ECON 201 SEU Inflation & Unemployment Macro Economics Paper

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‫المملكة العربية السعودية‬ ‫وزارة التعليم‬ ‫الجامعة السعودية اإللكترونية‬ Kingdom of Saudi Arabia Ministry of Education Saudi Electronic University College of Administrative and Financial Sciences Assignment 2 Macroeconomics (ECON 201) Due Date:16th April 2022 @ 23:59 Course Name: Macroeconomics Student’s Name: Course Code: ECON201 Student’s ID Number: Semester: II CRN: Academic Year:2021-22-2nd For Instructor’s Use only Instructor’s Name: Students’ Grade: 00 / 10 Level of Marks: High/Middle/Low General Instructions – PLEASE READ THEM CAREFULLY • • • • • • • • The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. Assignments submitted through email will not be accepted. Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. Students must mention question number clearly in their answer. Late submission will NOT be accepted. Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). Submissions without this cover page will NOT be accepted. Chapter 13, 14 & 15: Critical Thinking: Financial System: Saving and Investment & Unemployment and Its Natural Rate: (10 Points) In the second assignment for the Macroeconomics course, the students are required to choose a specific area from the subject and answer the questions given, upon successful completion of the assignment; the student should be able to achieve the following learning outcomes: Learning Outcomes: 1. Describe how to evaluate macroeconomic conditions such as unemployment, inflation, and growth. [CLO 1.2] 2. Recognize the fundamental determinant's of a nation's long-run economic growth. [CLO 1.3] Reference Source: Textbook: - Mankiw, N. Gregory. Principles of Macroeconomics, 6th ed. Mason, OH: South-Western Cengage Learning, 2011. ISBN: 9780538453066 (hard copy); ISBN: 9781115468523 (eBook) Q.1. Critical Thinking: Financial System: Saving and Investment: Chapter 13: (4 Points) Suppose the government borrows $20 billion more next year than this year. a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? b. What happens to investment, private saving, public saving, and national saving? Compare the size of the changes to the $20 billion of extra government borrowing. c. How does the elasticity of supply of loanable funds affect the size of these changes? d. How does the elasticity of demand for loanable funds affect the size of these changes? e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the affects you discussed in parts (a) and (b)? Important Note: - Support your submission with course material concepts, principles, and theories from the textbook and at least two scholarly, peer-reviewed journal articles. Q.2. Critical Thinking: Financial System: The Basic Tools of Finance: Chapter 14: (3 Points) When company executives buy and sell stock based on private information they obtain as part of their jobs, they are engaged in insider trading. a. Give an example of inside information that might be useful for buying or selling stock. b. Those who trade stocks based on inside information usually earn very high rates of return. Does this fact violate the efficient markets hypothesis? c. Insider trading is illegal. Why do you suppose that is? Important Note: - Support your submission with course material concepts, principles, and theories from the textbook and at least two scholarly, peer-reviewed journal articles. Q.3. Problems and Applications: Unemployment: Chapter 15: (3 Points) The Bureau of Labor Statistics announced that in April 2010, of all adult Americans, 139,455,000 were employed, 15,260,000 were unemployed, and 82,614,000 were not in the labor force. Use this information to calculate: a. The Adult Population b. The Labor Force c. The Labor-Force Participation Rate d. The Unemployment Rate Important Note: - Support your submission with course material concepts, principles, and theories from the textbook and at least two scholarly, peer-reviewed journal articles. Answer: N. Gregory Mankiw Principles of Macroeconomics Sixth Edition 13 Saving, Investment, and the Financial System © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Premium PowerPoint Slides by Ron Cronovich In this chapter, look for the answers to these questions: • What are the main types of financial institutions in the U.S. economy, and what is their function? • What are the three kinds of saving? • What’s the difference between saving and investment? • How does the financial system coordinate saving and investment? • How do govt policies affect saving, investment, and the interest rate? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Financial Institutions ▪ The financial system: the group of institutions that helps match the saving of one person with the investment of another . ▪ ‫ مجموعة المؤسسات التي تساعد في مطابقة إنقاذ شخص واحد باستثمار شخص آخر‬:‫النظام المالي‬ ▪ Financial markets: institutions through which savers can directly provide funds to borrowers. Examples: ▪ :‫ أمثلة‬.‫ المؤسسات التي يمكن من خاللها للمدخرين تقديم األموال مباشرة إلى المقترضين‬:‫األسواق المالية‬ ▪ The Bond Market. ‫سوق السندات‬ A bond is a certificate of indebtedness.‫السند هو شهادة المديونية‬ ▪ The Stock Market. ‫سوق االسهم‬ A stock is a claim to partial ownership in a firm. ‫السهم هو ملكية جزئية في شركة‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Financial Institutions ▪ ▪ Financial intermediaries: institutions through which savers can indirectly provide funds to borrowers. Examples: .‫ المؤسسات التي يمكن من خاللها للمدخرين توفير األموال للمقترضين بشكل غير مباشر‬:‫الوسطاء الماليون‬ :‫أمثلة‬ ▪ Banks ▪ Mutual funds – institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds ▪ ‫ المؤسسات التي تبيع األسهم للجمهور وتستخدم العائدات لشراء محافظ األوراق‬- ‫الصناديق المشتركة‬ ‫المالية والسندات‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Financial Crisis of 2008–2009 ▪ A financial crisis led to a deep recession in the U.S. and around the world. A few unemployment rates: © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. FYI: Elements of Financial Crises ▪ Large decline in some asset prices ▪ 2008–2009: Housing prices fell 30%. ▪ Insolvencies at financial institutions ▪ 2008–2009: Banks and other institutions failed when many homeowners stopped paying their mortgages. ▪ Decline in confidence in financial institutions ▪ 2008–2009: Customers with uninsured deposits began pulling their funds out of financial institutions. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. FYI: Elements of Financial Crises ▪ Credit crunch ▪ 2008–2009: Borrowers unable to get loans because troubled lenders not confident in borrowers’ credit-worthiness. ▪ Economic downturn ▪ 2008–2009: Failing financial institutions and a fall in investment caused GDP to fall and unemployment to rise. ▪ Vicious circle ▪ 2008–2009: The downturn reduced profits and asset values, which worsened the crisis. