Chapter 35

Chapter 35 talks about the negative relationship between inflation and unemployment; represented in the Philips Curve. In this model, there are two curves, the short run and long run. The long run curve is vertical due to the natural rate of unemployment. The short run shifts due to the expectations. In addition, all of these shifts and movements happen due to movements in the aggregate supply and aggerate demand.

Chapter 34

Chapter 34 is describing the connection between two markets; the money supply and the agg. demand and agg. supply market. In the money supply market, there is a downward sloping curve for money demanded (due to the theory of liquidity) and a vertical money supply (controlled by the Fed through open-market operations). The equilibrium of these two defines the interest rate, thus affect agg. demand. Two different types of policies are discussed, monetary and fiscal. Monetary refers to Fed while fiscal refers to government. In addition, the money multiplier and MPC (marginal propensity to consume) are related. These functions are used for the multiplier effect.

Chapter 33

Chapter 33 is all about the aggregate demand and aggregate supply model. The model consists of the long run agg. supply, and the two slopes for the short run agg. demand and supply. The factors of production affect the supply curve, both in the short and long run. The things that affect the demand curve is the wealth, interest rate, and exchange rate effects. Two major periods of falls in the economy are recession and stagflation. Stagflation is when there is high price levels and low amount of output.

Article Review

To be quite honest, I read this article awhile back but I remember the major points. Overall I think it was an okay read, very similar to a chapter in the book since it talked about the prisoner's dilemma. Also, it talked about the central banks losing power and trust since every country is now seeking their personal interest without understanding the effects. These effects include the other nations getting their economies screwed up and having a negative impact on them. Also, since the Golden Age is now past, he calls it the Silver Age. He also claims that in the Silver Age, the population is experiencing a recession right now.

Chapter 32

Chapter 32 is about open market economies and how it interacts interchangeably with the loanable funds and the foreign currency exchange markets. The factor in common that links both markets together is the net capital outflow. The loanable funds market has a supply of national savings and a demand of NCO and investment. On the other hand, the foreign exchange market has a supply of dollars in the market (obtained from NCO) and a demand for the dollars, which in fact determines net exports as well.

Chapter 31

Chapter 31 is describing the difference between an open and closed economy. More importantly, it clearly demonstrates the affect net exports can cause and what it means to have a trade surplus or deficit. In addition, we revisit the equation in the previous chapters that discussed how savings is equal to net exports plus investment. Also, the net capital outflow equals the net exports. By looking at other economies, we can compare the dollar to other currencies in order to see whether the dollar value appreciated or depreciated.

Chapter 30: Money Growth and Inflation

Chapter 30 discusses the money and prices in the economy in the long run. Specifically, it talks about inflation and the difference between nominal and real variables. Overall, the level of prices adjusts to the money supply and demand. However, when inflation happens, the central bank is supplying too much money, causing the price level to rise. In addition, when an inflation tax is presented, this can cause a hyperinflation. One application of the principle of monetary neutrality is the Fisher effect. According to the Fisher effect, when the inflation rate rises, the nominal interest rate rises by the same amount so that the real interest rate remains the same.