Chapter 34 Journal

This chapter helps us expand on our knowledge of aggregate supply and demand , offering some new theories and explanation for the influence of monetary/fiscal policy on aggregate demand. I haven't yet gotten to the middle of the policy part yet, but I have found some of the early insights in the chapter interesting. With the introduction of the theory of liquidity preference, I have learned to see how interest rates balance the consumer's need for liquid assets (currency) compared to less liquid, more profitable assets such as bonds and stock portfolios. It is quite logical yet cool how the balance is maintained by this interest rate, and that people constantly shift back to equilibrium based on the amount of money they want to be carrying, how much of it they want to be exchanging into different assets, and how the banks react with shifting interest rates I thought that the distinction between the importance of the 3 reasons for the downward sloping demand curve was also interesting. The importance of the interest rate soon became evident to me. Overall, this chapter was a bit harder to comprehend, on a scale of 1-3 I would give this chapter a 2. I have no questions about this chapter.

Chapter 33 Journal

Chapter 33 is about aggregate supply and aggregate demand, this involves short-run in economies. Recessions are defined as a period of declining real incomes and rising unemployment and depressions are a more severe recession. Short-run fluctuations in economic activities appear in all countries throughout history. There are 3 important properties. The first is that economic fluctuations are irregular and unpredictable. These fluctuations are called the business cycle as the economic fluctuations correspond to changes in business conditions. As real GDP goes up fast, business is good so the economy is expanding, there are more customers and profits are plenty. When real GDP is falling, it does the opposite. The second property is that most of the macroeconomic quantities fluctuate together. Real GDP is the most commonly used to watch short-run changes in the economy. But that doesn’t matter because when real GDP falls, so do the other quantities that go along with it. The last property is as output falls, unemployment rises. The changes in the output of goods is strongly correlated to the utilization of the labor force. When real GDP falls, unemployment rate goes up and when real GDP rises, unemployment rate goes down. In the short term, real and nominal values are more connected, and the changes in money supply can temporarily push the real GDP away from the long-run. The model that we are using is the model of aggregate demand and aggregate supply, this model is what most economists use to explain short-run fluctuations around the long-term trend. Aggregate demand is the curve that shows the quantity of goods that households, firms, the government, and foreigners demand at each price level. Aggregate supply is the curve that shows the quantity of goods that firms choose to produce and sell at each price level. Price level and quantity of output adjust to balance out the aggregate demand and aggregate supply. Overall, this was a long chapter to read and there was a lot of ideas to take in. On a scale of 1-3 I would rate this chapter a 2.

Article 8 Review

This article by argues about how the "Golden Age of the Central Banker" has turned into the "Silver Age of the Central Banker" due to the change in structure. Investors used to be able to affect monetary policy, but the power has shifted from the investors to the domestic politics of nations. The article argues that this is all because of massive global debt.The author finally gets to his main point when he brings up game theory in big-picture terms. Each economy is going to make a decision based off of its best outcomes. This means that even though it may not be good for the rest of the world, China may “float the yuan” because its good for them in a political perspective. Game theory notes that if each member of a decision or cooperation defects, each is bound to benefit in some way. Only if one defects and the other cooperates does someone (the one who cooperated) not benefit. The highest benefit comes from both people cooperating, but neither member can depend on the other to cooperate, so this is an unlikely outcome. A concept in the article that relates the most to Chapter 32 is that when domestic currency depreciates, its nation’s goods and services will be much cheaper relative to those of foreign nations. This is great for increasing net exports, but it is bad for the big companies that rely on importing goods from other countries whose currencies are appreciating relative to their own because the goods and services that they were importing are now more expensive due to appreciation of that foreign currency. It makes sense that nations ultimately don’t care about this negative side because it does not think like a private business. It thinks as a nation, and its domestic political agenda tells it to keep GDP as high as possible nationwide, meaning increasing the NX portion of the GDP components, C + I + G + NX.