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Different Kinds of Saving Private saving ‫االدخار الخاص‬ = The portion of households’ income that is not used for consumption or paying taxes ‫نسبة دخل األسر المعيشية التي ال تستخدم في االستهالك أو دفع الضرائب‬ = Y–T–C Public saving ‫االدخار العام‬ = Tax revenue less government spending ‫اإليرادات الضريبية ناقص اإلنفاق الحكومي‬ =T–G © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. National Saving National saving ‫االدخار القومي‬ = private saving + public saving = = (Y – T – C) + (T – G) Y – C – G = the portion of national income that is not used for consumption or government purchases ‫جزء من الدخل القومي الذي ال يستخدم لالستهالك أو المشتريات‬ ‫الحكومية‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Saving and Investment Recall the national income accounting identity: ‫ هوية محاسبة الدخل القومي‬:‫تذكير‬ Y = C + I + G + NX For the rest of this chapter, focus on the closed economy case: national saving Y=C+I+G Solve for I: I = Y–C–G = (Y – T – C) + (T – G) Saving = investment in a closed economy © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Budget Deficits and Surpluses Budget surplus ‫فائض الميزانيه‬ = an excess of tax revenue over govt spending ‫زيادة في عائدات الضرائب على اإلنفاق الحكومي‬ = T–G = public saving Budget deficit ‫عجز الميزانيه‬ = a shortfall of tax revenue from govt spending ‫نقص في عائدات الضرائب من اإلنفاق الحكومي‬ = G–T = – (public saving) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 1 A. Calculations ▪ Suppose GDP equals $10 trillion, consumption equals $6.5 trillion, the government spends $2 trillion and has a budget deficit of $300 billion. ▪ Find public saving, taxes, private saving, national saving, and investment. © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING 1 Answers, part A Given: Y = 10.0, C = 6.5, G = 2.0, G – T = 0.3 Public saving = T – G = – 0.3 Taxes: T = G – 0.3 = 1.7 Private saving = Y – T – C = 10 – 1.7 – 6.5 = 1.8 National saving = Y – C – G = 10 – 6.5 = 2 = 1.5 Investment = national saving = 1.5 © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING 1 B. How a tax cut affects saving ▪ Use the numbers from the preceding exercise, but suppose now that the government cuts taxes by $200 billion. ▪ In each of the following two scenarios, determine what happens to public saving, private saving, national saving, and investment. 1. Consumers save the full proceeds of the tax cut. 2. Consumers save 1/4 of the tax cut and spend the other 3/4. © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING 1 Answers, part B In both scenarios, public saving falls by $200 billion, and the budget deficit rises from $300 billion to $500 billion. 1. If consumers save the full $200 billion, national saving is unchanged, so investment is unchanged. 2. If consumers save $50 billion and spend $150 billion, then national saving and investment each fall by $150 billion. © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING 1 C. Discussion questions The two scenarios from this exercise were: 1. Consumers save the full proceeds of the tax cut. 2. Consumers save 1/4 of the tax cut and spend the other 3/4. ▪ Which of these two scenarios do you think is more realistic? ▪ Why is this question important? © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. The Meaning of Saving and Investment ▪ Private saving is the income remaining after households pay their taxes and pay for consumption. ▪ ‫االدخار الخاص هو الدخل المتبقي بعد أن تدفع األسر ضرائبها وتكاليف االستهالك‬ ▪ Examples of what households do with saving: ▪ ‫أمثلة على ما تفعله األسر مع االدخار‬ ▪ Buy corporate bonds or equities ▪ ▪ ▪ ▪ ‫شراء سندات الشركات أو األسهم‬ Purchase a certificate of deposit at the bank ‫شراء شهادة اإليداع في البنك‬ Buy shares of a mutual fund ▪ ‫شراء أسهم صندوق مشترك‬ ▪ Let accumulate in saving or checking accounts ▪ ‫يدعونها تتراكم في المدخرات أو التحقق من الحسابات‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Meaning of Saving and Investment ▪ Investment is the purchase of new capital. ▪ ‫االستثمار هو شراء رأس مال جديد‬ ▪ Examples of investment: ▪ General Motors spends $250 million to build a new factory in Flint, Michigan. ▪ You buy $5000 worth of computer equipment for your business. ▪ Your parents spend $300,000 to have a new house built. Remember: In economics, investment is NOT the purchase of stocks and bonds! !‫ االستثمار ليس شراء األسهم والسندات‬، ‫ في االقتصاد‬:‫تذكر‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Market for Loanable Funds ▪ A supply–demand model of the financial system ▪ Helps us understand ▪ how the financial system coordinates saving & investment ▪ how govt policies and other factors affect saving, investment, the interest rate ▪ ▪ ▪ ▪ ‫نموذج العرض والطلب في النظام المالي‬ ‫يساعدنا على فهم‬ ‫كيف ينسق النظام المالي؟ االدخار واالستثمار‬ ‫كيف تؤثر سياسات الحكومة وعوامل أخرى على االدخار واالستثمار وسعر الفائدة‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Market for Loanable Funds Assume: only one financial market ▪ All savers deposit their saving in this market. ▪ All borrowers take out loans from this market. ▪ There is one interest rate, which is both the return to saving and the cost of borrowing. ▪ ‫ سوق مالية واحدة فقط‬:‫افترض‬ ▪ .‫جميع المدخرين إيداع مدخراتهم في هذا السوق‬ ▪ .‫جميع المقترضين يحصلون على قروض من هذا السوق‬ ▪ ‫ وهو العودة إلى االدخار وتكلفة االقتراض‬، ‫هناك سعر فائدة واحد‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Market for Loanable Funds The supply of loanable funds comes from saving: ▪ Households with extra income can loan it out and earn interest. ▪ Public saving, if positive, adds to national saving and the supply of loanable funds. If negative, it reduces national saving and the supply of loanable funds. :‫يأتي توفير األموال القابلة للقرض من االدخار‬ .‫يمكن لألسر ذات الدخل اإلضافي إقراضها وكسب الفائدة‬ ‫ يضيف إلى االدخار الوطني وإمدادات األموال‬، ‫ إذا كان إيجابيا‬، ‫االدخار العام‬ .‫القابلة للقرض‬ .‫ فإنه يقلل من االدخار الوطني وإمدادات األموال القابلة للقرض‬، ‫إذا كان سلبيا‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Slope of the Supply Curve Interest Rate Supply 6% 3% 60 80 An increase in the interest rate makes saving more attractive, which increases the quantity of loanable funds supplied. Loanable Funds ($billions) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Market for Loanable Funds The demand for loanable funds comes from investment: ▪ Firms borrow the funds they need to pay for new equipment, factories, etc. ▪ Households borrow the funds they need to purchase new houses. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Slope of the Demand Curve A fall in the interest rate reduces the cost of borrowing, which increases the quantity of loanable funds demanded. Interest Rate 7% 4% Demand 50 80 Loanable Funds ($billions) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Equilibrium Interest Rate Supply The interest rate adjusts to equate supply and demand. The eq’m quantity of L.F. equals eq’m investment and eq’m saving. 