Finance English 1.ppt

ForeignLanguagesDepartmentShaoxingUniversityByMaKe yunJanuary8th 2011Mobilemail marco663 FinanceEnglish UnitOneBriefIntroductiontoMacroeconomics Macroeconomicsisthestudyoftheentireeconomyintermsofthetotalamountofgoodsandservicesproduced totalincomeearned thelevelofemploymentofproductiveresources andthegeneralbehaviorofprices Macroeconomicscanbeusedtoanalyzehowbesttoinfluencepolicygoalssuchaseconomicgrowth pricestability fullemploymentandtheattainmentofasustainablebalanceofpayments Macroeconomics analysisofthebehaviorofaneconomyasawhole Microeconomicsisthestudyofaggregateeconomicvariablessuchasnationalincome employment interestrates exchangerates andprices Oftenbecauseofaggregation indexnumbersareusedtorepresentmacroeconomicvariables Examplesaretheunemploymentrate thetrade weightedexchangerate andtheconsumerpriceindex Microeconomicsstudieshowindividualsandbusinessesmakedecisionsandhowthesedecisionsaffectthepricesandoutputofgoodsandservices Incontrast macroeconomicsisthestudyofaggregatesofindividuals pricesandoutputforwholemarkets Microeconomics analysisofthebehaviorofindividualdecision makingunits individuals households firms 2 TheGrossNationalProduct GNP isthetotaldollarvalueofallfinalgoodsandservicesproducedforconsumptioninsocietyduringaparticulartimeperiod Itsriseorfallmeasureseconomicactivitybasedonthelaborandproductionoutputwithinacountry Thefiguresusedtoassembledataincludethemanufactureoftangiblegoodssuchascars furniture andbread andtheprovisionofservicesusedindailylivingsuchaseducation healthcare andautorepair Intermediateservicesusedintheproductionofthefinalproductarenotseparatedsincetheyarereflectedinthefinalpriceofthegoodsorservice TheGNPdoesincludeallowancesfordepreciationandindirectbusinesstaxessuchasthoseonsalesandproperty TheGrossDomesticProduct GDP measuresoutputgeneratedthroughproductionbylaborandpropertywhichisphysicallylocatedwithintheconfinesofacountry ItexcludessuchfactorsasincomeearnedbyU S citizensworkingoverseas butdoesincludefactorssuchastherentalvalueofowner occupiedhousing InDecember1991 theBureauofEconomicAnalysisbeganusingtheGDPratherthantheGNPastheprimarymeasureofUnitedStatesproduction ThisfigurefacilitatescomparisonsbetweentheUnitedStatesandothercountries sinceitisthestandardusedininternationalguidelinesforeconomicaccounting GNPandGDPtendtobeusedassynonyms althoughGDPisdefinitelythepreferredmeasureamongeconomistsandisgainingpopularityingeneralconversationaswell thetwomeasuresarefairlyclosenumerically ThedifferenceisthatGDPmeasuresallproductionwithintheU S bywhoeverhappenstobeworkinghere GNPmeasurestheproductionofallAmericans wherevertheyhappentobeworking Maybeyoucanrememberthe N inGNPstandsfor anywhere TableofGNP 2003 TableofGDP 2003 Purchasing powerparity 2003 ProblemsofusingGNP capitaasapovertyline GNP capitaisameasureofaveragenationaloutput Thereareatleasttwokindsofproblemswiththisasameasureofindividualincomes Problemsofmeasurement Non monetizedactivitiesmaybepoorlyestimated egtheproductsofpeasantagriculture orexcluded egdomesticworkmaintainingthehome Problemsofconceptualization GNP capitaisasimpleaverageofoutputdividedbynumberofpeople Soitdoesnotsayanythingaboutthedistributionofnationalincomebetweenrichandpoor WhatwecansayisthatGNP capitaprovidesaroughestimateofaveragenationalproductivityandnationalproductivitysetsboundsonaveragelivingstandards 3 Demand Supply Definition0fDemand Demandistheamountofagoodthatconsumersarewillingandabletobuyatagivenprice FactorsInfluencingDemand Theamountofagooddemandeddependson thepriceofthegood theincomeofconsumers thedemandforalternativegoodswhichcouldbeused substitutes thedemandforgoodsusedatthesametime complements whetherpeoplelikethegood consumertaste MovementsAlongandShiftsinDemandCurves Achangeinpricenevershiftsthedemandcurveforthatgood Inthefigurebelowanincreaseinpriceresultsinamovementupthedemandcurve ThefallinthequantitydemandedfromQ1toQ2issometimescalledacontractionindemand Ademandcurveshiftsonlyifthereisachangeinincome intasteorinthedemandforsubstitutesorcomplements Inthediagrambelowadecreaseindemandhasshiftedthedemandcurvetotheleft