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.

Chapter 29: The Monetary System

Chapter 29 is all about describing the monetary system. The chapter talks about the Federal Reserve Bank and how they are the ones in charge of "controlling" the money supply in the nation. In addition, the chapter includes the difference between money and wealth. It also describes how money has three characteristics: a medium of exchange, a unit of account, and a store of value.

Chapter 28: Unemployment

Chapter 28 is all about unemployment and the effects it can cause in the economy. First of all, unemployment is part of the labor force, which is a percentage of the total population. The percentages and statistics regarding the labor force in the economy is done by the BLS, or the Bureau of Labor Services. The chapter then explains how unions and minimum wage affect unemployment as an entire economy.

Chapter 27: The Basic Tools of Finance

Chapter 27 is all about identifying and applying the basic tools of finance in the American financial market. The first part of the chapter identified the variables of time and risk and how people tend to buy insurance in order to avoid the risk of the unknown future. Also, we are shown the mathematical way to compute the present value of dollars as well as the future value with the interest rate. In the second part of the chapter, the book discussed how diversification, fundamental analysis, and rule of 70 all talk about the value or price of a stock. During this part, they introduced standard deviation, which is a concept that I am a bit confused about. Overall, I would give the chapter a rating of 3 because it was a short read and it had a good explanation for the concepts. In addition, I worked on the questions already and they seem fairly to answer. What would really help would just to do a quick summary of the chapter as well as standard deviation. 

Chapter 26: Saving, Investment, and the Financial System

The U.S 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 who want to save some of their income into the hands of households and firms who want to borrow. National income accounting identities reveal some important relationships among macro variables. Closely, for a closed-economy, national savings must be equal to investment. Financial institutions are the mechanism through which the economy matches one person's saving with another one's investment. The interest rate is determined by the supply and demand for loanable funds. The supply of loanable funds comes from households who want to save some of their income and lend it out. To analyze how any policy or event affects the interest rate, one must consider how it affects the supply and demand of loanable rates. National saving equals private saving plus public savings. A government budget deficit represents negative public saving and therefore reduces national saving and the supply of loanable funds available to finance investment. When a government budget deficit crowds out investment, it reducers the growth of productivity and GDP.

Chapter 24: Measuring the Cost of Living

 Chapter 24 is looking at the other side of the economy: the consumers and their cost of living. Instead of measuring GDP, to find the cost of living for consumers (households), we must find the CPI, or the consumer price index. While this form of measuring and comparing prices has many flaws/problems, many economists still use it and relate it to the producer price index. In order to find the value of CPI, you must first construct a basket of goods and then follow steps in order to achieve a value of the entire basket's value. By doing so, you can now have a base year which is helpful in order to compare the CPI's of other years. By comparing the base year with other years, economists can find the inflation rate of prices.

Another topic mentioned in this chapter was the term, indexation. Indexation is the automatic correction of a dollar amount for the effects of inflation by law or contract. This can also be called the cost-of-living allowance, or the COLA. COLA is the place where most transfer payments go, such as Social Security payments, unemployment, tax returns, etc. Discussing tax rates, there is a difference between Real and Nominal Interest rates. Nominal rates are the  interest rates as usually reported without the correction for the effects of inflation. Real, however, is the interest rate already corrected for inflation.

Overall, I would give this chapter a rating of 2.5 because it was a very short read and it had many similar topics discussed in the previous chapter. The only reason I decided to deducted a half point was because I still don’t feel comfortable with indexation and would like some more clarification on this. 

Chapter 23: Measuring a Nation's Income

Chapter 23 talked about GDP, or Gross Domestic Product; what it is, how it is measured, and what it reveals. GDP is defined as the market value of all the final goods and services produced within a country within a given period of time and is used to calculate the total expenditure and total income of a nation. The formula for GDP is the sum of a nation's consumption, investment, government purchases, and net exports. GDP can be measured as nominal GDP, which measures the production of goods and services at current services, and as real GDP which measures the production valued at constant prices according to a base year. Nations with a high GDP can afford better education and healthcare systems, while nations with low GDP often have lowered life expectancy, higher infant/maternal mortality, and less access to clean water.