5% Demand 60 Loanable Funds ($billions) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Policy 1: Saving Incentives Interest Rate S1 S2 5% 4% D1 60 70 Tax incentives for saving increase the supply of L.F. …which reduces the eq’m interest rate and increases the eq’m quantity of L.F. Loanable Funds ($billions) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Policy 2: Investment Incentives Interest Rate An investment tax credit increases the demand for L.F. S1 6% 5% D2 …which raises the eq’m interest rate and increases the eq’m quantity of L.F. D1 60 70 Loanable Funds ($billions) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 2 Budget deficits ▪ Use the loanable funds model to analyze the effects of a government budget deficit: ▪ Draw the diagram showing the initial equilibrium. ▪ Determine which curve shifts when the government runs a budget deficit. ▪ Draw the new curve on your diagram. ▪ What happens to the equilibrium values of the interest rate and investment? © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers 2 S2 Interest Rate S1 A budget deficit reduces national saving and the supply of L.F. …which increases the eq’m interest rate 6% 5% and decreases the eq’m quantity of L.F. and investment. D1 50 60 Loanable Funds ($billions) © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. Budget Deficits, Crowding Out, and Long-Run Growth ▪ Our analysis: Increase in budget deficit causes fall in investment. The govt borrows to finance its deficit, leaving less funds available for investment . This is called crowding out. .‫زيادة في عجز الميزانية يسبب انخفاض االستثمار‬ .‫ مما يترك أقل األموال المتاحة لالستثمار هذا يسمى المزاحمة‬، ‫تقترض الحكومة لتمويل عجزها‬ ▪ Recall from the preceding chapter: Investment is important for long-run economic growth. Hence, budget deficits reduce the economy’s growth rate and future standard of living . ▪ ‫ فإن العجز في الميزانية يقلل من معدل نمو‬، ‫ وبالتالي‬.‫االستثمار مهم للنمو االقتصادي على المدى الطويل‬ ‫االقتصاد ومستوى المعيشة في المستقبل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The U.S. Government Debt ▪ The government finances deficits by borrowing (selling government bonds). ▪ Persistent deficits lead to a rising govt debt. ▪ The ratio of govt debt to GDP is a useful measure of the government’s indebtedness relative to its ability to raise tax revenue. ▪ Historically, the debt-GDP ratio usually rises during wartime and falls during peacetime—until the early 1980s. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. U.S. Government Debt as a Percentage of GDP, 1970–2010 WW2 63.6% in 2010 Revolutionary War Civil War WW1 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CONCLUSION ▪ Like many other markets, financial markets are governed by the forces of supply and demand. ▪ One of the Ten Principles from Chapter 1: Markets are usually a good way to organize economic activity. Financial markets help allocate the economy’s scarce resources to their most efficient uses. ▪ Financial markets also link the present to the future: They enable savers to convert current income into future purchasing power, and borrowers to acquire capital to produce goods and services in the future. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. SUMMARY • The U.S. financial system is made up of many types of financial • institutions, like the stock and bond markets, banks, and mutual funds. ‫ مثل أسواق األسهم والسندات‬، ‫يتكون النظام المالي في الواليات المتحدة من عدة أنواع من المؤسسات المالية‬ .‫ وصناديق االستثمار المشتركة‬، ‫ والبنوك‬، • National saving equals private saving plus public saving. • .‫االدخارالوطني يساوي االدخار الخاص باإلضافة إلى المدخرات العامة‬ • In a closed economy, national saving equals investment. The financial system makes this happen. • .‫ النظام المالي يجعل هذا يحدث‬.‫ فإن االدخار الوطني يساوي االستثمار‬، ‫في اقتصاد مغلق‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. SUMMARY • The supply of loanable funds comes from saving. The demand for funds comes from investment. The interest rate adjusts to balance supply and demand in the loanable funds market. • ‫ يتم‬.‫ يأتي الطلب على األموال من االستثمار‬.‫العرض من األموال القابلة للقرض يأتي من االدخار‬ ‫تعديل سعر الفائدة لموازنة العرض والطلب في سوق األموال القابلة لإلقراض‬ • A government budget deficit is negative public saving, so it reduces national saving, the supply of funds available to finance investment. • ‫ وتوفير‬، ‫ وبالتالي يقلل من االدخار الوطني‬، ‫العجز في الموازنة الحكومية هو توفير عام سلبي‬ .‫األموال المتاحة لتمويل االستثمار‬ • When a budget deficit crowds out investment, it reduces the growth of productivity and GDP. • .‫ فإنه يقلل من نمو اإلنتاجية والناتج المحلي اإلجمالي‬، ‫عندما يخرج عجز الميزانية عن االستثمار‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. Policy 3: Govt Budget Deficits Interest Rate S2 S1 A budget deficit reduces national saving and the supply of L.F. 6% 5% D1 50 60 …which increases the eq’m interest rate and decreases the eq’m quantity of L.F. Loanable Funds ($billions) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. N. Gregory Mankiw Principles of Macroeconomics Sixth Edition 14 The Basic Tools of Finance © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Premium PowerPoint Slides by Ron Cronovich In this chapter, look for the answers to these questions: • What is “present value”? How can we use it to compare sums of money from different times? • Why are people risk averse? How can risk-averse people use insurance and diversification to manage risk? • What determines the value of an asset? What is the “efficient markets hypothesis”? Why is beating the market nearly impossible? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Introduction ▪ The financial system coordinates saving and investment. ▪ .‫يقوم النظام المالي بتنسيق االدخار واالستثمار‬ ▪ Participants in the financial system make decisions regarding the allocation of resources over time and the handling of risk. ▪ .‫يتخذ المشاركون في النظام المالي قرارات تتعلق بتخصيص الموارد مع مرور الوقت ومعالجة المخاطر‬ ▪ Finance is the field that studies such decision making. ▪ .‫التمويل هو المجال الذي يدرس مثل هذا القرار‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Present Value: The Time Value of Money ▪ To compare sums from different times, we use the concept of present value. ▪ ‫ نستخدم مفهوم القيمة الحالية‬، ‫لمقارنة المبالغ من أوقات مختلفة‬ ▪ The present value of a future sum: the amount that would be needed today to yield that future sum at prevailing interest rates ▪ ‫ المبلغ المطلوب اليوم للحصول على هذا المبلغ المستقبلي بأسعار‬:‫القيمة الحالية للمبلغ المستقبلي‬ ‫الفائدة السائدة‬ ▪ Related concept: The future value of a sum: the amount the sum will be worth at a given future date, when allowed to earn interest at the prevailing rate ▪ ‫ عندما يُسمح‬، ‫ المبلغ الذي يستحقه المبلغ في تاريخ مستقبلي معين‬:‫ القيمة المستقبلية للمبلغ‬:‫المفهوم ذو الصلة‬ ‫له بربح الفائدة بالسعر السائد‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. EXAMPLE 1: A Simple Deposit ▪ Deposit $100 in the bank at 5% interest. What is the future value (FV) of this amount? ▪ In N years, FV = $100(1 + 0.05)N ▪ In three years, FV = $100(1 + 0.05)3 = $115.76 ▪ In two years, FV = $100(1 + 0.05)2 = $110.25 ▪ In one year, FV = $100(1 + 0.05) = $105.00 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. EXAMPLE 1: A Simple Deposit ▪ Deposit $100 in the bank at 5% interest. What is the future value (FV) of this amount? ▪ In N years, FV = $100(1 + 0.05)N ▪ In this example, $100 is the present value (PV). ▪ In general, FV = PV(1 + r )N where r denotes the interest rate (in decimal form). ▪ Solve for PV to get: PV = FV/(1 + r )N © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. EXAMPLE 2: Investment Decision Present value formula: PV = FV/(1 + r )N ▪ Suppose r = 0.06. Should General Motors spend $100 million to build a factory that will yield $200 million in ten years? Solution: Find present value of $200 million in 10 years: PV = ($200 million)/(1.06)10 = $112 million Since PV > cost of factory, GM should build it. