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Transcript
Achievement Standard 3.4 Describe aggregate economic activity. Aggregate? The amount or total formed from separate units. Aggregate refers to a total, everything added up. Aggregate = Total The economy can be viewed as a series of aggregates, flowing together to make a working whole The Circular Flow Model Shows the economic transactions that occur between households, firms and other sectors in the economy. Money flows- We will only focus money flows as it is simpler than trying to account for the physical flows. The Circular Flow of Income and Spending The simplest form of circular flow $ Consumption Goods and Services Producers Households Factors of production Incomes $ rent wages interest profit Introduction of the Financial Sector Financial Institutions I (Investment) d Ca(Payments for goods and services) S (savings) c Producers Households b Y (Income) An Open Economy Financial Institutions Overseas Sector I (Investment) d X (Export receipts) f M (Import g payments) aC (consumption) S (Savings) c Producers Households b Y (Income) Role of the Government Financial Institutions Overseas Sector I (Investment) d X (Export receipts) f M (Import g payments) aC (consumption) S (Savings) c c G (Government Spending) Producers Households Government tr a (transfers) b Y (Income) T b (taxes) The Circular Flow Model Financial Institutions Overseas Sector d I (Investment) X (Export e receipts) M (Import f payments) aC (consumption) S (Savings) c G (Government Spending) i Producer Households Government tr h (transfers) b Y (Income) T g (taxes) The Circular Flow model Y= Incomes including rent wages interest and profit C= Consumption spending- the payment for goods and services S= Savings – income not spent on consumption this is a withdrawal from the economy I= Investment spending-purchase of capital goods. This is an injection into the economy X= Export receipts- Money received for exports sold M= Import payments- Payments made for imports purchased G= Government Spending- on collective goods T= Taxes the government collects from households and firms. These are used to fund G and Tr. Tr= Transfer money from one group to another, because of this transfer payments are not true expenditure. Page 138 Questions 1-3 The Circular Flow Model Financial Institutions Overseas Sector d I (Investment) X (Export e receipts) M (Import f payments) aC (consumption) S (Savings) c G (Government Spending) i Producer Households Government tr h (transfers) b Y (Income) T g (taxes) Calculating National Output What is national output? National Output =Total quantity of goods and services demanded in an economy in a year. Y= National output Y = C +I +∆R Where ∆R is changes in stocks Stocks are caused from unplanned investment where there is a build up of inventories/ stocks ready for sale. Negative unplanned investment also occurs however when there is a rundown of stocks. Calculating National Output The value of incomes always equals the value of what is produced National Output= C +I+ ∆R National Income=C +S Where national incomes is the total incomes resulting from the production of goods and services in an economy in a year. Because outcome equals income, it follows that C+S=C+I+ ∆R S=I + ∆R Calculating national Output using the Circular flow model. Output Y = C + I + ∆R + G + (X-M) Income Y= C + S +T Output = Income I + ∆R + G +X = S + T + M (Injections= Withdrawals) For the economy to be in equilibrium planned injections must equal planned withdrawals. (∆R=0) Calculating national Output using the Circular flow model. Changes in any of the flows in the circular flow diagram will result in the changes in national income. E.g What do you think would happen if people saved more? C would decrease and this would result in a reduction in national income Aggregate Demand What does aggregate mean? Aggregate refers to a total, everything added up. Aggregate demand is the total demand in the economy. AD shows how many goods and services will be demanded in an economy given the general price level and the level of income. Aggregate demand is equivalent to national output What are the components of national output? Output Y = C + I + ∆R + G + (X-M) AD=C+I +G + (X-M) Components of Aggregate demand AD=C+I +G + (X-M) C= Consumption Total demand for all final goods and services. This is shown by the household sector through its spending $ Consumption Households Household Consumption Expenditure 1995-2000 Food and beverages Clothing and footwear Transport Other G&S 7934 8699 9389 8974 9429 9966 5499 5941 6080 6317 6459 6806 Housing $ Million 1995 1996 1997 1998 1999 2000 8922 9306 9428 9595 9714 10164 2486 2523 2639 2696 2758 2934 11083 11243 11395 11548 11701 11879 1. In 2000, Real GDP was $102445million. What proportion of the 2000 GDP was made up of household consumption? 2. Which item of expenditure accounted for the largest proportion of household consumption spending over the period 1995-2000? 3. Why is savings not on the table? AD=C+I +G + (X-M) I=Investment = Expenditure by businesses as they demand investment/capital goods. Investment is exogenous. It is not influenced by the level of income but by other elements in the circular flow model. Three main reasons why firms invest? • Expect high demand in the future Existing capital has depreciated and needs replacing • Changes in government policies make it favourable to invest. The main determinant of the level of investment is the market interest rate • Gross Capital Fixed Formation Expenditure of producers on investment on new plant and machinery New capital spending by the govt e.g. motorways, roading Investment spending by households on housing. $(million) Capital Goods- 2002 calendar year $ (million) 7000 6000 5000 4000 3000 2000 1000 0 Exports Imports Machinery and plant Transport equipment Total Capital goods 1. What are capital goods? 2. Using the information above, analyse the links between, imports and investment. 3. Why do you think this link exists? 4. Why do you think Investment is important for economic growth? AD=C+I +G + (X-M) G= Government spending as it demands goods and services. Also exogenous (not dependent on level of national income) The government decides on what it is going to spend the money on then goes about raising the money necessary. Major items of expenditure in NZ are • Health • Education • Welfare AD=C+I +G + (X-M) (X-M)= Net exports We use net exports as we are interested in what NZ economy produces. M>X (X-M)? + or – This is a withdrawal from the circular flow M<X (X-M)? + or This is an injection from the circular flow. Gross Domestic Product (GDP) GDP= the money value of final goods and services produced in an economy in a year. Three ways to measure GDP • • • Production Income Expenditure Why do you think we would want to measure GDP? GDP An economies standard of living is measured by the number of goods and services that it has available to use and enjoy. An economies growth can be measured by the increase in the number of goods and services it makes Why do you think investment and savings are so important in an economies growth? Measuring GDP The Expenditure Approach- by adding up