Chapter 35

Chapter 35 was all about the SHORT-RUN relationship between inflation and unemployment, since in the long run both factors are unaffected by one another. The Philips curve was introduced in the chapter to relate the concept back to aggregate demand and aggregate supply to understand why the curve is downward sloping. The natural rate hypothesis was also introduced to us, stating that unemployment would rather be unaffected by inflation in the long run. The chapter also conveys back to previous chapters by fully explaining supply shocks, which tend to alter firm's costs and prices, creating more than just "sticky" situations. The costs of reducing inflation, however, are also discussed and include rational expectations, as production must be held and then the loss must be calculated as a ratio of what was truly lost. For rational expectations there is a theory that discusses that people use all information given, including government's actions to somewhat guess what will happen in the near future. Eventually expectations change and so do the price level and inflation meaning that inflation and unemployment in the long run is unaffected.

Chapter 34

Chapter 34 discusses the effect of monetary and fiscal policies on the aggregate demand/supply curves. Discussing why the aggregate demand is downward sloping, being the wealth, interest, and real exchange effect. The interest is a key determinant of aggregate demand. We use the theory of liquidity preference to show how interest rates affect aggregate supply and demand. In the book it refers that we are determining are both nominal and real since since in the short run, expected inflation is unchanging so changes in the nominal equal real interest rates. The interest rate is the opportunity cost of money. When interest rates are high, people like to hold their money and economize it through bonds thus aggregate demand is reduced. Monetary policies target changing the interest rates or the money supply thus shifting the aggregate demand.
Fiscal policy refers to the government’s choices on the levels of government purchases and taxes. While fiscal policy can influence growth in the long run, its primary impact in the short run is on aggregate demand. When the government changes their level of government purchases of taxes, two outcomes can come into play: the multiplier effect and the crowding out effect. In the multiplier effect for example, the government purchases $20 billion worth of aircrafts. The incomes, wages, and profits rise in the aircraft manufacturers allowing the them to increase on consumption goods which raises the incomes of other firms. Since aggregate demand shifts right and may rise more than the government purchases, these government purchases are said to have the multiplier effect. The crowding out effect is the exact opposite of the multiplier effect. An increase in government purchases (as in the case above) raises incomes, which shifts the demand for money to the right. This raises the interest rate, which lowers investment. Thus, an increase in government purchases increases the interest rate and reduces, or crowds out, private investment. Due to crowding out, the aggregate-demand curve may shift right by less than the increase in government purchases.
Level of difficulty 2/3.

Article Review #10

In this article the authors convey that participants have internalized a faith in which central bankers are responsible for market outcomes. Then they go on and explain how monetary policy is a mold-able subject, that can be easily played with when it comes to politicians and big power. They also attack the Central Bank Omnipotence by stating that is turning into the Narrative of central bank competition, which in return means that difficulties have risen due to gigantic global debt. Q3 and Q4, being peaks in the economy in 2014, have been in decline, and then the authors go on stating how such low-high percentage numbers cannot be unless we are already in a recession. The contractions in exports are affecting trade levels and the recession is highlighted. Due to such things, Global growth is contracting, trade values from US, Asian and European worlds will pop the remains of the monetary policy.  The domestic political pressure to raise protectionist barriers and get a great part of the smaller trade. The government uses depreciation in the monetary system as its greatest weapon to keep business, or "factories", running. Meaning that China will have to cut prices in order to devalue its currency. The author then goes and states,"Competitive death spiral of monetary policy which will put everyone in worse positions shrinking the global pie further", meaning that due to such monetary policies and methods the global pie is to shrink even more!! To end the article the prisoner's dilemma is applied to real life. When global trade shrinks, the payoffs from monetary policy defections are no longer less than the payoff of monetary cooperation, defect is the domain, and there's a free rider who gets to take advantage of all others. Meaning "survival" mode.

Chapter 32/ Level of difficulty 2/3

Two markets are key to an open economy, those being the loanable funds market and the market for foreign-currency exchange. The real interest rate will adjust to fix the supply in the market for loanable funds from national savings and the demand, from domestic investment and net capital outflow. The market for foreign-currency exchange on the other hand the real exchange rate adjusts to balance the supply of dollars coming from net capital outflow and the demand for dollars, for net capital exports. Net capital is a shared variable in both markets, thus it is the connection amongst them. A policy may be imposed by the government and will decrease the amount of supply, but drive interest rates up. Higher interest levels reduce net capital outflow which would then reduce the amount of dollars in a foreign-currency exchange market. If the dollar would appreciate then there would be a fall in net exports. Some trade policies are designed to alter trade balance, such as tariffs , quotas and etc, but may not have such effects.