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. EXAMPLE 2: Investment Decision ▪ Instead, suppose r = 0.09. Should General Motors spend $100 million to build a factory that will yield $200 million in ten years? Solution: Find present value of $200 million in 10 years: PV = ($200 million)/(1.09)10 = $84 million Since PV < cost of factory, GM should not build it. Present value helps explain why ‫مهم‬ investment falls when the interest rate rises. ‫تساعد القيمة الحالية في تفسير سبب انخفاض االستثمار عندما يرتفع سعر الفائدة‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 1 Present value You are thinking of buying a six-acre lot for $70,000. The lot will be worth $100,000 in five years. A. Should you buy the lot if r = 0.05? B. Should you buy it if r = 0.10? © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers 1 You are thinking of buying a six-acre lot for $70,000. The lot will be worth $100,000 in five years. A. Should you buy the lot if r = 0.05? PV = $100,000/(1.05)5 = $78,350. PV of lot > price of lot. Yes, buy it. B. Should you buy it if r = 0.10? PV = $100,000/(1.1)5 = $62,090. PV of lot < price of lot. No, do not buy it. © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. Compounding ▪ Compounding: the accumulation of a sum of money where the interest earned on the sum earns additional interest ▪ ‫ تراكم مبلغ من المال حيث تكتسب الفائدة المكتسبة على المبلغ فائدة إضافية‬:‫المضاعفه‬ ▪ Because of compounding, small differences in interest rates lead to big differences over time. ▪ ‫ تؤدي االختالفات الصغيرة في أسعار الفائدة إلى اختالفات كبيرة مع مرور‬،‫بسبب المضاعفه‬ ‫الوقت‬ ▪ Example: Buy $1000 worth of Microsoft stock, hold for 30 years. If rate of return = 0.08, FV = $10,063 If rate of return = 0.10, FV = $17,450 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Rule of 70 ▪ The Rule of 70: If a variable grows at a rate of x percent per year, that variable will double in about 70/x years. ▪ ‫ س‬/ 70 ‫ فإن هذا المتغير سوف يتضاعف في حوالي‬، ‫إذا كان المتغير ينمو بمعدل س في المئة سنويا‬ ‫سنوات‬ ▪ Example: ▪ If interest rate is 5%, a deposit will double in about 14 years. ▪ If interest rate is 7%, a deposit will double in about 10 years. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Risk Aversion ▪ Most people are risk averse—they dislike uncertainty. ▪ .‫ فهم يكرهون عدم اليقين‬- ‫معظم الناس يكرهون المخاطرة‬ ▪ Example: You are offered the following gamble. Toss a fair coin. ▪ If heads, you win $1000. ▪ If tails, you lose $1000. Should you take this gamble? ▪ If you are risk averse, the pain of losing $1000 would exceed the pleasure of winning $1000, and both outcomes are equally likely, so you should not take this gamble. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Utility Function Utility is a subjective measure of well-being that depends on wealth. ‫المنفعة هي مقياس ذاتي‬ .‫للرفاهية يعتمد على الثروة‬ Utility Current utility As wealth rises, the curve becomes flatter due to diminishing marginal utility: the more wealth a person has, the less extra utility he would get from an extra dollar. ‫ يصبح المنحنى أكثر انبساطًا بسبب‬، ‫مع ارتفاع الثروة‬ :‫تناقص المنفعة الحدية‬ ‫ كلما قلت فائدته اإلضافية‬، ‫كلما ازدادت ثروة الشخص‬ .‫من دوالر إضافي‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Wealth Current wealth The Utility Function and Risk Aversion Utility Utility gain from winning $1000 Utility loss from losing $1000 Because of diminishing marginal utility, a $1000 loss reduces utility more than a $1000 gain increases it. –1000 +1000 Wealth © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Managing Risk With Insurance ▪ How insurance works: A person facing a risk pays a fee to the insurance company, which in return accepts part or all of the risk. ▪ Insurance allows risks to be pooled, and can make risk averse people better off: E.g., it is easier for 10,000 people to each bear 1/10,000 of the risk of a house burning down than for one person to bear the entire risk alone. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Two Problems in Insurance Markets 1. 2. Adverse selection: A high-risk person benefits more from insurance, so is more likely to purchase it. .‫ لذلك فمن المرجح أن يقوم بشرائه‬، ‫ يستفيد الشخص األكثر عرضة للمخاطر من التأمين‬:‫االختيار المعاكس‬ 3. 2. 3. Moral hazard: People with insurance have less incentive to avoid risky behavior. .‫ لدى األشخاص الذين لديهم تأمين حافز أقل لتجنب السلوك المحفوف بالمخاطر‬:‫الخطر األخالقي‬ Insurance companies cannot fully guard against these problems, so they must charge higher prices. .‫ لذا يجب عليها فرض أسعار أعلى‬، ‫ال يمكن لشركات التأمين أن تحمي هذه المشاكل بشكل كامل‬ As a result, low-risk people sometimes forego insurance and lose the benefits of risk-pooling . ‫ يتخلى األشخاص ذوو المخاطر المنخفضة في بعض األحيان عن التأمين ويفقدون فوائد تجميع‬، ‫ونتيجة لذلك‬ ‫المخاطر‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 2 Adverse selection or moral hazard? Identify whether each of the following is an example of adverse selection or moral hazard. A. Joe begins smoking in bed after buying fire insurance. B. Both of Susan’s parents lost their teeth to gum disease, so Susan buys dental insurance. C. When Gertrude parks her Corvette convertible, she doesn’t bother putting the top up, because her insurance covers theft of any items left in the car. © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers 2 A. Joe begins smoking in bed after buying fire insurance. moral hazard B. Both of Susan’s parents lost their teeth to gum disease, so Susan buys dental insurance. adverse selection C. When Gertrude parks her Corvette convertible, she doesn’t bother putting the top up, because her insurance covers theft of any items left in the car. moral hazard © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. Measuring Risk ▪ We can measure risk of an asset with the standard deviation, a statistic that measures a variable’s volatility—how likely it is to fluctuate. ▪ The higher the standard deviation of the asset’s return, the greater the risk. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Reducing Risk Through Diversification ▪ ▪ Diversification reduces risk by replacing a single risk with a large number of smaller, unrelated risks. .