selling prices of all goods and services bought in the economy then making allowances for goods and services bought overseas. Formula= C + I + ∆R + G + (X-M) Consumption excludes buying new houses- this is investment Investment includes govt investment (Roading) • • Change in inventories are included as these represent goods available for sale and represent an increase in investment spending A decrease in stocks will reduce GDP because they represent expenditure on goods that were produced in the previous year. Measuring GDP The income approach- by adding up incomes generated in the production process. Income includes wages, salaries (Compensation to employees) profits, dividends, rents, interest (Gross operating surplus) Then make final adjustments to account for govt intervention. (Add taxes on production e.g. GST and imports e.g. tariffs then takeaway subsidies) Y= C+ S + T Measuring GDP The production approach- measures the value added by producers, by deducting the value of goods and services used up in the production from the total value of goods and services produced. To calculate find the value that each sector/producer adds to the value of the product during the production process. A problem that can occur with this approach is that of double counting. We will focus on the other two approaches Find GDP for the following data using the income and expenditure approaches Values of output at each stage of Bread production Grower Miller Baker 30 45 75 Intermedi ate goods Sales 30 price 30 75 75 150 Wages Wheat Grower Miller Baker Wages 30 45 75 Intermediate goods - 30 75 Sales price 30 75 150 • The expenditure approach= value of the final product = $150 million •The incomes approach totals wages at each stage of production= 30+45+75=$150million NSNA The New Zealand System of National Accounts (NZSNA) provides an international standard of measure of GDP that enables international comparisons Sometimes there will be a statistical discrepancy in the NSNA this is Statistical discrepancy = Income Approach GDP – Expenditure Approach GDP Basically it is used to make Income and Expenditure approaches balance NZSNA Terminology Consumption Final private expenditure Gross fixed capital formation Investment Government Spending Net Exports Government final expenditure Exports of goods and services – Imports of goods and services. Table 6.2 NZSNA Terminology Wages and salaries Gross Profits Depreciation Net Indirect Taxes Compensation of Employees Operating Surplus Consumption of fixed capital Indirect taxes minus subsidies. Table 6.2 Important things to remember when calculating GDP Include only G&S produced in NZ economy Include G&S produced only within that time period. (inventories included in time period they were made not when they were sold) Avoid double counting (second hand goods not counted) Questions What is GDP? What is the formula for calculating expenditure on GDP? Draw the simple circular flow diagram With reference to the model explain three ways GDP can be measured Calculate GDP from the data below using the Income and Expenditure methods Item $m Item $m Exports of G$S Indirect taxes Compensation employees 4000 10000 Gross fixed capital formation 2500 Subsidies 800 Private spending 12000 Increase in stocks 200 Gross Operating surplus 7500 Government spending 3000 Imports of G&S 1000 4000 Nominal GDP VS Real GDP Quantity of Pizzas Price of pizzas Quantity of pies Price of pies 2000 10 $10 15 $5 2004 20 $12 30 $6 Imagine the economy only produces pizzas and pies. Calculate GDP in year as the market value of production GDP 2000=(10pizzasX$10/pizza) +(15piesX$5/pie)=$175 GDP 2004=(20pizzasX$12/pizza) + (30piesX$6/pie)=$420 Looking at these two GDPs what would you conclude? BUT Looking closely you can see the quantities produced of pizzas and pies in 2004 are twice that produced in 2000 If eco activity exactly doubled why do the calculated values of GDP show a greater increase? Prices as well as quantities rose! Nominal and Real GDP Notes Nominal GDP= the actual dollar value of all goods and services produced in a year Inflation = Increase’s in the price level These values cannot be meaningfully compared from year to year Consumer Price Index (CPI) Measures the price level of a ‘basket’ goods and services purchased by the average NZ household The data on prices comes from household surveys conducted by Statistics New Zealand CPI is then released quarterly Used as a general measure of inflation Indicates the effect of price changes on the purchasing power of households To calculate and index =Expenditure Now Expenditure Base Year Consumer Price Index Year CPI 2002 1000 2003 1222 2004 1300 2005 2300 % price level change 22.2% 30% 130% Measures rate of change in price level from the base year (2002). Rate of change between 2003 and 2004 is 1300 – 1222 * 100 1222 6.4% Change in CPI An increase in the CPI is called inflation. The price level increases. The purchasing power of money decreases. A decrease in the CPI is called deflation. Disinflation refers to a decrease in the inflation rate. The CPI is increasing at a decreasing rate. Real Values Calculated using constant prices. –prices used for one year is used to calculate values for all years Are inflation adjusted. Can be meaningfully compared from year to year Real Income= Nominal Value X 1000 CPI Real GDP and Nominal GDP Nominal GDP= the actual dollar value of all goods and services produced in a year Real GDP= is nominal GDP adjusted for inflation. This measure allows for comparison of changes in the value of national output without price changes distorting the data. Real GDP In order to calculate RGDP the effect of price increases need to be removed. We will use the CPI index to do this: both the base year value (1000) and the value for the year we are calculating the RGDP for. The part of the equation in which this is taken into account is the GDP deflator: (taking inflation out of GDP value) CPIbase CPIyear1 Real GDP equation RGDP = GDPyear1 × CPIbase CPIyear1 (GDP deflator) NOTE: Year 1 refers to the year you are calculating the RGDP for. Real GDP Quantity of Pizzas Price of pizzas Quantity of pies Price of pies 2000 10 $10 15 $5 2004 20 $12 30 $6 Using the data in the table above and assume year 2000 is the base year find real GDP fro years 2000 and 2004 How much did real output grow between 2000 and 2004 Year 2000 real GDP=(10pizzasX$10/pizza) +(15piesX$5/pie)=$175 Year 2004 real GDP=(year 2004 quantity pizza's X year 2000 pizza prices) + (Year 2004 quantity pies X year 2000 pie prices) = (20X$10) + (30X$5) =$350 By using real GDP we have eliminated the effects of price changes and obtained a reasonable measure of actual change in physical production Measuring the rate of Economic Growth Rate of growth= GDP 2nd year-GDP 1st year x 100 GDP 1ST year Calculating the rate of inflation Rate of inflation= CPI 2ND year - CPI 1ST year x 100 CPI 1ST year Limitations to GDP In groups give an opinion into how well GDP is as a measure of the standard of living. Think about Unpaid work? Non-market activities? If it is not sold it is not counted Merit and demerit goods The distribution of wealth. Standard of living - the degree to which people have access