Chapter 31: level of difficulty 2/3

Chapter 31 dealt with an open economy where interaction with other economies in the world occurs freely. In such case there are two usages, the buying and selling of goods and services(product markets) and the buying and selling of assets such as stocks and bond (world-financial markets). Allowing the flow of goods to be imports and exports with a net exports, or value of a country's exports minus the value of the countries imports, this also being trade balance. In all there are also financial resources including new capital outflow which is calculated as purchase of foreign assets by domestic residents - purchase of domestic assets by foreigners. Thus, new capital outflow must equal net exports, since imports and exports happen during trade. Trade deficits happen when exports are less than imports and net exports are less than 0. Balanced trade happens when exports and imports are equal and net exports are equal to 0. While trade surpluses happen when exports are greater than imports and net exports are greater than 0. Saving, investment and capital have a relationship that is determined by manipulating the identity discovered in the previous chapters, that being y=c+I+g+NX to determine GDP, therefore the new equation becomes S=I+NX, or savings equal investment plus new capital outflow. Nominal exchange rates are the rate at which a person can trade the currency of one country for the currency of another, where values may appreciate or depreciate. Real exchange rates on the other hand are the rates at which goods and services are traded.

Article #8

Once again! David Stockman is to criticize the works and the workers of the Fed, claiming they do not know how to control the system. This time he specifically goes against Janet Yellen, whom is the chairman at this time. He claims that her Keynesian methods and tactics are not trying to help the economy, instead there is a deterioration that will sooner or later lead to a collapse. He then mentions that the US is trying to avoid the declining interest rates that are occurring in other parts around the world. Then he goes about to say that the zero interest rate and the negative interest rate would not help, and that she would need to stop thinking about the past and rather focus on present issues. He talks about how households and businesses have peek debt and that there is no sort of movement made in order to help them. Rather the Fed has decided to go around the issue, instead of actually fixing the result. Slowing not only economic but job growth as well. Then he goes and argues how there's been no progress that rather the jobs are the same jobs that had already existed. Not only this but he also points out how through most of her arguments Yeller contradicts herself. He is angry at the Fed and the job that they are doing.

Chapter 30

This chapter helped explain inflation and money growth, the relationships among both, and the difficulties that come along. Inflation being the increase in prices, but a decreasing value in the money held. Hyperinflation being inflation that exceeds over fifty percent per month. And deflation being the drop in prices and the increasement in value of money. In the long run the level of prices and the level at which the demand equals the supply will adjust. The quantity theory of money, asserts that the quantity of money available determines the price level and the growth rate in the quantity of money available determined by the inflation rate. Then there is the dichotomy of nominal variables (variables measured by money units) and real variables(variables measured with physical units). Bringing about the monetary neutrality which is the proposition that changes in the money supply do not affect real variables, since real variables are not measured in money. Velocity of money is the rate at which money changes hands. Represented by the nominal value(price level times the quantity of output) over the quantity of money. Which can be modified into M•V= P•Y, relative to the quantity equation. The inflation tax is a tax that is taxed on everyone holding money, that refers to the revenue the government raises to pay its spending by printing money. The fisher effect comes about when there is an adjustment of the nominal interest rate and the inflation rate. Costs of inflation would include the shoe leather cost, and the menu costs as well as distortions and confusions including that of the redistribution of wealth.

Chapter 29: The Monetary System

Cash may be considered to be a claim to goods and services in the future. Money can be considered to be wealth, or a set of assets in an economy that people regularly use for goods and services. Money may be a medium of exchange, an item that buyers give to sellers to purchase goods or services, a unit of account, "yardstick" to post prices and record debts, or a store of value an item that people can use to transfer purchasing power from the present to the future. Where liquidity is a main factor, or the ease with which an asset can be converted into the economy's medium of exchange. Like when the value of money falls due to a price rise. Money then can be considered to be commodity money, money that takes form with intrinsic value, it will still have value even if not used as money, like gold and cigarettes back in the day. Or fiat money, money without intrinsic value that are used as money due to government decree.

Article Review #7

Diana Furchtgott-Roth and the Actual unemployment rate being 11.4% rather than 6.2%
The article focuses on how the work force has declined recently. The creation of jobs in March were half of what was predicted(126,000) , but would somehow get 'revised' to be much greater than that. (200,000) Although there was some steady but slow economic growth, the trend has been heading completely down. Participation rates have been decreasing, little but still decreasing. The labor force from last year was 62.9% compared to the year 2006 when the rate was 66.2% a gap of 8.2 million Americans! Participation from older workers last year was higher than 2006, meaning more elderly keeping jobs! Now 3 million men,who are middle age, are subtracted from the workforce of today. Women have 2.5 million fewer women in the workforce. 800,000 fewer younger workers, 400,000 fewer teens! There was a small increase in those who are getting an education from 56-57%. Due to all the benefits given by the government it is much easier to not work and gain benefits than to work and not gain the same amount, including food stamps, healthcare, disability benefits, etc. The author states "fewer Americans working, slower GDP growth, and more pressure on the federal deficit and entitlement programs". The author also states how it is better for each state to chose those indicated for the benefits rather than just in general. Americans who have left the labor force during the recession show no signs of returning. This was driving me insane since so many numbers have to be refined in order to look "pretty", not only that but due to long term workers,who are pretty old, other people are not able to join the work force thus not providing for future growth. All other workers in different groups are declining although only 1% increasement for the people in school happened. It's so insane!! Nowadays it is seen to be "better" to not work and receive benefits instead of not receiving them and working for 'nothing'. Not only do the numbers in the work force decrease, GDP growth is slower, and there is so much pressure on the government programs. This is insane!