‫يقلل التنويع من المخاطر عن طريق استبدال خطر واحد بعدد كبير من المخاطر األصغر غير ذات الصلة‬ ▪ A diversified portfolio contains assets whose returns are not strongly related: :‫تحتوي المحفظة المتنوعة على أصول ال ترتبط عائداتها بقوة‬ ▪ Some assets will realize high returns, others low returns. ‫ "عائدات أخرى منخفضة‬، ‫بعض األصول سوف تحقق عائدات عالية‬ ▪ The high and low returns average out, so the portfolio is likely to earn an intermediate return more consistently than any of the assets it contains. ▪ ‫ وبالتالي من المرجح أن تحقق المحفظة عائدا ً وسيطًا أكثر ثباتًا من أي‬، ‫ويعود متوسط العوائد المرتفعة والمنخفضة‬ ‫من األصول التي تحتويها‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Reducing Risk Through Diversification ▪ Diversification can reduce firm-specific risk, which affects only a single company. ▪ ▪ .‫ والتي تؤثر فقط على شركة واحدة‬، ‫يمكن التنويع تقليل المخاطر المحددة للشركة‬ ▪ Diversification cannot reduce market risk, which affects all companies in the stock market. ▪ ‫ والتي تؤثر على جميع الشركات في سوق األوراق‬، ‫ال يمكن التنويع يقلل من مخاطر السوق‬ .‫المالية‬ ▪ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Standard dev of portfolio return Reducing Risk Through Diversification 5 0 4 0 3 0 2 0 1 0 0 Increasing the number of stocks reduces firm-specific risk. ‫زيادة عدد األسهم يقلل من المخاطر المحددة‬ .‫للشركة‬ But market risk remains. ‫لكن مخاطر السوق‬ ‫ال تزال قائمة‬ 0 1 2 3 0 0 0 # of stocks in portfolio 4 0 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Tradeoff Between Risk and Return ▪ Tradeoff: Riskier assets pay a higher return, on average, to compensate for the extra risk of holding them. ▪ ‫ للتعويض عن المخاطرة اإلضافية‬، ‫ في المتوسط‬، ‫ تدفع الموجودات عالية المخاطر عائدًا أعلى‬:‫المقايضة‬ ‫المتمثلة في االحتفاظ بها‬ ▪ E.g., over past 200 years, average real return on stocks, 8%. On short-term govt bonds, 3%. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Tradeoff Between Risk and Return ▪ Example: Suppose you are dividing your portfolio between two asset classes. ▪ A diversified group of risky stocks: average return = 8%, standard dev. = 20% ▪ A safe asset: return = 3%, standard dev. = 0% ▪ The risk and return on the portfolio depends on the percentage of each asset class in the portfolio… © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Tradeoff Between Risk and Return Increasing the share of stocks in the portfolio increases the average return but also the risk. ‫زيادة حصة األسهم في الحافظة‬ ‫تزيد من متوسط العائد ولكن‬ .‫الخطر أيضا‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Asset Valuation ‫مهم‬ ▪ ▪ ▪ When deciding whether to buy a company’s stock, you compare the price of the shares to the value of the company. ."‫ فإنك تقارن سعر األسهم بـ "قيمة الشركة‬، ‫عند تحديد ما إذا كنت ستشتري أسهم الشركة‬ ▪ If share price > value, the stock is overvalued. ▪ If price < value, the stock is undervalued. ▪ If price = value, the stock is fairly valued © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 3 Valuing a share of stock If you buy a share of AT&T stock today, ▪ you will be able to sell it in 3 years for $30. ▪ you will receive a $1 dividend at the end of each of those 3 years. If the prevailing interest rate is 10%, what is the value of a share of AT&T stock today? © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers 3 amount you will receive when you will receive it $1 in 1 year $1/(1.1) = $ 91 $1 in 2 years $1/(1.1)2 = $ 83 $1 in 3 years $1/(1.1)3 = $ 75 $30 in 3 years $30/(1.1)3 = $ 22.54 present value of the amount The value of a share of AT&T stock equals the sum of the numbers in the last column: $25.03 © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. Asset Valuation ▪ Value of a share ‫مهم‬ = PV of any dividends the stock will pay + PV of the price you get when you sell the share ▪ = ‫ قيمة السهم‬PV + ‫ من أي توزيعات أرباح سيدفعها السهم‬PV ‫من السعر الذي تحصل عليه عند بيع السهم‬ ▪ Problem: When you buy the share, you don’t know what future dividends or prices will be. ▪ ‫ فأنت ال تعرف ما هي األرباح أو األسعار المستقبلية‬، ‫ عندما تشتري السهم‬:‫المشكلة‬ ▪ One way to value a stock: fundamental analysis, the study of a company’s accounting statements and future prospects to determine its value ‫ دراسة البيانات المحاسبية للشركة واآلفاق المستقبلية‬، ‫ التحليل األساسي‬:‫طريقة واحدة لتقييم األسهم‬ ‫لتحديد قيمتها‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 4 Show of hands survey You have a brokerage account with Merrill Lynch. Your broker calls you with a hot tip about a stock: new information suggests that the company will be highly profitable. Should you buy stock in the company? A. Yes B. No C. Not until you read the prospectus. D. What’s a prospectus? © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. The Efficient Markets Hypothesis ▪ Efficient Markets Hypothesis (EMH): the theory that each asset price reflects all publicly available information about the value of the asset ▪ ) ‫ فرضية األسواق الفعالة‬EMH): ▪ ‫النظرية القائلة بأن سعر كل أصل يعكس جميع المعلومات المتاحة‬ ‫للجمهور حول قيمة األصل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Implications of EMH ‫آثار‬EMH 1. Stock market is informationally efficient: Each stock price reflects all . 2. available information about the value of the company ‫ كل سعر سهم يعكس جميع المعلومات المتاحة عن قيمة الشركة‬:‫سوق األوراق المالية ذو كفاءة إعالمية‬ 3. 2. 3. 3. 4. Stock prices follow a random walk: A stock price only changes in response to new information )“news”) about the company’s value. News cannot be predicted, so stock price movements should be impossible to predict. ‫ ال‬.‫ سعر السهم يتغير فقط استجابة للمعلومات الجديدة )"األخبار") حول قيمة الشركة‬:‫تتبع أسعار األسهم السير العشوائي‬ .‫ لذلك من المستحيل التنبؤ بحركات أسعار األسهم‬، ‫يمكن التنبؤ باألخبار‬ It is impossible to systematically beat the market. By the time the news reaches you, mutual fund managers will have already acted on it. ‫ كان مديرو صناديق االستثمار‬، ‫ في الوقت الذي تصل فيه األخبار إليك‬.‫من المستحيل التغلب بشكل منهجي على السوق‬ .‫المشترك قد تصرفوا بالفعل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Index Funds vs. Managed Funds ▪ An index fund is a mutual fund that buys all the stocks in a given stock index. ▪ An actively managed mutual fund aims to buy only the best stocks. ▪ Actively managed funds have higher expenses than index funds. ▪ EMH implies that returns on actively managed funds should not consistently exceed the returns on index funds. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Index Funds vs. Managed Funds 2001–2006 2006 annualized expense return ratio S&P 500 (index fund) Managed large cap funds 6.2% 5.9 .351 1.020 S&P MidCap 400 (index fund) Managed mid cap funds 10.9 8.1 .535 1.458 S&P SmallCap 600 (index fund) Managed mid cap funds 12.5 10.3 .550 1.272 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Market Irrationality ▪ Many believe that stock price movements are partly psychological: ▪ J.M. Keynes: stock prices driven by “animal spirits,” “waves of pessimism and optimism” ▪ Alan Greenspan: 1990s stock market boom due to “irrational exuberance” ▪ Bubbles occur when speculators buy overvalued assets expecting prices to rise further. ▪ The importance of departures from rational pricing is not known. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CONCLUSION ▪ This chapter has introduced some of the basic tools people use when they make financial decisions. ▪ The efficient markets hypothesis teaches that a stock price should reflect the company’s expected future profitability. ▪ Fluctuations in the stock market have important macroeconomic implications, which we will study later in this course. