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.

Chapter 18: The Markets For The Factors of Production

Chapter 18 discusses the effect of supply and demand of the labor market. The chapter started by describing what income was and how it was distributed in the markets for the factors of production. The factors of production included labor, land, and capital. Talking specifically about labor, the demand is determined through marginal product and the value of marginal product. In regards to supply of the labor market, it all depends on the worker's opportunity cost. The opportunity cost is battled between the work and leisure. In addition, the slope of this graph is an upward slope because that means that people respond to an increase in the wage being paid by enjoying less leisure time. The equilibrium reached by the supply and demand is according to the marginal cost. In equilibrium, each factor is compensated according to its marginal contribution to the production of goods and services. This way, any changes between supply and demand will always result in equilibrium.

Chapter 17: Oligopolies

Chapter 17 is all about oligopolies and the certain characteristics this market has compared to monopolies and perfect competitive market. As mentioned before, oligopolies are more similar to monopolies since a small group of firms controls 50 or more percent of the market. In addition, the price is always above marginal revenue, except over a period of time when more sellers enter the market. When more sellers enter the market, the price gets closer to marginal cost and the socially optimal quantity is produced, turning the market into a competitive market. A major problem that occurs with oligopolies is that cartels can be formed, producing a form of cheating. A firm is able to cheat the other seller in the compromise due to self-interest and the incentive provided. A good way at looking at these situations is through the idea of a mind-game.  The game being described is similar to choosing the dominant or most self-interested option. The game can be figured out through the charts presented in the books. 

Chapter 15: Monopoly

Chapter 15 is all about monopolies and their impact on the market and the economy. For starters, monopolies are not price takers, they are price makers. Since monopolies control a the main supply of a particular good, they are able to change the price of the good in order to maximize their own profit. In order for a market to be considered a monopoly, they must have a key resource owned by a single firm, the government gives a single firm the exclusive right to produce some goof or service, and the costs of production make a single producer more efficient than a large number of producers. In addition, when discussing the types of goods in a market in a previous chapter, government created monopolies are called natural monopolies. Natural monopolies included services such as water or electrical supply since the cost of a single firm to produce for the entire demand is less expensive for the consumers than having two or more supply firms.  It is also crucial to remember that that for a monopoly firm, the price must be greater that than the marginal cost and the marginal revenue, and that the profit created by monopolies create a deadweight loss. The government has some ways to control the power of a monopoly such as increasing competition, regulation, turning companies into public enterprises, or by simply doing nothing at all. By doing so, the monopoly will still have power but not too much and that will reduce the price discrimination. Overall, I think it was a long chapter to read and I would give it a rating of 2. I would however like a better understanding of the graphs.

Chapter 14: Firms in Competitive Markets

In Chapter 14, the costs and total revenue discussed in the previous chapter are applied on firms in competitive markets in order to maximize profits. For the market to be defined as competitive, there should be many buyers/sellers who are price takers, the goods are largely the same, and firms can enter or exit the market. A good example the book used was the Smith Family Dairy Farm and their production of milk. For the firms to maximize their profits, the marginal revenue and  the marginal cost should be exactly equal. If the marginal revenue is greater than the cost, the firm should keep on producing more but if the marginal revenue is less than the cost, they should decrease production. Also, the marginal revenue is the price of the good. It is also crucial to know that the marginal cost curve is the supply curve for the competitive market firms. In addition, the chapter discussed how to determine when a firm should exit or shut down their production in terms of price and the average variable cost (AVC). If the price is less than the AVC, then the firm should shut down. A sunk cost is the cost that has already been committed and cannot be recovered, such as the cost of land (a fixed cost). Overall, I understood the general concept of it but I found the charts to be rather confusing. I would rate this chapter a 2 since I really understood the first half of the chapter but the second confused quite a bit.

Chapter 13: The Costs of Production

Chapter 13, The Costs of Production, talked about how to determine the total costs and revenue the supply firms produce over a short and long run. To start off, one of the laws of economics is mentioned and is crucial to remember-the law of supply. According to the law of supply, suppliers are more willing to produce more goods at a higher price. Therefore, the firms will tend to produce more if they have the  money, which results from their profits. To determine, the profits a firm can receive is through the total revenue minus the production costs. The production costs include the amount of money it takes to buy the goods as well as how much opportunity cost is needed and left behind.

Article Review #4: Global Deflation Alert: Hidden EM Debts To China Could Be Immense

Surprisingly, this week's article was relatively short compared to previous times. This article, written by Carmen Reinhart, is discussing the hidden debts from the merging countries and how they can have a vulnerable effect at a global level. For starters, the article mentions how the conversation headlines at the International Monetary Fund’s annual meetings have changed from the recovery from the 2008 financial crisis to the potential financial crisis within the emerging nations, such as China. China was mentioned in this article to serve as an example of how a potential economic crisis can lead to negative effects towards others, such as the US, Brazil, or Argentina. They can create international damage since the major funding of their projects were made through the US dollar currency, thus lowering the dollar value if a crisis happened. By lowering the value of the dollar, that would decrease the revenue collected by the US government and would reduce our economic growth and power. Another important element about the article was the uncertainty of how to find the hidden debts within the records. The main problem that arises when discussing hidden debts, is the unavailability to quickly access exact figures of money trading since the records at major-level international organizations keep no track on this business.

Overall, the article was fairly easy to read and understand since it was short and it didn't contain many high-economic vocabulary words. 

Chapter 11: Public Goods and Common Resources

Chapter 11 is all about public goods and common resources within the economy. Despite the chapter being based solely on two types of goods, the chapter begins with explaining the four different types and providing examples of each. The four types of market goods are private goods, natural monopolies, common resources, and public goods. Ultimately, the major component of determining what a good falls under is found through two questions: are there rivals in consumption and is it  excludable? Rivals in consumption means the when a good is used, the ability of another person for that same item diminishes. Excludable means that the property if a good whereby a person can be prevented from using it. A good example of a public good would be a firework display. Usually, it comes out that it is more beneficial for the government to serve and produce a public good since a market failure would occur at a private supplier and buyer transaction was made. A key element with these two goods is the term of a free rider. A free rider is a person who receives the benefit of a good but avoids paying for it. A good example of a common good is the idea of congested roads. A good way of explanation the book did for a common good was to connect it to the Tragedy of the Commons story.
Overall, I would give the chapter a rating of two since it was a fairly easy read with many god descriptions but it was still too long in my opinion.