to goods and services that make their lives easier, healthier, safer and more enjoyable Limitations to GDP as a measure of Standard of Living Non market activity GDP excludes Relative Merits of production Voluntary Labour Cash transactions, barter Illegal transactions There is no distinction in GDP whether goods being produced are merit goods or demerit goods e.g. a dollar spend on cigarettes has the same weight as a dollar spent on education Distribution of Income GDP is a total. Does not tell us how this total is distributed e.g. a country may have high GDP but there also may be large numbers of people living in poverty. GDP per capita Use GDP per capita (per head of population). GDP per capita = GDP Total Population Shows how much of the economies total production each person would receive if it was divided equally The Business (Trade Cycle Over time fluctuations in economic activity occur. The trade cycle shows us how fluctuations in the levels of output, employment, income and trade affect the level of real GDP. A Typical Trade Cycle Real GDP Peak Recession Recovery Boom Trough/Depression Time Trade Cycles Boom Peak (Turning point) Rising interest rates High eco activity “Full” employment Great optimism Businesses operating at capacity Eventually rate of growth must slow down. Even if economy is still growing t is now doing so at a decreasing rate Recession Rising unemployment and business failures Savings may increase as people fear unemployment Business activity slows down Trade Cycle Depression (Trough) Unemployment stabilised Low level eco activity Excess capacity Interest rates low Low consumption , low saving Eventually some major piece of capital equipment will need replacinginjection of investment lead to recovery Recovery Rise in real GDP slow at first, speeds up Rehiring of workers as demand increases Unemployment falls Consumption increases Ryan’s Thinker Keys The Variations Key How many other ways can you think of that may be used as a measure of standard of living if GDP was not used? National Income statistics for New Landzia 2050 National income statistics for Ecotopia 2050 Exports of G$S 51 Exports of G$S 51 Compensation employees 75 Change in inventories 7 Gross fixed capital formation 43 Gross fixed capital formation 43 Final consumption expenditure: private 57 Final consumption expenditure: private 57 Final consumption expenditure: government 36 Final consumption expenditure: government 36 Subsidies 8 Imports of goods and services 54 Gross operating surplus 76 Statistical Discrepancy 3 Indirect taxes 30 Taxes on production and imports 30 SLO: Describe, Explain and anaylse Aggregate demand The AD curve, reasons for its slope Factors that move AD Aggregate Demand and Aggregate Supply The AD/AS model is used to demonstrate equilibrium national income Actual level of national income may be above or below the AD/AS equilibrium but economic forces will act on national income and force it to equilibrium. AD/AS can help explain inflation and unemployment and shows us the impact of Government policies Exchange rate Other influences Aggregate Demand AD= is national output and represents total demand in the economy AD= C + I + G + (X-M) + ∆ R Look at your circular flow diagram which half does AD relate to? The AD curve shows us the quantity of output demanded at each price level. Aggregate Demand Curve AD curve bows towards the origin Price Level AD should not be confused with market demand curve for a commodity AD Real GDP (Y) The axes are different and reasons for AD curves shape very different. Reasons for downward sloping of AD curve An increase in the price level Means all goods and services are more expensive. Less can be bough with a given quaintly of income C Leads to an increase in the rate of interest. Costs of borrowing increases C I AD Exports now relatively more expensive, means decrease in demand for exports, (X-M) low Shifts along the AD curve Change in price level causes Movement along the AD curve PL1 PL AD Y1 Y Shifts of the AD curve Change in any variable in the AD equation (AD=C+ I+ G+ (X-M)) will move the AD curve itself. Shift to the Left C G X Shift to the right C G X Aggregate Supply Shows the quantity of national output that all producers are willing to supply at each price level. Aggregate Supply Curve Price Level AS Micro- Price increases quantity supplied increases- Upwards sloping supply curve Macro- Upwards sloping also. But it is relatively flat at low levels and gets steeper as it approaches capacity Real GDP (Y) Shifts in AS curve AS PL1 PL Y Y1 A change in the price level will cause a movement along the supply curve. Price Level Aggregate Supply Curve C Good Y Economies Production Possibilities Curve C B A B A Yf Real Income (Y) ,output, employment Good X 1. At very low levels of output there is excess capacity (idle factories, machinery and unemployed workers). Shown by point A, we are well inside our PPC curve. Production could be increased with very little cost, meaning prices don’t need to increase as much 2. As production increases diminishing returns sets in. Output will only rise at a higher price level shown by upwards sloping of the curve, point B 3. At greater levels of output, businesses are being pushed to their maximum and production becomes inefficient. Overtime will be paid as there are less people to be employed as we move towards Yf. The economy is operating on its PPC. The economy can operate at point C only in the short run. Shifts of the AS curve Imported raw materials Shift to the right: Wages Imported raw materials Productivity Productivity Shift to the left Wages Shifts of the AS curve Any shifts of the AS curve is caused by changes to: Wage rates Increases in wages would increase the costs of production. Imported Factor Costs Are a cost of production. E.G. If cost of Oil increases then cost of production increases. Changes in Productivity Can be due to improved technology or processes. This reduces costs of production and more can be produced at the existing price. Long Run AS curve LRAS SRAS Price level The SRAS can operate at a level above full capacity for limited periods of time. This will lead to increased competition for scarce resources as producers attempt to increase output. This then causes resource costs to increase (e.g. higher wages) and will Shifts SRAS to the left back to Yf. Yf Y The Long-run AS curve is at full employment level. Work Books page 151 Questions 1-2 Questions to think about Which two categories in the National Accounts make up the investment flow on the circular flow income model? Briefly explain the difference between these two categories Underlying causes of changes in AD We know that AD=C+I+G+(X-M) If either of these components increase AD also increases, but what will cause either of these components to increase? Group 1 – Consumption spending will increase if? Group 2- Investment spending will increase if? Group 3 – Government spending will increase if? Group 4 – Expenditure on net exports will increase if? Report back to the class on your findings in 10mins. Occurs where AD=AS and the price level PLe. Equilibrium This level also indicates the level of employment. Equilibrium AD/AS Full