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. SUMMARY • The present value of any future sum is the amount that would be • needed today, given prevailing interest rates, to produce that future sum. ‫ في ضوء أسعار الفائدة‬، ‫القيمة الحالية ألي مبلغ مستقبلي هي المبلغ الذي ستكون هناك حاجة إليه اليوم‬ .‫ إلنتاج ذلك المبلغ المستقبلي‬، ‫السائدة‬ • Because of diminishing marginal utility of wealth, most people are riskaverse. Risk-averse people can manage risk with insurance, through diversification, and by choosing a portfolio with a lower risk and lower return . • ‫ يمكن لألشخاص الذين يكرهون‬.‫ فإن معظم الناس يكرهون المخاطر‬، ‫بسبب تناقص المنفعة الحدية للثروة‬ ‫ ومن خالل اختيار محفظة ذات مخاطر أقل‬، ‫ من خالل التنويع‬، ‫المخاطر إدارة المخاطر من خالل التأمين‬ ‫وعائد أقل‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. SUMMARY • The value of an asset equals the present value of all payments its owner will • receive. For a share of stock, these payments include dividends plus the final sale price. ، ‫ للحصول على حصة من األسهم‬.‫قيمة األصل تساوي القيمة الحالية لجميع المدفوعات التي يتلقاها مالكها‬ .‫تشمل هذه المدفوعات أرباح األسهم باإلضافة إلى سعر البيع النهائي‬ • According to the efficient markets hypothesis, financial markets are informationally efficient, a stock price always equals the market’s best guess of the firm’s value, and stock prices follow a random walk as new information becomes available. • ‫ ويكافئ سعر السهم دائ ًما أفضل‬، ‫ فإن األسواق المالية تتسم بكفاءة إعالمية‬، ‫ووفقا ً لفرضية األسواق الفعالة‬ .‫مسارا عشوائيًا كلما توفرت معلومات جديدة‬ ‫ وتتبع أسعار األسهم‬، ‫تخمين للسوق لقيمة الشركة‬ ً © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. SUMMARY • Some economists question the efficient markets hypothesis, and believe that irrational psychological factors also influence asset prices. • ‫ ويعتقدون أن العوامل‬، ‫يشكك بعض االقتصاديين في فرضية األسواق الفعالة‬ ‫ضا على أسعار األصول‬ ً ‫النفسية غير العقالنية تؤثر أي‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. N. Gregory Mankiw Principles of Macroeconomics Sixth Edition 15 Unemployment © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Premium PowerPoint Slides by Ron Cronovich In this chapter, look for the answers to these questions: • How is unemployment measured? • What is the “natural rate of unemployment”? • Why are there always some people unemployed? • How is unemployment affected by unions and minimum wage laws? • What is the theory of efficiency wages, and how does it help explain unemployment? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Labor Force Statistics ▪ Produced by Bureau of Labor Statistics (BLS), in the U.S. Dept. of Labor ▪ Based on regular survey of 60,000 households ▪ Based on “adult population” (16 yrs or older) © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Labor Force Statistics ‫مهم‬ BLS divides population into 3 groups: 3 ‫ينقسم السكان الى‬ ‫مجموعات‬ ▪ Employed: paid employees, self-employed, and unpaid workers in a family business ▪ ‫ والعمال غير المأجورين في شركة عائلية‬، ‫ والعاملين لحسابهم الخاص‬،‫ الموظفون المدفوع لهم‬:‫الموظفون‬ ▪ Unemployed: people not working who have looked for work during previous 4 weeks ▪ ‫ أسابيع الماضيه‬4‫ الذين بحثوا عن عمل خالل ال‬,‫ األشخاص الذين اليعملون‬:‫العاطلون‬ ▪ Not in the labor force: everyone else ▪ ‫ أي شخص آخر‬:‫ليس في قوة العمل‬ ‫مهم‬The labor force is the total # of workers, including the employed and unemployed . ‫ بما في ذلك العاملين والعاطلين عن العمل‬، ‫القوى العاملة هي مجموع عدد العمال‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Labor Force Statistics Unemployment rate (“u-rate”): % of the labor force that is unemployed ‫معدل البطالة ( النسبة المئوية من القوى العاملة العاطلة‬u-rate") = 100 x u-rate # of unemployed labor force Labor force participation rate: % of the adult population that is in the labor force ‫معدل مشاركة قوة العمل النسبه المئويه من السكان البالغين في القوى العاملة‬: labor force labor force = 100 x participation rate adult population © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 1 ‫مهم جدا‬ Calculate labor force statistics Compute the labor force, u-rate, adult population, and labor force participation rate using this data: Adult population of the U.S. by group, April 2011 # of employed # of unemployed not in labor force 139.7 million 13.7 million 85.7 million © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers Labor force 1 = employed + unemployed = 139.7 + 13.7 = 153.4 million U-rate = 100 x (unemployed)/(labor force) = 100 x 13.7/153.4 = 8.9% © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers 1 Population = labor force + not in labor force = 153.4 + 85.7 = 239.1 LF partic. rate = 100 x (labor force)/(population) = 100 x 153.4/239.1 = 64.2% © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. Labor Force Statistics for Different Groups ▪ The BLS publishes these statistics for demographic groups within the population. ▪ These data reveal widely different labor market experiences for different groups. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Labor Force Statistics for Whites & Blacks, April 2011 Adults (20 yrs & older) u-rate LF part. rate White, male 7.9% 73.9% White, female 7.0 59.8 Black, male 17.0 68.6 Black, female 13.4 62.0 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Labor Force Statistics for Whites & Blacks, April 2011 Teens (16–19 yrs) u-rate LF part. rate White 22.3% 36.2% Black 41.6% 26.2% © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Labor Force Statistics for Other Groups, April 2011 All ages u-rate LF part. rate Asian 6.4% 64.1% Hispanic 11.8 66.6 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Labor Force Statistics by Education Level, April 2011 Adults (25 yrs & older) u-rate LF part. rate less than h.s. 14.6% 45.5% h.s. diploma 9.7 60.4 some college or assoc degree 7.5 69.7 bachelor’s degree or more 4.5 77.0 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. LF Participation Rates by Sex, 1950–2009 percent Menmale female Women © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 2 Limitations of the u-rate In each of the following, what happens to the u-rate? Does the u-rate give an accurate impression of what’s happening in the labor market? ‫ ماذا يحدث للمعدل؟ هل يعطي معدل‬، ‫في كل مما يلي‬u ‫انطبا ًعا دقيقًا عما يحدث في سوق العمل؟‬ Sue lost her job and begins looking for a new one. .‫فقدت سو وظيفتها وبدأت تبحث عن وظيفة جديدة‬ A. B. Jon, a steelworker who has been out of work since his mill closed last year, becomes discouraged and gives up looking for work. B. ، ‫ وهو عامل في مجال الصلب الذي كان عاطل عن العمل منذ أن تم إغالق مصنعه العام الماضي‬، ‫جون‬ .‫يصبح محبط ويتخلى عن البحث عن عمل‬ C. C. Sam, the sole earner in his family of 5, just lost his $80,000 job as a research scientist. Immediately, he takes a part-time job at McDonald’s until he can find another job in his field. ‫ وهو الشخص الوحيد في أسرته المكون من‬، ‫سام‬ ‫ يأخذ وظيفة بدوام جزئي في‬، ‫ على الفور‬.‫ دوالر كعا ِلم أبحاث‬80،000 ‫ فقد وظيفته البالغة‬، ‫ أفراد‬5 .