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. 

Chapter 29 Journal

Chapter 29 talks about the monetary system. The term money refers to assets that people regularly use to buy goods and services. They usually serve three functions: it provides the item used to make transactions as a medium of exchange, it provides the way in which prices and other economic values are recorded as a unit of account, and it provides a way of transferring purchasing power from present to the future as a store of value. Commodity money, such as gold, is money that has intrinsic value: it would be valued even if it were not used as money. Fiat money, is money without intrinsic value, it would be worthless if it were not used as money. In the U.S. economy, money takes the form of currency and various types of bank deposits. The Federal Reserve, the central bank of the U.S., is responsible for regulating the monetary system. The Fed chairman is appointed by the president and confirmed by Congress every 4 years. The chairman is the lead member of the Federal Open Market Committee, which meets every six weeks to consider changes in the policy. The Fed controls the money supply primarily through open-market operations: the purchase of government bonds increases the money supply, and the sale of government bonds decreases the money supply. They can also expand the money supply, and it can contract the money supply. Overall, this chapter was a good read. On a scale of 1-3 I would rate this chapter a 1.

Article Review # 7

This article brings forth the facts that the United States Economy is facing decreasing job growth and a decreasing labor force participation rate. Furchtgott-Roth states that the March job creation statistics will be revised by the Bureau of Labor Statistics, but still in their incomplete state only represent half of the predicted job growth, with only 126,000 jobs created. Additionally, the labor rate participate rate is declining, and is a statistic that will not be revised by the Bureau of Labor Statistics. Over the past few years we have seen this general trend down in the labor participation rate despite slow economic growth. Moreover the current unemployment rate at 5.5 percent is only at its current level because over this recession people have been dropping out of the labor force. Furchtgott-Roth believes the solution is to have states manage welfare benefits again because they can better evaluate which residents need help. Whenever possible, regulations should be left to the states so that these rules can be better streamlined and adapted to geographic and demographic circumstances.

Chapter 28 Journal

Chapter 28 transitions to focus on unemployment. The unemployment rate is the percentage of those who would like to work who do not have jobs. The Bureau of Labor Statistics calculates this statistic monthly based on a survey of thousands of households. The unemployment rate is an imperfect measure of joblessness. Some people who call themselves unemployed may actually not want to work, and some people who would like to work have left the labor force after an unsuccessful search and therefore are not counted as unemployed. In the United States economy, most people who become unemployed find work within a short period of time. Nonetheless, most unemployment observed at any given time is attributable to the few people who are unemployed for long periods of time. One reason for unemployment is the time it takes workers to search for jobs that best suit their tastes and skills. This frictional unemployment is increased as a result of unemployment insurance, a government policy designed to protect workers’ incomes. I would give this chapter a difficulty rating of 1/3.

Chapter 27 Journal

Chapter 27 talks about the basic tools of finance, the decisions people make due to the of risk and time, to choose what to invest in/ financial decisions. Because savings can earn interest, the sum of money today is more valuable than the same sum of money in the future. A person can compare sums from different times using the concept of present value. The present value of any future sum is the amount that would be needed today, given prevailing interest rates, to produce that future sum. Because of diminishing marginal utility, most people are risk averse. Risk averse people can reduce risk by using insurance, through diversification, or by choosing a portfolio with lower risk and lower return. The value of an asset, such as a share of stock, equals the present value of the cash flows the owner of the share will receive, including the steam of dividends and the final sale price. According to the efficient markets hypothesis, financial markets process available information rationally, so a stock price always equals the best estimate of the value of the underlying business. Some economists question the efficient markets hypothesis, however, and believe that irrational psychological factors also influence asset prices. Overall, this chapter was a good read and the concepts were pretty easy to grasp and understand. On a scale of 1-3 I would give this chapter a difficulty rating of 1. 

Article Review #6

In this article, David Stockman believes that the job growth of the United States is overestimated. He cites that the Bureau of Labor and Statistics added way too many jobs in order to make their seasonal adjustment then they should have. With a warmer winter, and the decline in in-store shopping due to companies like Amazon, Stockman believes the seasonal adjustment should have been much less. With only 11,000 jobs created in the month of December compared to 140,000 jobs in December 1999 and 212,000 jobs in December 2007, David Stockman believes that the United States economy is close another recession. Illustrating this view, David Stockman states, “In short, the December jobs report was not evidence of a ‘strong’ economy. It was just another emission from the government’s SA noise factory that obscures the actual state of the main street economy.” The primary reason behind the lack of job growth and the overestimated job growth is because, in the construction industry, no jobs are being created and the seasonal adjustment contains large increases in this sector.

Chapter 26 Journal

Chapter 26 describes how the Unites States financial system is made up of many types of financial institutions, such as the bond market, the stock market, banks, and mutual funds. All these institutions act to direct the resources of households that want to save some of their income into the hands of households and firms that want to borrow.  National income accounting identities reveal some important relationships among macroeconomic variables. In particular, for a closed economy, national saving must equal investment. Financial institutions are the mechanism through which the economy matches one person’s saving with another person’s investment. The interest rate is determined by the supply and demand for loanable funds. The supply of loanable funds comes from households that want to save some of their income and lend it out. The demand for loanable funds comes from households and firms that want to borrow for investment. To analyze how any policy or event affects the interest rate, one must consider how it affects the supply and demand for loanable funds. I would rate this chapter a difficulty rating of 2/3.

Chapter 24 Journal

Chapter 24 included how the consumer price index shows the cost of goods and services relative to the cost of the same goods and services in the base year. The index is used to measure the overall level of prices in the economy. The percentage change in the consumer price index measures the inflation rate. The consumer price index is an imperfect measure of the cost of living for three reasons. First, it does not take into account consumers’ ability to substitute toward goods that become relatively cheaper over time. Second, it does not take into account increases in the purchasing power of the dollar due to the introduction of new goods. Third, it is distorted by unmeasured changes in the quality of goods and services. Because of these measurement problems, the Consumer Price Index overstates true inflation. I would give this chapter a difficulty rating of 1/3. 

Chapter 23 Journal

Chapter 23 is the introduction of Macroeconomics, which is the study of the bigger world problems such as inflation, unemployment, etc. The first topic Mankiw brings up is gross domestic product or GDP: the sum of the money exchanged through the buying and selling of goods and services in a year. This amount is calculated using the final market value of all the goods and services, it can be split up into four main categories: investment, government purchases, consumption, and net exports. The chapter also goes deeper in the usage of GDP and talking about nominal GDP, read GDP, and a GDP deflator. Nominal GDP is using the market value of the goods and services which real uses the constant base-year value to calculate GDP. The GDP deflator the calculation from the ratio of the nominal to real GDP, which measures the the level of inflation. GDP, however, is not perfect and excludes many important details the economist should consider. This chapter was slightly different from the concepts in microeconomics so the I would give this chapter a difficulty rating of 2.