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.