‫ماكدونالد حتى يتمكن من العثور على وظيفة أخرى في مجاله‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers 2 Sue lost her job and begins looking for a new one. .‫فقدت سو وظيفتها وبدأت تبحث عن وظيفة جديدة‬ u-rate rises A. A rising u-rate gives the impression that the labor market is worsening, and it is. A. ‫ارتفاع معدل‬U .‫ وهو كذلك‬، ‫يعطي االنطباع بأن سوق العمل يزداد سوءا‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers 2 Jon has been out of work since last year, becomes discouraged, B. stops looking for work. ً ‫ ويتوقف عن البحث عن عمل‬، ‫محبطا‬ ‫ ويصبح‬، ‫كان جون عاطل عن العمل منذ العام الماضي‬ C. Discouraged workers ▪ ▪ ▪ ▪ would like to work but have given up looking for jobs classified as “not in the labor force” rather than “unemployed” ‫يود العمل ولكن تخلى عن البحث عن عمل‬ "‫مصنفة على أنها "ليست في قوة العمل" بدالً من "العاطلين عن العمل‬ U-rate falls because Jon is no longer counted as unemployed. .‫انخفاض معدل البطاله ألن جون لم يعد يعتبر عاطال عن العمل‬ A falling u-rate gives the impression that the labor market is improving, but it is not. .‫ ولكنه ليس كذلك‬، ‫ويعطي انخفاض معدل البطاله االنطباع بأن سوق العمل يتحسن‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. ACTIVE LEARNING Answers C. 2 Sam lost his $80,000 job, and takes a part-time job at McDonald’s until he finds a better one. ‫ ويأخذ وظيفة بدوام جزئي في مطعم ماكدونالدز إلى أن‬، ‫ دوالر‬80،000 ‫فقد سام وظيفته التي تبلغ‬ .‫يجد وظيفة أفضل‬ D. U-rate unchanged because a person is “employed” whether they work full or part time. Things are worse, but the u-rate fails to show it. ، ‫ األمور أسوأ‬.‫معدل البطاله لم يتغير ألن الشخص "موظف" سواء كان يعمل بدوام كامل أو جزئي‬ .‫ولكن معدل البطاله فشل إلظهار ذلك‬ E. © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license distributed with a certain with a product certain product or service or or service otherwise or otherwise on a password on a password -protected -protected website website for classroom for classroom use. use. What Does the U-Rate Really Measure?‫ماذا يقيس معدل البطاله‬ ‫قراءه‬ ▪ The u-rate is not a perfect indicator of joblessness or the health of the labor market::‫معدل البطاله ليس مؤشرا مثاليا للبطالة أو صحة سوق العمل‬ ▪ It excludes discouraged workers. .‫وهو يستثني العمال المحبطين‬ ▪ It does not distinguish between full-time and part-time work, or people working part time because full-time jobs not available. ▪ ‫ أو العمل لبعض الوقت أو األشخاص الذين يعملون بدوام‬/ ‫وال يميز بين العمل بدوام كامل و‬ .‫جزئي ألن الوظائف بدوام كامل غير متوفرة‬ ▪ Some people misreport their work status in the BLS survey. ▪ ‫ بعض الناس يسجلون حالة عملهم في دراسة‬BLS. ▪ Despite these issues, the u-rate is still a very useful barometer of the labor market & economy.‫على الرغم من هذه القضايا‬ ▪ .‫ال يزال معدل البطاله مقيا ًسا مفيدًا جدًا لسوق العمل واالقتصاد‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. The Duration of Unemployment Most spells of unemployment are short: ▪ Typically 1/3 of the unemployed have been unemployed under 5 weeks, 2/3 have been unemployed under 14 weeks. ▪ Only 20% have been unemployed over 6 months. Yet, most observed unemployment is long term. ▪ The small group of long-term unemployed persons has fairly little turnover, so it accounts for most of the unemployment observed over time. Knowing these facts helps policymakers design better policies to help the unemployed. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ‫مهم جدا‬ Cyclical Unemployment vs. the Natural Rate ‫البطالة الدورية مقابل المعدل الطبيعي‬ There’s always some unemployment, though the u-rate fluctuates from year to year. . ‫ رغم أن معدل البطاله يتقلب من سنة إلى أخرى‬، ‫هناك دائ ًما بعض البطالة‬ ‫أنواع البطاله‬ Natural rate of unemployment ‫معدل طبيعي للبطالة‬ ▪ the normal rate of unemployment around which the actual unemployment rate fluctuates ▪ ‫المعدل الطبيعي للبطالة الذي يتقلب معدل البطالة الفعلي حوله‬ Cyclical unemployment ‫البطالة الدورية‬ ▪ the deviation of unemployment from its natural rate. ▪ ‫انحراف البطالة عن معدلها الطبيعي‬ ▪ associated with business cycles, which we’ll study in later chapters ▪ ، ‫مرتبطة بدورات العمل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. U.S. Unemployment, 1960–2011 percentage of labor force Unemployment rate Natural rate of unemployment © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Explaining the Natural Rate: An Overview Even when the economy is doing well, there is always some unemployment, including: ‫ فهناك دائ ًما بعض‬، ‫حتى عندما يكون األداء االقتصادي جيدًا‬ :‫ بما في ذلك‬، ‫البطالة‬ Frictional unemployment ‫البطالة االحتكاكية‬ ▪ occurs when workers spend time searching for the jobs that best suit their skills and tastes. ▪ ‫يحدث عندما يقضي العمال الوقت في البحث عن الوظائف التي تناسب مهاراتهم وأذواقهم‬ ▪ short-term for most workers ▪ ‫على المدى القصير لمعظم العمال‬ Structural unemployment ‫البطالة الهيكلية‬ ▪ occurs when there are fewer jobs than workers ▪ ‫يحدث عندما تكون هناك وظائف أقل من العمال‬ ▪ usually longer-term ‫عادة على المدى الطويل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ‫قراءه‬ Job Search ▪ Workers have different tastes & skills, and jobs have different requirements. ▪ Job search is the process of matching workers with appropriate jobs. ‫هو عملية مطابقة العمال بالوظائف المناسبة‬ ▪ Sectoral shifts are changes in the composition of demand across industries or regions of the country. ▪ Such shifts displace some workers, who must search for new jobs appropriate for their skills & tastes. ▪ The economy is always changing, so some frictional unemployment is inevitable. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ‫قراءه‬ Public Policy and Job Search ▪ Govt employment agencies provide information about job vacancies to speed up the matching of workers with jobs. ▪ ‫تقدم وكاالت التوظيف الحكومية معلومات عن الوظائف الشاغرة لتسريع عملية مطابقة العمال‬ .‫بالوظائف‬ ▪ Public training programs aim to equip workers displaced from declining industries with the skills needed in growing industries. ▪ ‫تهدف برامج التدريب العامة إلى تزويد العمال النازحين من الصناعات المتدهورة بالمهارات‬ .‫الالزمة في الصناعات المتنامية‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Unemployment Insurance ▪ Unemployment insurance (UI): a govt program that partially protects workers’ incomes when they become unemployed ▪ ‫ برنامج حكومي يحمي جزئيا دخل العمال عندما يصبحون عاطلين عن العمل‬:‫التأمين ضد البطالة‬ ▪ UI increases frictional unemployment. ‫التأمين ضد يزيد من البطالة االحتكاكية‬ ‫البطالة‬ To see why, recall one of the Ten Principles of Economics: People respond to incentives. UI benefits end when a worker takes a job, so workers have less incentive to search or take jobs while eligible to receive benefits . ‫ بحيث يكون لدى العمال حافز أقل للبحث‬، ‫تنتهي استحقاقات التأمين ضد البطالة عندما يأخذ العامل وظيفة‬ ‫أو الحصول على وظائف بينما يكونون مؤهلين لتلقي االستحقاقات‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Unemployment Insurance Benefits of UI: ▪ Reduces uncertainty over incomes ▪ Gives the unemployed more time to search, resulting in better job matches and thus higher productivity ▪ :‫فوائد التأمين ضد البطاله‬ ▪ ‫يقلل من عدم اليقين بشأن الدخل‬ ▪ ‫ مما يؤدي إلى تحسينات في الوظائف وبالتالي زيادة‬، ‫يمنح العاطلين مزيدًا من الوقت للبحث‬ ‫اإلنتاجية‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ‫مهم‬ Explaining Structural Unemployment Structural unemployment occurs when not enough jobs to go around. ‫ يحدث عندما ال يكون‬- ‫البطالة الهيكلية‬ .