1. 1. Write 2+ items that have gotten
more expensive in your lifetime
2. Write 3+ items that have gotten
less expensive in your lifetime

2. 2012 Comparison
Argentina GDP: $476 billion
Spain’s GDP: $1.3 trillion
United States GDP: $16 trillion
Factors: population, resources, education, crime

3. Zimbabwe
Population:
13 million
GDP: 10 billion
GDP/Capita:
$700
Unemployment:
66%

4. Your G3 is advising the President of Zimbabwe on how to improve the
economy of his country.
Situation: Many blacks can not afford goods and food in the markets.
Business owners are allowed to charge whatever price they want and
since food is hard to find, its very expensive.
Local Zimbabwe businesses have a difficult time competing with imports
from the USA, South Africa and England. When Zimbabwe businesses
fail, people lose their jobs causing more unemployment.
98% of the farm land is owned by white farmers, which was taken in the
1800’s from native Africans. 90% of this country is black and has no
access to this farm land. The white farmers pay low wages and often do
not hire native blacks.
Many people in Zimbabwe do not have much money to buy food with.
The Zimbabwe dollar is a strong currency which is difficult to get much
of because the central bank doesn’t print very much money for people
to use.

5. Zimbabwe 1990’s
Fixed prices
Banned imports
Redistributed
land
Printed up more
money
Gov’t
solution EFFECT
President Robert
Mugabe
Shortages
More shortages
Still more
shortages
inflation
Technically “hyperinflation”
Problem
High food prices
Competition from USA
& SA
Blacks have no
land
Not enough
money

6. What if I told you?
• Million dollars?
• 25 Billion dollars?
• 100 Billion dollars
• Fiat currency = value
only because we think
it does

8. Hyperinflation in Zimbabwe
• Start of 2008
– 100 % inflation
• End of 2008-2009
– 10,000,000 %!!
– 10 X 6th inflation

12. Currency
Fiat
Currency
Advantages?
Disadvantages?

13. Why can’t we just print more money?
• Quantity theory of
inflation
Piles of currency in Zimbabwe

14. Currency
Representative
Currency
Advantages?
Disadvantages?

16. Inflation
• Rise in prices
over time
• “cost of
living”
• “The real
value of
currency”
• Deflation

17. GDP
• GDP = C + I + G + (Exports – Imports)
• Which one is affected by inflation?

18. Inflation
• Rise in prices over time
• “cost of living”
• Calculate using
Consumer Price Index
• CPI =
New Prices – Old Prices
Old Prices
X 100
Always a percentage,
But unlike unemployment rate,
It can be more than 100, or
a negative
1-3 % inflation = normal
Anything higher is bad for consumers

19. 3. Sony PS3 Price change %
4. Gas in 2009: $2.50
2013: $3.12

20. Inflation calculator

22. • 1984

24. • 1994

26. What else causes inflation?
• Cost push theory-
• For example, increase the cost of
gasoline causes and increase in the
price of food.
• Demand pull theory
• For example: fads or hot xmas toys

27. Of the 3 theories of inflation
5. Which one can the government control?
6. McDonalds increases menu prices after minimum wage
increase
7. Fry’s increases all prices as gas prices increase 15% in
January
8. Nike increases price of football jerseys every Fall
9. Apple increases price of popular mp3 itunes downloads
by 5%
10. In state tuition increases for the 10th consecutive year
11. Xbox games increase in price after programmers
demand higher wages
12. Make up your own example

28. Non-written bellringer
1. What economic activity does GDP leave out?
(multiple answers)
2. What part of the US government printed your
money? (look on a $1, $2, $5, $10, $20 bill)

29. Why don’t some people trust banks?

30. What if the bank goes out of business?
• $250,000 per US account

31. District Structure

32. Federal Reserve System

33. Who controls “the Fed”?

34. What does “the Fed” do?
Supplies
Money
Controls
Money
supply
Sets
Reserve
Requirements Supervise
Banks
Gov’t
Accounting
Clears
Checks
THE FED

35. Why is the Chairman of the Federal Reserve
sometimes thought of as the “second most
powerful person in the US”?
• Cause: increases interest
rates
• Effect: ????
• Cause: lowers interest
rate
• Effect: ??? 2014
Janet Yellen

36. Bellringer
1. What would you say about a 10% inflation rate?
2. Why are banks important to our economy?
3. What is a recession?
4. If the US GDP grew by 1.7% last year, were we in a
recession?
5. What part of our government prints our money?

