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.