‫هناك ما يكفي من الوظائف‬ W unemployment S actual wage W1 WE Occurs when wage is kept above eq’m. There are three reasons for this ‫يحدث عندما يتم االحتفاظ باألجور فوق نقطة‬ ‫ هناك ثالثة أسباب لذلك‬.‫التوازن‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. D L ‫قراءه‬ 1. Minimum-Wage Laws ▪ The min. wage may exceed the eq’m wage for the least skilled or experienced workers, causing structural unemployment. ▪ ‫ مما يسبب‬، ‫ قد يتجاوز األجر أجر التوازن بالنسبة للعمال األقل مهارة أو خبرة‬.‫الحد االدنى‬ .‫البطالة الهيكلية‬ ▪ ▪ But this group is a small part of the labor force, so the min. wage can’t explain most unemployment. .‫ لذا فإن الحد األدنى لألجور ال يمكن أن يفسر معظم البطالة‬، ‫لكن هذه المجموعة جزء صغير من قوة العمل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ‫قراءه‬ ▪ ▪ 2. Unions Union: a worker association that bargains with employers over wages, benefits, and working conditions ‫ رابطة)شركه( عاملة تفاوض أرباب العمل على األجور والمزايا وظروف العمل‬:‫االتحاد‬ ▪ Unions exert their market power to negotiate higher wages for workers. ▪ .‫تقوم النقابات بممارسة قوتها في السوق للتفاوض على أجور أعلى للعمال‬ ▪ The typical union worker earns 20% higher wages and gets more benefits than a nonunion worker for the same type of work. ▪ ‫ ويحصل على فوائد أكثر من عامل غير نقابي‬٪ 20 ‫العامل النقابي النموذجي يحصل على أجور أعلى بنسبة‬ .‫لنفس النوع من العمل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 2. Unions ▪ When unions raise the wage above eq’m, quantity of labor demanded falls and unemployment results. ▪ ▪ .‫عندما ترفع النقابات األجر فوق كمية التوازن للعمالة التي تطلبها وتؤدي إلى نتائج البطالة‬ ▪ “Insiders” – workers who remain employed, are better off ▪ ً‫ أفضل حاال‬، ‫ العمال الذين يظلون يعملون‬- "‫"المطلعون‬ ▪ “Outsiders” – workers who lose their jobs, are worse off ▪ ً‫ هم أسوأ حاال‬، ‫ العمال الذين يفقدون وظائفهم‬- "‫"الغرباء‬ ▪ Some outsiders go to non-unionized labor markets, which increases labor supply and reduces wages in those markets . ▪ ‫ مما يزيد من المعروض من العمالة ويقلل األجور في‬، ‫يذهب بعض الغرباء إلى أسواق العمل غير النقابية‬ .‫تلك األسواق‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ▪ 2. Unions Are unions good or bad? Economists disagree. .‫هل النقابات جيدة أم سيئة؟ يختلف االقتصاديون‬ ▪ Critics: Unions are cartels. They raise wages above eq’m, which causes unemployment and/or depresses wages in non-union labor markets. ▪ ‫ أو يخفض‬/ ‫ مما يسبب البطالة و‬، ‫ إنهم يرفعون األجور فوق التوازن‬.(‫ نقابات العصابات)او االحتكار‬:‫النقاد‬ .‫األجور في أسواق العمل غير النقابية‬ ▪ Advocates: Unions counter the market power of large firms, make firms more responsive to workers’ concerns . ▪ ‫ وتجعل الشركات أكثر استجابة الهتمامات‬، ‫ تواجه النقابات قوة السوق في الشركات الكبيرة‬:‫المدافعون‬ ‫العمال‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 3. Efficiency Wages ‫كفاءة االجور‬ ▪ The theory of efficiency wages: Firms voluntarily pay above-equilibrium wages to boost worker productivity. ▪ .‫ تدفع الشركات طواعية األجور فوق مستوى التوازن لزيادة إنتاجية العمال‬:‫نظرية كفاءة االجور‬ ▪ Different versions of efficiency wage theory suggest different reasons why firms pay high wages. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 3. Efficiency Wages ‫مهم‬Four reasons why firms might pay efficiency wages: 1. 2. 2. 1.Worker health ‫صحة العامل‬ In less developed countries, poor nutrition is a common problem. Paying higher wages allows workers to eat better, makes them healthier, more productive. ، ‫ دفع أجور أعلى يسمح للعمال بأكل أفضل‬.‫ يعد سوء التغذية مشكلة شائعة‬، ً ‫في البلدان األقل نموا‬ .‫ وأكثر إنتاجية‬، ‫ويجعلهم أكثر صحة‬ Worker turnover ‫معدل دوران العامل‬ Hiring & training new workers is costly. Paying high wages gives workers more incentive to stay, reduces turnover. 3. ً ‫ ويقلل من‬، ‫حافزا أكبر للبقاء‬ ‫ دفع األجور المرتفعة يمنح العمال‬.‫إن توظيف وتدريب عمال جدد أمر مكلف‬ ‫معدل الدوران‬ 4. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 3. Efficiency Wages Four reasons why firms might pay efficiency wages: 3. Worker quality ‫جودة العامل‬ Offering higher wages attracts better job applicants, increases quality of the firm’s workforce. .‫ ويزيد من جودة القوى العاملة في الشركة‬،‫تقديم أجور أعلى يجذب افضل المتقدمين للوظيفه‬ 4.Worker effort ‫جهد العامل‬ Workers can work hard or shirk. Shirkers are fired if caught. Is being fired a good deterrent? 4. ‫يمكن للعمال العمل الجاد أو الهرب‬ Depends on how hard it is to find another job. If market wage is above eq’m wage, there aren’t enough jobs to go around, so workers have more incentive to work not shirk. 5. ‫ فليس هناك ما يكفي‬، ‫ إذا كان أجر السوق أعلى من أجر التوازن‬.‫يعتمد على مدى صعوبة العثور على وظيفة أخرى‬ .‫ لذلك فإن العمال لديهم حافز أكبر للعمل وليس الهرب‬، ‫من فرص العمل‬ © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ACTIVE LEARNING 3 Applying the concepts Which of the following would be most likely to reduce frictional unemployment? ‫أي مما يلي من المرجح أن يقلل من البطالة االحتكاكية؟‬ A. The govt eliminates the minimum wage. A. B. B. C. .‫الحكومة تلغي الحد األدنى لألجور‬ B.The govt increases unemployment insurance benefits. .‫الحكومة تزيد من فوائد التأمين ضد البطالة‬ C. A new law bans labor unions. .‫قانون جديد يمنع النقابات العمالية‬ D. More workers post their resumes at Monster.com, and more employers use Monster.com to find suitable workers to hire . E. E. ‫يقوم المزيد من العمال بنشر سيرتهم الذاتية على موقع‬Monster.com ‫ ويستخدم المزيد من أصحاب‬، ‫العمل موقع‬Monster.com ‫للعثور على عمال مناسبين لتوظيفهم‬ Sectoral shifts become more frequent. .‫تصبح التحوالت القطاعية أكثر تكرارا‬ © 2012©Cengage 2012 Cengage Learning. Learning. All Rights AllReserved. Rights Reserved. May notMay be copied, not be copied, scanned,scanned, or duplicated, or duplicated, in wholeinorwhole in part, or in except part,for except use as for use as permitted permitted in a license in a distributed license d...
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‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment 2
Macroeconomics (ECON 201)
Due Date:16th April 2022 @ 23:59
Course Name: Macroeconomics

Student’s Name:

Course Code: ECON201

Student’s ID Number:

Semester: II

CRN:
Academic Year:2021-22-2nd

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: 00 / 10

Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY









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allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
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font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.

Chapter 13, 14 & 15: Critical Thinking: Financial System: Saving and Investment &
Unemployment and Its Natural Rate: (10 Points)
In the second assignment for the Macroeconomics course, the students are required to choose a ...


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