Chapter 28/ unemployment/ level of difficulty 2/3

Chapter 28 was all about unemployment. Although unemployment is quite difficult to measure it is done by the BLS. There are three main categories where people or the population are split into. Those three are employed, unemployed, and not in the labor force. Those employed include the workers that are paid employees, or have worked in someone else's business. Those unemployed were available for work but had tried finding another job in a month. Not in the labor force include full time students, home makers, retirees. The labor force sum of employed and unemployed. The unemployment rate being the number of unemployed over the labor force times 100. The labor force participation rate us the percent total of adult population of the US into labor force. Natural rate of employment refers to that of the fluctuations in the unemployment rate and the cynical unemployment being the deviation of unemployment from the natural rate. The cycle of movements in and out of the force makes it much more complicated for statistics to be interpreted. Discouraged workers would like to work but have given up trying to find a job. Short term would be considered to be not such a big deal, but long term is a significant big deal. Rn employment will never fall to zero rather it will fluctuate around the natural rates. The time it takes to find another job is another factor that affects statistics. If public policy was to help with tech advances then the natural rate of unemployment will fall.

Chapter 27 level of difficulty 2/3

Chapter 27 relatively brings about the tools of finance in a field where the decision makings determined by the allocation of resources over time and the handling of risk are quite important. There is a difference between present and future value, which may be determined by interest rates and total years. Compounding is the accumulation of a sum of money (in a bank) where the interest earned remains in the account to earn additional interest in the future. (1+r)^n • 100, where n is the number of years, and R is the interest rate. Discounting on the other hand is finding the present value for a future sum of money. Where X, amount of money now, n, number of years, and R,interest rate (X/(1+r)^n). Managing risk involves the idea of risk adversion, thus diminishing marginal utility occurs, less utility from additional dollar. Markets for insurance help keep a peace in mind, not eliminating risk but rather spreading it efficiently. 2 problems arise from insurance such as adverse selection and moral hazard. Diversification of firm-specific risk help replace a single risk with a large number of smaller unrelated risks. There is a trade off between risk and return where the more a person puts into stocks the greater the risk or the return. Asset Valuation needs of fundamental analysis and of the efficient markets hypothesis, stating informational benefits and the random walk. The market irrationality includes psychological beliefs and speculative bubbles where the price of an asset rises above what appears to be its fundamental value.

Article 6 Review

David Stockman attacks the statistics that are given when dealing with the economic conditions in which we are living in today. He goes on and on about the level and amount of jobs that were given in December due to the seasonal timing. He then states that although there were certain factors that possibly increased the amount of employment, such as vacations and the production to increase due to the increase of consumption. But then he goes on to state that those reasons are not enough to actually bring about such a statistical 'jump', that much rather the data is falsified to make it seem that the United States's economy's well being is much better than what it actually is. That much rather a recession is to be faced due to such bizarre numbers that are implemented on such important statistics. He talks about how a recession is to be seen close towards the near future due to the bubbles and fake numbers. He states how the bubble is about to "burst" and how everyone will understand the reality of things.

Chapter 26 level of difficulty 2/3

Bond markets, stock markets and banks are all financial institutions that are able to show how the financial system works when dealing with such markets. They are leading into the money that can then be used to be borrowed by others. The main purpose of these financial systems is to allow those who need money in the instant to be able to get some from those who are willing to contribute into helping them. For a closed economy it is necessary to have the national savings be equivalent to that of investments. Money still remains the same in the nation, but those who may have their hands on it are those that will with time change, for different people will have the money at different periods of time. Supply and demand are determinants of the loans being made, and the interest rates that come along with them. Any other policy that will later be added to affect the interest rate must first be observed on the supply and demand curves to see how the policy is to affect the interest rate. National savings, thus then include the savings of both private and public savings, since it is a nation's savings.

Chapter 24-level of difficulty 2/3

Chapter 24 was about measuring the costs of living. That involving the consumer price index also known as CPI. The CPI demonstrates what the typical consumer is buying, or the overall costs of goods and services. In order to calculate the CPI there must be a fixed basket, where the prices for each of the goods is found, then after all the smaller individual costs are found the basket's price is found. There must be a base year in order to find such calculations. The inflation rate can then be determined after the CPI is computed. Housing, transportation and food take up majority of the costs that are paid by consumers. Then there is the Producer price index, or PPI. Which is simply what the producers/firms typically buy. A leading indicator includes that when the PPI rises then the CPI follows. Typically due to the fact that producers then pass on the costs to consumers. Although calculations can be made there are problems in the measuring cost of living. Those including the substitution bias,an introduction of new goods and the unmeasured quality change. The GDP deflator is a ratio of nominal GDP to real GDP, where prices of all goods are produced domestically. The CPI includes the prices of goods and services by producers.  Indexation is an automatic correction by law/contract of dollar amount. Including effects of inflation, or COLA. There is a difference when dealing with real and nominal interest rates where real includes the corrected effects of inflation and nominal does not.