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.