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A couple notes
• Missing assignments!
• Last day to turn those in for any creditis the day of the test.
• Up until then I will give you half-creditfor anything you are missing.
• Your grades online are up-to date(excluding what you turned in today).
A country has acomparativeadvantage if it has alower opportunity costin producingsomething. 90050Wheat
700500Chocolate
United StatesSwitzerland
Who has the absolute advantage in making chocolate?
Who has the absolute advantage in growing wheat?
Who has the comparative advantage in producing chocolate?
Who has the comparative advantage in producing wheat?
United States
What is the opportunity cost ofproducing one unit of chocolate?
What is the opportunity cost ofproducing one unit of wheat?
Switzerland
What is the opportunity cost ofproducing one unit of chocolate?
What is the opportunity cost ofproducing one unit of wheat?
World Trade Organization (WTO)
North American Free TradeAgreement
• Canada, United States, & Mexico
• Reduces tariffs and other barriers of tradebetween these countries.
• Controversial
• Why?
Money and The FederalReserve System
What it is, what it does,and why you should care.
Objective for today
• Understand the different ways that thegovernment tries to stimulate or constrictthe economy
Vocab. To Know: GDP & Interest
• Gross Domestic Product- the total marketvalue of all final goods and services theeconomy produces in a single year.
• The primary way the health of aneconomy is measured
• Interest- payment for using someoneelse’s money.
• The “price” of a loan
Fiscal policy
• The use of the federal government’s powerto tax and spend to regulate economicactivity.
• Lower taxes
• Increase government spending
• Both
• Ex: FDR’s the New Deal
Criticisms of fiscal policy
• Why do we pay taxes? What happens togovernment revenues if taxes arereduced? What happens to the nationaldebt?
• To offset a tax reduction, the governmentwould have to borrow money --> could“crowd out” private investors
• Printing more money leads to inflation
• Politically unfeasible
The Fed and the money supply
• The central bank of the United States
• In charge of creating money
• Loans money to other banks
• “Fractional reserve” banking
• Only have to keep small % of deposits
• The rest can be loaned out
Monetary policy
• The use of the Federal Reserve’s power tocontrol the supply of money and credit toincrease economic activity as a whole,particularly to control inflation andstimulate economic growth.
• Adjust the discount rate
• Adjust reserve ratios
If nothing else, rememberthis…
• The Federal Reserve is the central bank ofthe United States.
• It tries to regulate the economy to keep itgrowing steadily (not too fast, though)
• It can print money, adjust interest rates,and adjust how much money banks haveto keep in reserve.
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