employment (economic potential) PLe Ye Yf Equilibrium represents where the economy will tend to move towards. Once we are at this equilibrium the economy will stay here unless AD or AS moves This means that if there is unemployment at the equilibrium level, it is likely to be chronic and will not go away by itself. Unless AD or As alters, the unemployment level will stay the same. Changes to Equilibrium A change in either aggregate demand or aggregate supply results in a change in the equilibrium price level and a change in the level of national income, output and employment. An increase in AS AS’’ Price Level AS’ PL ‘’ PL •A decrease in the price level •An increase in real income, output and employment A decrease in AS PL’ An increase in the price level Ye’’ Ye Ye’ Y A decrease in real income, output and employment levels Changes in AD and AS What will happen if there is an increase in AD? Increase in price level Increase in real income, output and employment What will happen if there is a decrease in AD? A decrease in price level A decrease in real income, output and employment. Disequilibrium If AD>AS Lead to an unplanned rundown of stocks. Producers will respond by increasing output but may also have to pay for more resources. Goods become scarce which causes price to increase. Price Level Equilibrium AD/AS If AD<AS PLe Ye Real Income (Y) , output, employment Lead to an unplanned build up of stock. Producers will cut back on production. Workers will be laid off causing income to fall. This leads to prices falling Actual GDP is below full employment level of GDP. There is excess production because of a lack of demand. AD is at a point where a price level of PL1 is needed to increase demand. Price Level BUT AS is operating at PL2 PL2 What will be the result? Pl Stocks will build up PL1 Businesses will lay off workers Ye Yf Actual GDP Y National output will fall and unemployment will rise Page 153 question 3-4 AD/AS analysis of Fiscal and Monetary Policy. Full employment is where the economy is operating on the PPC and all existing productive capacity is used. Often this is not the same as Ye Deflationary Gap Price Level AD and AS meet at a level of Real GDP that is below economic capacity. Therefore we have unemployment. Unemployment is shown by Y being less than Yf Deflationary Gap PL This level of unemployment is also called the deflationary gap. (As prices will have to fall to reach full employment) Y Yf Real GDP In conditions like this the characteristics of a recession can be seen! (also called a recessionary gap) How wouldUnemployment the government intervene to We are operating well within the PPC. try and close this gap? Why is a Recessionary (Defaltionary) gap unfavourable? Equilibrium income is below full employment level of income resulting in Unemployment Idle Factories This is a concern to the government because, even though the economy is in equilibrium there is under-utilised resources in the economy i.e. unemployed workers Expansionary Fiscal Policy The government can run an expansionary fiscal policy by increasing government spending and reducing taxes. This will result in a budget deficit or a reduction in the surplus. Tax Cuts A reduction in income taxes increases consumers disposable income, leading to an increase in consumption spending (C) A reduction in company taxes enable companies to distribute more after tax income to shareholders in the form of dividend increasing income (Y) To increase investment spending (I) An increase in C and I lead to AD increasing Expansionary Fiscal Gap Lower tax rates or increase in govt spending to increase aggregate demand. This is called operating a budget deficit How this deficit is funded will depend on how much the AD moves. Price Level PL Y Yf Deflationary Gap If the govt borrows from the banks or the public (non monetised). There will be a greater transaction demand for money which will push the interest rate up. This will then decrease I and C causing AD to move back but not as much as the initial shift left. Inflationary Gap Ye is now greater than Yf The economy is trying to achieve a level of real GDP that is beyond its capacity. AD>AS This gap is called an output gap. Inflationary Gap PL Yf Ye How would the government intervene to try and close this gap? Why is a Inflationary gap unfavourable? National income is temporarily at an overfull level of income, and there is full employment and inflationary pressure. This is a concern to the government because there will be pressure for resource costs to rise leading to inflation. Contractionary Fiscal Policy The government will run a contractionary fiscal policy by increasing taxes or reducing spending in key areas such as health, education and cutting benefits. This will result in a budget surplus or a reduction in the deficit. Increases in Tax leads to less disposable income meaning less consumption. Lower Government spending and lower consumption will cause the AD curve to move to the left. Conctractionary Fiscal Policy Inflationary Gap PL Contractionary fiscal policy would mean running a budget surplus (This is done through reducing government spending or increasing tax) AD would be reduced through less consumer spending and/or less govt spending Fiscal Policy Refers to the governments revenue and expenditure decisions. These decisions are shown in the Budget. The Budget sets out the sources of govt revenue and the areas of expenditure. The Impact of Fiscal Policy The govt raises most of its revenue as taxation from individuals and firms Raising revenue through collection of taxes is a withdrawal from the economy. T disposable incomes and after tax incomes of businesses C I So an increase in the tax rate to increase govt revenue will have a negative effect on economic activity T increases disposable incomes and after tax incomes of businesses C I Impact of Fiscal Policy However, Govt spending has a considerable impact on the economy. Govt spending is an injection into the economy. G increases the incomes of individuals and businesses. C I G decreases the incomes of individuals and businesses C I How is your Thinking Shaping Up? Copy one shape into your books and answer the questions. What is squaring your thinking? What do you agree with? What is the most important thing you have learnt? J.Wilson & K Murdoch 2006, How to succeed with thinking, Curriculum Corporation These are answers and your job is to think of a question for each one Government revenue and expenditure decisions Expansionary fiscal gap Wages increase, cost of imported raw materials increase, productivity decreases At very low levels of output there is excess capacity Will move the AD curve to the right The government raises most of its revenue through taxation. LI- Understand the role of the RBNZ and its implementation of Monetary Policy. Define money supply and explain how financial institutions can affect this. Reserve Bank of New Zealand The RBNZ has five roles It implements Monetary policy aimed at price stability. To issue currency It acts as the Governments Banker It is the Central Bank. It is the banker for banks and hold their settlement cash. It Banks can only be called registered banks if they hold settlement cash with the RBNZ supervises the banking system What is Money? http://www.dailymotion.com/video/x871et_real-world-economicsbarter-bank-no_school http://www.youtube.com/watch?v=DjTs-rjVkB8&feature=related Barter Banknotes and Beyond 1. What was the problem with barter? 