Chapter 32 Journal

Chapter 32 goes more into the theory of open economies. There are two central markets to the open economy: The market for loanable funds and the market for foreign currency exchange. In the market for loanable funds, the real interest rate adjusts to balance the supply of loanable funds and the demand for loanable funds from domestic investment and net capital outflow. In the market for foreign-currency exchange, the real dollars and the demand for dollars. Because net capital outflow is part of the demand for loanable funds and because it provides the supply of dollars for foreign-currency exchange, it is the variable that connects these two markets. A policy that reduces national saving, such as a government budget deficit, reduces the supply of loanable funds and drives up the interest rate. The higher the interest rate reduces net capital outflow, which reduces the supply of dollars in the market for foreign-currency exchange. The dollar appreciates, and net exports fall. Although restrictive trade policies are sometimes advocated as a way to alter the trade balance, they do not necessarily have that effect. A trade restriction increases net exports for a given exchange rate and, therefore, increases the demand for dollars in the market for foreign-currency exchange. As a result, the dollar appreciates in value, making domestic goods more expensive relative to foreign goods. This appreciation offsets the initial impact f the trade restriction on net exports. Overall, the chapter was pretty simple to grasp. On a scale of 1-3 I would rate this chapter a 1. I have no questions about this chapter.

Chapter 31 Journal

In Chapter 31, Mankiw discusses open market macroeconomics. We see some family equations being reused here. This chapter goes into more detail about how open economies interact with each other, through buying/selling goods. This chapter was very similar to the old chapter that dealt with net exports and imports, and I didn’t find this chapter too hard to read. The most important variables that influence net capital outflows are real interest rates on foreign and domestic assets, the perceived economic and political risk of holding assets abroad, as well as government policies that affect foreign ownership of domestic assets. We review the equation Y= C +I +G +NX.  Imports are goods and services that are produced abroad and sold domestically, and exports are goods and services that are produced domestically and sold abroad. Net exports are essentially the value of exports minus the value of its imports, called trade balance. Balanced trade is a situation where exports equal imports, and the US has been in a trade deficit since around the 1970s. There are of course prices for international transactions. Nominal exchange rate is the rate at which another person can trade the currency of one country for another. Usually, this is expressed as units of foreign currency per U. S. Dollar. Appreciation is an increase in the value of a currency as measured by the amount of foreign currency it can buy. I would rate this chapter a difficulty rating of 2/3.

Article Review #7

This article talks about David Stockman's opinion about Janet Yellen, the chairman of the Fed, and how the central bank is mismanaging our economy. In light of the experience of European countries and others that have gone to negative rates, the Fed is taking a look at them because they would want to be prepared in the event that they are needed to add accommodation. The "accommodation" that was mentioned means that the US economy is everywhere and always sinking towards collapse unless it is countermanded, stimulated, supported and propped up by central bank policy intervention. The Fed can inject central bank credit conjured from thin air into the bond market in order to raise prices and lower yields. And it can falsify money market interest rates and the yield curve. Both of these effects are aimed at inducing businesses and households to borrow more than they would otherwise, and to then spend more than they produce. The "accommodation" may have worked before, but now those household and business balance sheets are all used up because we are at Peak Debt, along with most of the rest of the world. There has actually been negative growth in household debt since the financial crisis. Janet is saying that it doesn't matter that the Fed has spent years falsely inflating equity markets via massive liquidity injections and props and puts under risk assets. Any correction in stock prices and any regression of ultra-tight credit spreads to normality which could cause economic and job growth to slow must be countered at all hazards.  In this specific article, Stockman is yelling at Yellen about how she is not doing her job properly and as a result, she is damaging the economy. Stockman in this article argues against government policies and states that the supposed new jobs aren’t really to be considered new jobs. 

Chapter 30 Journal

This chapter teaches the readers about money growth and inflation. It specifically establishes the strong relationship between the rate of growth of money and the inflation rate. It discusses the causes and costs of inflation. Though there are numerous costs to the economy because of high inflation it seems like there’s no clear stand on how important costs are when the inflation is only moderate. Inflation is an increase in the overall level of prices. Deflation is a decrease in the overall level of prices. Hyperinflation is extraordinarily high inflation. Inflation is caused when the government prints too much money. Inflation is more about the value of money than about the value of goods. If P represents price level then 1/P is the value of money measured in terms of goods and services. The value of money is determined by the supply and demand for money. Money supply and money demand need to balance for there to be monetary equilibrium. The quantity theory of money is that (1) The quantity of money in the economy determines the price level, and (2) an increase in the money supply increases the price level. Subtle costs of inflation include shoe leather costs, menu costs, relative-price variability and the misallocation of resources, and inflation-induced tax distortion. Overall, I would give this chapter a difficulty rating of 2 out of 3.