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.