1. 2. What characteristics does money need to have? 1. 2. 3. 4. 3. Long Lasting Easily divisible Reasonably scarce Easy to store What other items have been used as money in the past? 1. 2. 3. 4. 4. Double coincidence of wants Salt Cloth Shells Tabacco What was an early problem with money? Burglars What were the first banks called? Name major functions of banks The bank would go bankrupt Why would people be no better off if the nation’s money supply increased? Look after customers money (Savings) Lending money to customers If all depositors wanted their money back from the bank at once what would happen? GoldSmiths If the money supply doubles, the prices will double (inflation) we would be no better off What causes the money supply to change? Banks increasing net lending Government spending increases Spending > Taxation ----- Money supply will increase Money Supply The official money supply has three measures 1. M1-Notes and coins in circulation plus other funds that are immediately accessible by deposit holders without making a trip to the bank 2. M2=M1 + other on call funds at registered banks and non-bank financial institutions (e.g. savings, eftpos) 3. M3=M2+ term deposits at registered banks and non-bank financial institutions Financial Institutions and Money Supply What determines the amount of money in the economy? If the nations money supply consisted entirely of currency the answer would be simple: The supply of money would just be equal to the value of the currency created and circulated by the government. However, in modern economies money supply consists not only just currency but also deposits balances held at private banks Example- Gorgonzola land Originally no commercial banking system Barter becomes a problem- Govt directs central bank to put into circulation $1million. Printed and distributed to the public Money supply =$1million But notes may be lost or stolenpublic unhappy Example- Gorgonzola land In response some people set up a system of commercial banks At first- banks only storage vaults People need to withdraw $ - physically withdraw $ or write a cheque gives banks permission to transfer $ Suppose all $1million is deposited as people prefer bank deposits to cash Example- Gorgonzola land Balance sheet of Gorgonzolan Commercial Banks Assets Currency Liabilities $1’000’000 Deposits $1’000’000 Cash held by banks are called bank reserves. In this example banks reserves for all the banks equal 1000000. Banks hold reserves to meet their depositors demands for cash withdrawals. In this situation 100% reserve banking. Bank reserves are held in vaults rather than circulated among the public and thus are not counted as part of the money supply. But bank deposit balances are counted as money. Money supply= $1million Example- Gorgonzola land Commerical banks decide they only need to keep reserves equal to 10% of deposits. The remaining 90% can be lent out to borrowers to earn interest. Balance sheet of Gorgonzolan Commercial Banks Assets Liabilities Currency=reserv es 100’000 Loans 900’000 Deposits 1’000’000 Notice $900,000 have flown out of the banking system into the hands of the public. We assume citizens prefer bank deposits to cash ao will redeposit the $900’000 Example- Gorgonzola land Balance sheet of Gorgonzolan Commercial Banks Assets Liabilities Currency= reserves 1’000’000 Loans 900’000 Deposits 1’900’000 Money supply now equals $1’900’000! The existence of the commercial banking system has permitted the creation of new money Example- Gorgonzola land Bankers see they are keeping to many reserves With deposits of $1’900’000 and a 10% reserve deposit ratio, banks need only $190’000 in reserves. $810’000 too much. Banks lend out an extra $810’000 These are eventually redeposited into banks Balance sheet of Gorgonzolan Commercial Banks Assets Liabilities Currency= reserves 1’000’000 Loans 1’710’000 Deposits 2’710’000 Example- Gorgonzola land Money supply=2’710’000 The process of expansion of loans and deposits will only end when reserves equal 10% of bank deposits. Balance sheet of Gorgonzolan Commercial Banks Assets Liabilities Currency= reserves 1’000’000 Loans 9’000’000 Deposits Money supply= 10’000’000 10’000’000 Money supply Desired reserve-deposit ratio= Bank reserve Bank deposit Bank deposits = Bank reserves Desired reserve-deposit ratio Bank reserves = $1’000’000 Reserve deposit ratio =0.10 Bank deposits = 10’000’000 Money Supply with both currency and Deposits • • • Assumed money is held in the form of deposits Citizen decide to hold 500’000 in the form of currency and to deposit the rest into banks Banks keep reserves equal to 10% of deposits • Money supply= sum of currency in the hands of the public and the bank deposits. • • Currency =500’000 Remaining 500’000 available as bank reserves 500’000/0.10=5’000’000 • Total money supply= $5’500’000 • Money Supply=Currency held by public + Bank reserves Desired reserve-deposit ratio Questions Money Aggregates Transaction account balances 65 NZD funding 20 Currency in circulation 10 Other on call funds 140 1. From the above calculate M1, M2 and M3. 2. Place the following in order in terms of liquidity-from the most liquid to the least liquid. Term deposit, Cash, Transaction account balance, On call account balance. 3. Calculate the change in the money supply in each of the following cases. a) A new deposit of 20000 and a reserve ratio of 25% b) A new deposit of $40000 and a reserve ratio of 10% c) New deposits exceed withdrawals by $100000 and the reserve ratio is 20% Questions Fiscal Policy revision 1. What is the name of the gap shown in the graph? Price Level 2. What characteristics are shown in this graph for you to recognise that it is the gap you identified above? PL Y Yf Y 3. The government decides that it will implement fiscal policy to try and close this gap. What type of fiscal policy will the government use? Fully explain the effects this policy will have on the economy. Page 170 An increase in Money Supply (Primary Expansion) The reserves of the banking system increase and the money supply increases when Deposits from the public exceed withdrawals The govt repays its debt The RBNZ engages in Open Market Operations purchasing of stock The reserves of the banking system decrease and the money supply decreases when Opposite of above occurs Secondary Expansion When a primary expansion occurs banks are holding more reserves than prudence requires. They are then able to extend lending which is a secondary expansion in credit. This lending goes into transaction accounts and because these form a high proportion of M1 the money supply is increased. Demand for money The demand for money has two parts 1. Transaction demand (For money to make purchases) . The more purchases that takes place the higher the transaction demand for money (seen periods high eco activity) 2. Asset demand (Demand on assets used to be sold later or for precautionary reasons) Higher