ThenewdemandcurveisD1D1 Supply FactorsInfluencingSupplySupplyistheamountofagoodproducersarewillingandabletosellatagivenprice Supplydependson thepriceofthegood thecostofmakingthegood thesupplyofalternativegoodstheproducercouldmakewiththesameresources competitivesupply thesupplyofgoodsactuallyproducedatthesametime jointsupply unexpectedeventsthataffectsupply ThesupplycurvelabelledSSinthefigurebelowshowstheamountofagoodoneormoreproducersarepreparedtosellatdifferentprices MovementsAlongandShiftsinSupplyCurves Achangeinpricenevershiftsthesupplycurveforthatgood Inthediagrambelowanincreaseinpriceresultsinamovementupthesupplycurve TheincreaseinquantitysuppliedfromQ1toQ2issometimescalledanexpansioninsupply Asupplycurveshiftsonlyifthereis achangeincosts achangeinthenumberofgoodsincompetitiveorjointsupply orsomeunforeseeneventwhichaffectsproduction Inthediagrambelowanincreaseinsupplyshiftsthesupplycurvetotheright AggregateSupplyandDemandModel MarketPrice Atpricesabovetheequilibrium P thereisexcesssupplywhileatpricesbelowtheequilibrium P thereisexcessdemand Theeffectofexcesssupplyistoforcethepricedown whileexcessdemandcreatesshortagesandforcesthepriceup Thepricewheretheamountconsumerswanttobuyequalstheamountproducersarepreparedtosellistheequilibriummarketprice Allthesesituationsareshowninthediagrambelow IndirectTaxesandSubsidies InthefigurebelowanindirecttaxhasbeenaddedtoSS Thishastheeffectofshiftingthesupplycurveupverticallybytheamountofthetax Noteinthediagrambelowthatpricedoesnotincreasebythefullamountofthetax Thissuggeststhatpartofthetaxispaidbythefirm Inthisfigureasubsidyhasbeengiventothefirm Thishastheeffectofmakingfirmswillingtosupplymoreateachpriceandsoshiftsthesupplycurvedownwards Theshiftisequivalenttothevalueofthesubsidy Notethatpricefallsbylessthanthefullamountofthesubsidy Thissuggeststhatthefirmkeepspartofthesubsidy Elasticity PriceElasticityofDemandPriceelasticityofdemandmeasurestheresponsivenessofdemandtoagivenchangeinpriceandisfoundusingtheequation PED Percentagechangeinquantitydemanded PercentagechangeinpriceorPED P QxQ PwhereP theoriginalpriceQ theoriginalquantityand thechangein SeeTable7 1Featuresofpriceelasticityofdemand PriceElasticityofSupply Priceelasticityofsupply PES measurestheresponsivenessofsupplytoagivenchangeinprice PES Percentagechangeinquantitysupplied PercentagechangeinpriceorPES P QxQ P Table7 2Featuresofelasticityofsupply IncomeElasticityofDemand Incomeelasticityofdemand YED measurestheresponsivenessofdemandtoagivenchangeinincome YED Percentagechangeinquantitydemanded PercentagechangeinincomeIfYEDisnegativethenthegoodisinferior Peopleuseanincreaseinincometobuylessofthisgoodandmoreofasuperiorsubstitute IfYEDispositivethenthegoodisnormal Consumersuseanincreaseinincometobuymoreofthegood CrossElasticityofDemand Crosselasticityofdemand XED measurestheresponsivenessofdemandforonegood z toagivenchangeinthepriceofasecondgood w XED Percentagechangeinquantitydemandedofgoodz PercentagechangeinthepriceofgoodwIfXEDispositivethenthetwogoodsaresubstitutes IfXEDisnegativethenthetwogoodsarecomplements AdjustingtheEquilibriumQuantitytoEqualthe Need Sometimes inpublichealth youmaydecidethatsomepeople need touseacertainamountofsomeservice Forexample youmightsetagoalthateveryoneshouldgetimmunized orthateverypregnantwomanshouldgetprenatalcare Wecanrepresentthatinthesupplyanddemanddiagramwithaverticallineatthequantitythatwethinkpeopleneed It saverticallinebecause need isthesameregardlessoftheprice Whenthesupply demandintersectionpointistotheleftofthe need level thentheamountactuallyboughtorsoldislessthanthe need Onewaytoraisetheactualamountistoraisedemand Thediagramaboveshowsthatifyouraisedemand andthesupplycurveisn ttooinelastic isn ttoovertical thenyoucanmovetheequilibriumquantityouttothe needed level Asthediagramalsoshows thistendstoraisethepriceaswell Thealternativeistoraisesupply whichmeansmovingthesupplycurvetotheright Asthequestionbeforeshowed raisingthesupplycurvemakesquantitygoup andpricegodown 4 TheStructureoftheFederalReserveSystem OnDecember23 1913 theFederalReserveSystem whichservesasthenation