38. Great Depression
1929-1933
27% drop in GDP
25% Unemployment
36% drop in World trade
43 straight months of
declining spending !!!!
“Great
Recession”
Housing Crisis
2007-2009
5 % drop in GDP
10% Unemployment
20% drop in World trade
18 straight months of
declining spending
Source Yoram Bauman, World Bank

39. Monetary Policy
Fed’s Tools
Open market operations
Reserve Rate (%)
Discount Rate (%)
Lender of last resort

44. What about other countries?

49. What should The Fed do with
interest rates in 1955?

50. What should The Fed do with interest
rates in 1921?
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
1914 1915 1916 1917 1918 1919 1920
US CPI 1914-1920

51. What should The Fed do with
interest rates in 1982?

52. What should The Fed do with
interest rates in 1982?
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
US 1970- 1982 CPI

53. What should The Fed do with
interest rates in 1991?

54. What should The Fed do with
interest rates in 2010?

55. What should The Fed do with
interest rates in 2010?

56. What should The Fed do with
interest rates in 2014?

57. Fed Chairman game

58. Trade opener
1. Where was your shirt made?
(Have your neighbor check)
2. What type of labor makes t shirts?
3. What type of labor designs cellphones?

59. Comparative Advantage Activity

60. Absolute Advantage
Whoever can do the job the fastest
• Total hours to finish jobs

61. Comparative Advantage
Whoever can do the job with the
lowest opportunity cost

62. Another way of looking at Comparative
Advantage
• Should Jason Terry clean his
own house?

63. Another way of looking at Comparative
Advantage
• Should Lebron James clean
his house?

64. Another way of looking at Comparative
Advantage
• Should Manu Ginobili
clean his house?

65. Specialization of labor
• Firms & countries
figure out more
efficient methods
of production
• Effect on concept
of trade?

66. Honduras
• 100 tons of
sugar/year
OR
• 100 tons of
bananas

67. Cuba
• 600 tons of
sugar/year
OR
• 200 tons of
bananas

68. Cuba & Honduras
• Scarcity of farm
land
• Who has absolute
advantage?
• Who has the
comparative
advantage of
trade?
• Why is this better?
Cuba:
600 tons of sugar/year
OR
200 tons of bananas
Honduras:
100 tons of sugar/year
OR
100 tons of bananas

69. Who has comparative advantage: T shirts,
financial, medical services, entertainment,
shoes
• Land, labor and capital in Honduras
• GDP per capita: $2,200 / Population: 8 million
• Literacy rate: 85%, 2 universities
• Land, labor and capital in USA
• GDP per capita: $48,000 / Population: 300 million
• Literacy rate: 90%, 800+ universities

70. Trade
• Free trade = absence of
restrictions of goods/services
• List 3 winners & 3 losers if all
countries had free trade
• Winners:
• Losers:

71. Benefits of FREE TRADE
• Lower prices for consumers
• More competition leading to better products
• Job opportunities for producers
• Job opportunities in buyer countries
• Opportunity costs?

72. Source: World Bank

73. Drawbacks of FREE TRADE
• Structural unemployment
• Lower union membership
• Ethical problems

74. Types barriers to FREE TRADE
• Tariffs
• Tax on imports
• Result: higher price for consumers, job saving
– Opportunity cost
• Quotas
• Limit on imports
• Result: high prices, less choice
• Examples: Japanese full sized trucks
• Lexus, Infinity, etc

75. Other crazy import tariffs
• Japan: 700% tax on rice
• European Union: orange juice (31%), peanut butter
(132%), and tobacco products (350%)
• South Korea: 100% automobiles
• Canada: 28% leather shoes
• United States: 249 % solar panels, Waterproof
shoes with a metal toe cap 37.5 %
• Brazil: 60% tablet computers

76. Types barriers to FREE TRADE
• Embargos
• Banning imports
• Result: less exports for embargoed
country
• Subsidies
• Gov’t help for industries
• Result: higher taxes locally, other
countries retaliate

77. Let’s consider some systems
• EU, WTO, Trading blocs, NAFTA

78. NAFTA
• 1994-present
• US, Canada, Mexico
• Eliminated thousands of
tariffs
• Expanded to CAFTA in
2005

79. European Union
• 1954- Present
• Free movement of
goods, services
and people
• Euro-zone
• Contrast with
US/Latin Am.

80. World Trade Organization
• 1995-present
• 152 countries
• Goal = Global free trade
• Closely related to IMF
• controversial

81. Free Trade Assignment
• Letter to John McCain
• 2-3 paragraphs considering:
Should the US expand
its free trade zone to
include all of the
Western Hemisphere?
Consider both sides,
but choose the better
one.

82. 80 M/C questions SCAN TRON
90 MIN, 1 PAGE HANDWRITTEN NOTES