dependent on the interest rate. The higher the interest rate the lower the asset demand for money Money demand and Money Supply Interest rate Why do you think MS is a vertical line? MS r MD Quantity The RBNZ controls the supply of money and is fixed at any point in time. (Market forces have no effect) The NZ Financial System Government Banks with Reserve Bank of New Zealand (RBNZ) Registered banks: The Public Banks with e.g. ANZ, BNZ. National Bank etc Non-Bank deposit-taking institutions e.g. saving institutions, finance companies Maintaining Price Stability • The Reserve Bank ensures that money retains its buying power. – It is responsible for maintaining price stability i.e. guarding against inflation or deflation in order to protect the value of people’s incomes and savings. Inflation = an increase in the general level of prices over a period of time. Inflation = Change CPI x 100 Original CPI e.g. Year CPI Inflation = 1010 – 985 x 1000 2006 985 985 2007 1010 = 2.54% Inflation, Disinflation and Deflation • Inflation = increase in general price level • Disinflation = rate of inflation is decreasing • Deflation = decrease in average price level % change in price level +ve -ve B A C Years Text Book Activity C3.6 D Page 325 10mins Why do we need stable prices? • Key reason is to keep export prices competitive. • Rising prices make NZ exports more expensive compared with competing products Low inflation also means Businesses can plan for the future People are encouraged to save rather than borrow Firms more likely to invest in new production Wages and prices are consistent Policy Targets Agreement • The Reserve Bank’s responsibilities are set out in the Policy Targets Agreement: a contract between the Minister of Finance and the Governor of the RBNZ Policy Targets Agreement: required to keep inflation between 1% and 3% in the medium term. Monetary Policy • Monetary Policy – Changing interest rates or the money supply to influence the level of economic activity. Official Cash Rate Monetary Policy Tools Open Market Operations Moral Suasion Monetary Policy • Official Cash Rate (OCR) – Interest rate set by the Reserve bank to implement monetary policy, so as to maintain price stability The Reserve Bank in NZ now directly influences interest rates using the OCR. By setting the OCR the RBNZ is able to substantially influence short term interest rates. Short term interest rates have a big impact on the overall level of economic activity in the country and therefore on inflation. Influence on Interest rates by OCR • The reserve bank pays financial institutions 0.25% below the OCR for money deposited in the Reserve Bank settlement accounts • The reserve bank charges interest at 0.25% above the OCR for overnight cash to banks. • The Reserve Bank also sets no limit on the amount of cash it will take in or let out. OCR • The Reserve Bank reviews the OCR eight times a year. • Only in exceptional circumstances would the Reserve Bank make unscheduled adjustments to the OCR. • The OCR is much more simpler and easier understood than earlier systems. Effects of the OCR Reserve Bank increases OCR from 2.5% to 3% Financial Institutions pay 3.25% on loans, up from 2.75% Financial Institutions get 2.75% on settlement accounts up from 2.25% Various Financial Institutions will then increase their own interest rates to consumers and producers. Consumption rate falls as consumers will begin to save more. Investment will fall as producers pay more interest on loans Aggregate demand for goods and services in the economy falls The Inflation Rate will fall Monetary Polices • Loose Monetary Policy – Lowering the OCR to stimulate the economy and encourage economic growth • Tight Monetary Policy – Increasing the OCR to dampen economic activity Open Market Operations (OMO) • The buying and selling of government securities (bonds) in the open market in order to expand or contract the amount of money in the banking system. Purchases by the government of government bonds owned by banks inject money into the banking system and stimulate growth Sales of government bonds by the government withdraw money from the banking system and contract the economy. Sell stock to reduce money supply and buy back stock to increase money supply http://www.nzdmo.govt.nz/securities/govtbonds Moral Suasion • The Reserve Bank lets the market know about what its expectations are for the future. • This then lets markets predict as to what the RBNZ might do in the future and thus people will change behaviours to favour themselves in the future. • The RBNZ Monetary Policy Statements are one example of how the RBNZ tells the financial markets (banks etc) about its actions. Building a Cycle way the Length of NZ to Beat the Recession (2009 external examination) A national cycle way funded by Central Government at an estimated costs of $50 million and built throughout the country, would have a multiplied impact on local economies. For example, the 152km Central Otago Rail Trail attracted 12000 riders last year and a survey of local businesses estimated that 90 full-time staff and 240 part-time staff are currently employed in jobs as a result of the Rail Trail. (a) Predict the effects of the government spending $50million to build a national cycle way by ticking the appropriate box in each of the columns in Table 2 below Aggregate Demand Increase Aggregate Supply Increase Price Level Real GDP Increase Increase Decrease No Change No Change b) What type of policy that this government spending on a national cycle way would best represent? Expansionary Fiscal Policy c) Based on your predictions in the table above explain the initial impact the government spending would have on the level of unemployment c) Based on your predictions in the table above explain the initial impact the government spending would have on the level of unemployment As government spending increases on a cycle way, workers will be demanded to build the cycle way and thus more and more people will be employed. There will also be flow on jobs being created from the building of the cycle way, as there is likely to be an increased demand for local businesses products. Therefore with the creation of jobs due to the development of a cycle way the initial level of unemployment in the new Zealand economy will decrease. The Money Market and Interest Rates The RBNZ influences interest rates through OCR Interest rates have a large impact on economic activity and inflationary pressure The demand for money is created by those wanting to make transactions or to hold it as an asset An increase in GDP or eco activity Interest -Results from an increase in any component of AD MS1 -Results in increased production and sales therefore transactions rate r2 -Increase in transactions means an increase in demand for money r1 MD2 MD1 Quantity of Money -Increase in interest rates Interest Rate Changes An increase in the interest rate will Decrease household consumption spending A decrease in business investment spending as business confidence falls. Sales and revenue may also fall as eco activity slows An increase in the exchange rate as consumer confidence falls and they now prefer to save rather than spend. Household income