scentralbank wascreatedbyanactofCongress TheSystemconsistsofasevenmemberBoardofGovernorswithheadquartersinWashington D C andtwelveReserveBankslocatedinmajorcitiesthroughouttheUnitedStates TheBoardofGovernorsoftheFederalReserveSystem AppointmentstotheBoardThesevenmembersoftheBoardofGovernorsareappointedbythePresidentandconfirmedbytheSenatetoserve14 yeartermsofoffice Membersmayserveonlyonefullterm butamemberwhohasbeenappointedtocompleteanunexpiredtermmaybereappointedtoafullterm ThePresidentdesignates andtheSenateconfirms twomembersoftheBoardtobeChairmanandViceChairman forfour yearterms RepresentationOnlyonememberoftheBoardmaybeselectedfromanyoneofthetwelvefederalReserveDistricts Inmakingappointments thePresidentisdirectedbylawtoselecta fairrepresentationofthefinancial agricultural industrial andcommercialinterestsandgeographicaldivisionsofthecountry Theseaspectsofselectionareintendedtoensurerepresentationofregionalinterestsandtheinterestsofvarioussectorsofthepublic ResponsibilitiesTheprimaryresponsibilityoftheBoardmembersistheformulationofmonetarypolicy ThesevenBoardmembersconstituteamajorityofthe12 memberFederalOpenMarketCommittee FOMC thegroupthatmakesthekeydecisionsaffectingthecostandavailabilityofmoneyandcreditintheeconomy TheotherfivemembersoftheFOMCareReserveBankpresidents oneofwhomisthepresidentoftheFederalReserveBankofNewYork TheotherBankpresidentsserveone yeartermsonarotatingbasis BystatutetheFOMCdeterminesitsownorganization andbytraditionitelectstheChairmanoftheBoardofGovernorsasitsChairmanandthePresidentoftheNewYorkBankasitsViceChairman TheBoardsetsreserverequirementsandsharestheresponsibilitywiththeReserveBanksfordiscountratepolicy ThesetwofunctionsplusopenmarketoperationsconstitutethemonetarypolicytoolsoftheFederalReserveSystem Inadditiontomonetarypolicyresponsibilities theFederalReserveBoardhasregulatoryandsupervisoryresponsibilitiesoverbanksthataremembersoftheSystem bankholdingcompanies internationalbankingfacilitiesintheUnitedStates EdgeActandagreementcorporations foreignactivitiesofmemberbanks andtheU S activitiesofforeign ownedbanks TheBoardalsosetsmarginrequirements whichlimittheuseofcreditforpurchasingorcarryingsecurities Inaddition theBoardplaysakeyroleinassuringthesmoothfunctioningandcontinueddevelopmentofthenation svastpaymentssystem AnotherareaofBoardresponsibilityisthedevelopmentandadministrationofregulationsthatimplementmajorfederallawsgoverningconsumercreditsuchastheTruthinLendingAct theEqualCreditOpportunityAct theHomeMortgageDisclosureActandtheTruthinSavingsAct MeetingsTheBoardusuallymeetsseveraltimesaweek MeetingsareconductedincompliancewiththeGovernmentintheSunshineAct andmanymeetingsareopentothepublic IftheBoardhasconvenedtoconsiderconfidentialfinancialinformation however thesessionsareclosedtopublicobservation ContactswithinGovernmentAstheycarryouttheirduties membersoftheBoardroutinelyconferwithofficialsofothergovernmentagencies representativesofbankingindustrygroups officialsofthecentralbanksofothercountries membersofCongressandacademicians Forexample theymeetfrequentlywithTreasuryofficialsandtheCouncilofEconomicAdviserstohelpevaluatetheeconomicclimateandtodiscussobjectivesforthenation seconomy GovernorsalsodiscusstheinternationalmonetarysystemwithcentralbankersofothercountriesandareinclosecontactwiththeheadsoftheU S agenciesthatmakeforeignloansandconductforeignfinancialtransactions 5 Monetarypolicy MonetarypolicyismadebytheFederalOpenMarketCommittee whichconsistsoftheBoardofGovernorsoftheFederalReserveSystemandtheReserveBankpresidents Theterm monetarypolicy referstotheactionsundertakenbyacentralbank suchastheFederalReserve toinfluencetheavailabilityandcostofmoneyandcredittohelppromotenationaleconomicgoals TheFederalReserveActof1913gavetheFederalReserveresponsibilityforsettingmonetarypolicy TheFederalReservecontrolsthethreetoolsofmonetarypolicy openmarketoperations thediscountrate andreserverequirements TheBoardofGovernorsoftheFederalReserveSystemisresponsibleforthediscountrateandreserverequirements andtheFederalOpenMarketCommitteeisresponsibleforopenmarketoperations Usingthethreetools theF