off. p. 541

October 31, 2013Economics I (BECO 1)4 Government Spending 2010 Total spending Total spending –The next slide is a pie chart representing spending by category for the US budget for 2010 –Further information: Government spending Government spendingGovernment spending –The President's budget for 2010 totals $3.55 trillion. Percentages in parentheses indicate percentage change compared to This budget request is broken down by the following expenditures:

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October 31, 2013Economics I (BECO 1)6 Government Spending 2010 Mandatory spending: $2.184 trillion (+15.6%) Mandatory spending: $2.184 trillion (+15.6%) –$ billion (+4.9%) – Social Security Social SecuritySocial Security –$571 billion (−15.2%) – Other mandatory programs –$453 billion (+6.6%) – Medicare Medicare –$290 billion (+12.0%) – Medicaid Medicaid –$164 billion (+18.0%) – Interest on National Debt National DebtNational Debt –$11 billion (+ 275%) – Potential disaster costs Source:

October 31, 2013Economics I (BECO 1)7 Government Spending 2010 Discretionary spending: $1.368 trillion (+13.1%) Discretionary spending: $1.368 trillion (+13.1%) –$663.7 billion (+12.7%) – Department of Defense (including Overseas Contingency Operations) Department of DefenseOverseas Contingency OperationsDepartment of DefenseOverseas Contingency Operations –$78.7 billion (−1.7%) – Department of Health and Human Services Department of Health and Human ServicesDepartment of Health and Human Services –$72.5 billion (+2.8%) – Department of Transportation Department of TransportationDepartment of Transportation –$52.5 billion (+10.3%) – Department of Veterans Affairs Department of Veterans AffairsDepartment of Veterans Affairs –$51.7 billion (+40.9%) – Department of State and Other International Programs Department of StateDepartment of State –$47.5 billion (+18.5%) – Department of Housing and Urban Development Department of Housing and Urban DevelopmentDepartment of Housing and Urban Development –$46.7 billion (+12.8%) – Department of Education Department of EducationDepartment of Education – …. Source:

October 31, 2013Economics I (BECO 1)8 Tax Revenue Total receipts Total receipts –Estimated receipts for fiscal year 2010 are $2.381 trillion, an estimated decrease of 11% from receipts  $1.061 trillion – Individual income taxes Individual income taxesIndividual income taxes  $940 billion – Social Security and other payroll tax Social Securitypayroll taxSocial Securitypayroll tax  $222 billion – Corporation income taxes Corporation income taxesCorporation income taxes  $77 billion – Excise taxes Excise taxesExcise taxes  $23 billion – Customs duties CustomsdutiesCustomsduties  $20 billion – Estate and gift taxes Estategift taxesEstategift taxes  $22 billion – Deposits of earnings  $16 billion – Other Source:

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October 31, 2013Economics I (BECO 1)10 Oil Prices 1990 to 2010

October 31, 2013Economics I (BECO 1)11 So What’s the Fiscal Cliff $607 billion in mandated spending cuts and tax increases starting Jan. 1, 2013 $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

October 31, 2013Economics 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.

October 31, 2013Economics 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 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

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October 31, 2013Economics I (BECO 1)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. 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.

October 31, 2013Economics 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. 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.

October 31, 2013Economics 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 percent and 39.6 percent. He also wants higher taxes on capital gains and dividends and a smaller estate tax exemption and higher rate. 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 percent and 39.6 percent. He also wants higher taxes on capital gains and dividends and a smaller estate tax exemption and higher rate.Bill Clintoncapital gainsBill Clintoncapital gains

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October 31, 2013Economics I (BECO 1)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. 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.