may also fall as eco activity slows which will reduce net exports. Export volumes and receipts decrease while import volumes and payment may increase. All of these changes will cause the AD to fall and thus inflation will fall. The Money Market and the OCR ms2 MS1 An increase in the OCR ( Tight Monetary Policy) Interest rate Interest rates rise from r1 to r2 r2 r1 MD As I and C fall and net exports fall. Causing a decrease in AD Quantity of Money AS PL PL’ AD Y’ Y AS moves out as the appreciated exchange rate causes a fall in imported materials costs Money supply decreased, Price level falls inflationary pressure is reduced. A rise in the OCR Increased retail interest rates Credit more expensive Existing borrowers face increased costs Increased demand for the NZD Appreciation of the exchange rate Less new Higher costs on existing borrowing for investment Holders of existing mortgages have less disposable income leading to lower consumption spending of more elastic G&S Increased costs of production Adverse effects on net exports Lower demand for credit Investment spending Less new Borrowing for consumption AS moves to the left Downward pressure on the AD curve Downward pressure on AD curve Reduction in Real GDP Rising unemployment A rise in the OCR Increased retail interest rates Credit more expensive Existing borrowers face increased costs Increased demand for the NZD Appreciation of the exchange rate Less new Higher costs on existing borrowing for investment Holders of existing mortgages have less disposable income leading to lower consumption spending of more elastic G&S Increased costs of production Adverse effects on net exports Lower demand for credit Investment spending Less new Borrowing for consumption AS moves to the left Downward pressure on the AD curve Downward pressure on AD curve Reduction in Real GDP Rising unemployment Monetary Policy and the Economic activity is too Inflationary Gap high and unsustainable. There is pressure on price levels. Tight Monetary Policy will be used. Inflationary Gap Increase OCR Interest rates increase PL Reduces lending and increases saving I and C decrease Yf Ye AD falls Inflation is reduced Monetary Policy and the There is under-utilsed Deflationary Gap productive capacity in the Price Level economy and therefore unemployment AS Loose Monetary Policy will be used Pe’ OCR reduced PLe Reduces interest rates Ad’ AD Ye Yf Real Income, Output Employment Reduces saving and increases lending Increase in C and I AD increases Inflation increases Official Cash Rate (OCR) decisions and current rate Change in OCR 29 July 2010 +0.25 10 June 2010 +0.25 29 April 2010 No change 11 March 2010 No change 28 January 2010 No change 10 December 2009 No change 29 October 2009 No change 10 September 2009 No change 30 July 2009 No change 11 June 2009 No change 30 April 2009 -0.50 12 March 2009 -0.50 29 January 2009 -1.50 OCR rate 3.00 2.75 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 2.50 3.00 3.50 List of Registered Banks in NZ as at 4 May 2010 Name of registered bank Registration Date Name of credit rating agency and rating ANZ National Bank Limited1 April 1987 ASB Bank Limited 11 May 1989 Australia and New Zealand Banking Group Limited (B)5 January 2009 Bank of Baroda (New Zealand) Limited1 September 2009 Bank of New Zealand1 April 1987 Citibank N A (B)22 July 1987 Commonwealth Bank of Australia (B)23 June 2000 Deutsche Bank A G (B)8 November 1996 JPMorgan Chase Bank NA (B)1 October 2007 Kiwibank Limited29 November 2001 Kookmin Bank (B)14 July 1997 Rabobank Nederland (B)1 April 1996 Rabobank New Zealand Limited 7 July 1999 Southland Building Society7 October 2008 The Bank of Tokyo-Mitsubishi UFJ (B)1 March 2004 The Hongkong and Shanghai Banking Corporation (B)22 July 1987 TSB Bank Limited 8 June 1989 Westpac Banking Corporation (B)1 April 1987 1Westpac New Zealand Limited31 October 2006 AA AA-Aa2 AA -Aa2 AA AA-Aa1 -BBB— AA-Aa2 A+A+A1 AAAAAa1 A+AA-Aa3 AA-AA-Aa1 AA--A-A1 AAAAA+Aaa AAA— -BBBA+AAa2 AAAAAa1 BBB+-AAAAAa AAAAAa2 Exercises page 170 Questions 1-4 What type of gap would you expect the economy to be in by looking at the above picture? What tools are there available for the government to try and close this gap?. Economic Problem Solving Sheets Balance of Payments Where New Zealand's international transactions are summarised International transactions include the value of Inflows and outflows of money Financial assets and liabilities Financial Account Capital Account Balance of Payments Current Account Current Account Balance on goods Value of exported goods minus value imported goods Usually positive Includes all tangible items that can be seen, moved or stored Balance On services Value exported services minus value of imported services e.g. Transport, insurance, education etc. Tourists from overseas who spend money in NZ contribute to our exports of services Balance on income Value of investment income received from investments overseas minus investment income paid to foreign investors e.g. Interest on savings loans and dividends on shares Balance on current ‘ transfers Value of transfers received by NZlanders minus value of transfers paid to others overseas. e.g. Money transfers from Govt aid, gifts etc FORMULA TO CALCULATE CURRENT ACCOUNTBALANCE BoG=Xg-Mg BoS= Xs-Ms BoII= net investment income BoCT= net transfers CAB=BoG + BoS + BoII + BoCT Current account balance 1999-2006 Positive balances indicate a surplus, negative balances are in deficit -The goods balance has gone from a surplus of $2.1 billion in 2001 to a deficit of $4.2 billion in 2006 -- Mainly driven from rising imports -- Service balance went from deficit to small surplus -- Investment income deficit increased to over 11billion in 2006 -- result of increasing income earned by foreign investors (high foreign investment) Ecotonia’s current account statistics, years 1 to 5 Item Year 1 Year 2 Year 3 Year 4 Year 5 Xg 32 33 32 35 36 Mg 28 29 33 36 38 Xs 18 20 25 29 30 Ms 23 24 24 26 26 Investment income -3 -4 -7 -8 -10 Net transfers 2 1.5 2 2.5 1 1. Calculate the current account balances for Ecotania 2. Describe how these events will affect the CA balance (a) Air NZ buys another plane from the US (b) There is an economic downturn in NZ’s main export markets (c) Profits of foreign-owned companies in NZ increase (d) NZlanders donate large sums to help with disaster relief overseas Capital Account Balance of Transfers made by immigrants e.g. Aid money Relatively small impact on the Overall BOP Think of capital in an accounting sense of transfers of money Financial Account Capital Inflows- Capital Outflows Capital Inflows Assets brought in NZ by overseas investors (Foreign investment) -NZ borrowing overseas Capital Outflows Assets brought overseas by NZ investors ( NZ Investment Abroad) -Debt repayment If NZ sells more assets to foreigners than it buys from foreigners, there will then be a financial account surplus. Financial Account Is set out using these categories Direct investment Investments that make up over 10% of the equity in a company Portfolio investment Includes investments that make up under 10% of the equity in a company Other capital investment All other investment flows (including those from govt) Reserve assets Current Account Balance Is consistently in deficit. NZ has experienced current account deficits since the 1970s. Due to too much domestic demand, a lack of domestic savings and an over-valued exchange rate This deficit has to be paid for in some way, from overseas borrowing, foreign investment or assets sales Which account do all these components appear in? Financial Account Balance Is consistently in surplus – Generally considered undesirable as these are liabilities that have to be paid in the future. Thus the current account balance will be the opposite of the financial account balance. New Zealand’s Balance of Payments 2005-2009 dollars Balance of Payments amounts in millions) Year ended 31 March 2005 2006 2007 2008(1) 2009(1) Export receipts 31,114 31,581 35,636 38,720 44,259 Import receipts 33,343 35,685 38,464 40,515 45,594 Merchandise BALANCE (2,228) (4,104) (2,828) (1,796) (1,337) Services BALANCE 1,200 522 433 184 (1,119) Investment income BALANCE (9,384) (11,065) (11,906) (13,343) (13,035) Transfers BALANCE 293 144 774 828 919 (10,120) (14,504) (13,527) (14,128) (14,568) (6.7) (9.0) (8.0) (7.8) (7.9) Foreign investment in NZ 13,870 10,421 23,370 26,795 (8,853) NZ investment abroad 3,222 (3,790) 11,120 12,500 (16,122) Reserves (914) 4,850 6,744 5,763 (9,947) 10,648 14,211 12,250 14,295 7,269 108 (326) (457) (773) (579 Current Account Current account BALANCE Deficit as % OF GDP Financial Account (net) Financial account BALANCE Capital Account BALANCE OF Capital Account Work book page 177 Question 1-4 Trade Accounts Statistics NZ has upgraded the way it calculates and presents trade statistics to bring NZ statistics into line with IMF guidelines. NZ stats can be meaningfully compared with those of other countries. The Foreign Exchange Market Foreign currency is required for international trade. e.g. Before NZ importers can buy a shipment of Japanese cars, they must first buy Japanese yen. Forces of demand and supply will interact to establish the equilibrium quantity and price. Those who create supply in one foreign exchange market create demand in another. e.g. a NZlander travelling to Australia supplies $NZ to the foreign exchange market and demands $AU. The price is referred to as the exchange rate The exchange rate is referred to as how much of another currency $1 NZ buys Foreign Exchange Market Demand for $NZ foreign exchange is mainly created by Exporters Foreign tourists Foreign investors Supply of $NZ foreign exchange is mainly created by Importers NZ tourist travelling aboard NZ investors investing internationally. Exchange rates Price of each NZD in terms of overseas currency If people from overseas wish to buy our exports or deposit money in our banks, they must first buy our dollars to do this. Supply ($NZ) 0.72 USD or 62.41JPY or 0.77 AUD Demand ($NZ) Q1 Quantity of NZ dollars The price of the Australian dollar September 2010 The price of one Australian dollar is $1.29 NZ. Price in NZD Supply (AUS $) $1.29 What would the price of one NZ dollar cost in Australian currency? 1AUS = 1.29 NZ 1.29 = 1.29 0.77AUS= 1NZD Demand (AUS $) Q1 Quantity of Australian dollars If a NZ importer wished to import a shipment worth $100’000 AUS what would it cost them in NZD? 100000X 1.29 = $129’000 NZ Supply and Demand of NZD The Supply curve of NZD is influenced by Demand for imports (price of imports, incomes etc) Investment by NZlanders overseas Tourism by NZlandes overseas Repayment of overseas debts Investment earnings by foreign owned businesses in NZ Business and consumer confidence Supply and Demand of NZD Demand of NZD is influenced by Demand for NZ exports (price of exports, incomes etc) Foreign investment in NZ Influenced by OCR and interest rates Overseas borrowing Overseas earning of NZ owned assets Overseas confidence in NZ ecnomy Trade Weighted Index (TWI) Measures the overall changes in the exchange rate, of our major trading partners. It shows if the NZ $ has appreciated or depreciated overall against our trading partners. Our dollar could appreciate against some but depreciate against others. Appreciation- when the value of $NZ INCREASES against another currency Could be due to an increase in demand or a reduction in the supply caused by things like high interest rates, increased demand for NZ exports, low inflation. Depreciation- when value of $NZ DECREASES against another currency. Could be due to a decrease in demand or an increase in supply. Caused by things like, low interest rates, high inflation. Impacts on Imports and Exports Appreciation This impacts on exports by making them more expensive (to foreigners) causing exports to reduce This impacts on imports by making them relatively more cheaper, as the $NZ now buys more, imports increase Negative effect on BOP (X-M) as BOP surplus’s are reduced but BOP deficits will increase. Deprecation This impacts on exports by making them cheaper in other currencies- exports will increase This impacts on imports by making them more expensive thus imports will decrease. Positive effect on BOP (X-M) What would happen if tourist numbers to NZ decreased? 1. Show the effects on the graph. S $NZ Will the exchange rate appreciate or depreciate? Supply ($NZ) Explain why falling tourist numbers cause this effect? P What effect will this have on the Demand ($NZ) Balance of goods Current Account Aggregate demand Q Q $NZ Other Factors effecting Imports and Exports Demand for exports will depend on Price of the product Income levels of the countries we export to Tastes and preferences for our product The price of substitutes and compliments Access to foreign markets (Trade barriers prevent access) Trade agreements free up access. Demand for imports will depend on The price Income levels in NZ The price of substitutes and compliments. Terms of Trade Is an index of export and import prices Terms of = Total Exports Price Index x 1000 Trade Total Imports Price Index • Show what a given amount of exports can purchase in the way of imports •The higher the index the more competitive our exports are •If the terms of trade rise (favourable increase) a given amount of exports can now purchase a greater amount of imports than before. Average for USA UK Aust. Japan Euro period ended Mid-rates all quoted to NZ$1 TWI TWI Base June Monthly 1979 = 100 % change Aug 2009 0.6754 0.4082 0.8089 64.14 0.4736 62.9 3.7 Sep 2009 0.7024 0.4304 0.8166 64.29 0.4827 64.3 2.3 Oct 2009 0.7383 0.4566 0.8157 66.58 0.4986 66.5 3.4 Nov 2009 0.7309 0.4400 0.7943 65.26 0.4901 65.2 -1.9 Dec 2009 0.7162 0.4407 0.7929 64.15 0.4902 64.7 -0.9 Jan 2010 0.7277 0.4500 0.7959 66.38 0.5092 66.1 2.3 Feb 2010 0.6974 0.4455 0.7868 62.93 0.5094 64.6 -2.3 Mar 2010 0.7032 0.4670 0.7712 63.66 0.5178 65.1 0.8 Apr 2010 0.7124 0.4644 0.7685 66.52 0.5304 66.1 1.6 May 2010 0.6992 0.4761 0.8019 64.36 0.5557 67.0 1.3 Jun 2010 0.6928 0.4696 0.8105 62.96 0.5665 67.1 0.1 Jul 2010 0.7111 0.4657 0.8134 62.31 0.5572 67.2 0.2 Aug 2010 0.7154 0.4566 0.7944 61.17 0.5541 66.6 -0.9 Index The Fluctuating value of NZD using TWI Base June 1979 = 100 68.0 67.0 66.0 65.0 64.0 63.0 62.0 61.0 60.0 Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug09 09 09 09 09 10 10 10 10 10 10 10 10 Year