Chp 28

Chapter 28 begins the study of unemployment . The problem of unemployment is divided into two categories: the long run problem and the short run problem. The economy's natural rate of unemployment refers to the amount of unemployment that the economy normally experiences. Cyclical unemployment refers to year-to-year fluctuations around its natural rate and is closely associated with economic activity.  The data the BLS uses comes from a regular survey of about 60,000 households called the Current Population Survey. Based on the answers the BLS places each adult in one of three categories. Employed includes those who are paid employees, work in their own business, or work as unpaid workers in a family business. Both full-time and part-time workers are included. Unemployed refers to those who are not employed but are available for work and are trying to find employment. It also includes those waiting to be recalled for a job from which they had been laid-off. Not in the labor force is the category for those who don't fit in the previous two categories such as a home-maker or full-time student. The BLS defines the labor force as the sum of the employed and the unemployed. The unemployment rate is defined as the percentage of the labor force that is unemployed and is calculated by taking the number of unemployed over the labor force and multiplying that by 100.

chp 27

Chapter 27 introduces some tools that help understand the decisions that people make as they participate in financial markets. Finance is the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk.The first section of the chapter discusses how to compare sums of money at different points in time. Money today is more valuable than the same amount of money in the future. The present value of any future sum of money is the amount today that would be needed at current interest rates to produce that future sum. Future value is the amount of money in the future that an amount of money today will yield, given prevailing interest rates. r denotes interest rate. Compounding is the accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future. If r is the interest rate, then an amount X to be received in N years has a present value of X/(1+r)^N. Because the possibility of earning interest reduces the present value below the amount X, the process of finding a present value of a future sum of money is called discounting. The higher the interest rate the more money can be earned by depositing the money at the bank. The concept of present value helps explain why investment- and thus the quantity of loanable funds demanded-declines when the interest rate rises. Risk aversion is a dislike of uncertainty.

Article #6

This Stockman article centers around the subject of seasonal adjustment, specifically its problems. Seasonal adjustment is a statistical procedure used because there certain times of the year where the economy produces more goods and services than usual. (Such as December when a ton of holiday shopping is going on. David Stockman is obviously not a big man of the way economist or, as he would call them, "statistical wizards" come up with the adjusted numbers. He refers to their seasonal adjustment system as a "pretentious stab in the dark" , an"invent(ed) guesstimate made year after year" and last but not least, not a science but simply "political fiction".I guess it's not the fact that seasonal adjustment is happening but more so that there are a ton of deviations that mess up the whole seasonal adjustment procedure. For example, the BLS takes into account that December is cold. But the fact that it doesn't get more specific than "cold", creates a less realistic number and seasonal adjustment. Which leads to the seasonal adjustment for jobs averaging 320,000 for the last 12 years.  This reminds me of the fixed basket that CPI uses. It's a problem since this fixed basket doesn't take into account things such as an unmeasured quality change, substitution bias, and introduction to new goods.  It seems as though the BLS is using seasonal adjustment to come up with a prettier number in the number of jobs added. But even that can't hide the fact that "the domestic economy is dead in the water". What lesson do we learn from this article? The same one we've learned in the previous ones. We're F#cked.

Chp 26

Chapter 26 is the beginning of a Unit 9 which is about the Real economy in the long run.  Chapter 26 is specifically about savings, investments, and the financial system. The financial system is a group of institutions in the economy that help to match one persons savings with another person's investment. Savings and investments are key ingredients to the long run economic growth: When a country saves a large portion of its GDP, more resources are available for investment in capital and higher capital raises a country's productivity and living standard. The financial system can be broken into two categories, Financial markets and financial intermediaries. Financial markets  are the institutions through which savers can directly provide funds to borrowers. The two most important financial markets in the economy are the bond markets and the stock markets. A bond is a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond. It specifies the time at which the loan will be repaid, which is called the date of maturity, and the rate of interest that will be paid periodically until the loan matures. The principal is the promise of interest and eventual repayment of the amount borrowed. A buyer can hold the bond until maturity or sell it at an earlier date to someone else. Three characteristics to a bond: term (length of time until the bond matures, a bond that never matures is called a perpetuity which pays interest forever and principal is never paid), Credit risk The probability that the borrower will fail to pay some of the interest or principal (failure to pay= default) (junk bonds=high interest rates  bc corporations are financially riskayyy, and tax treatment the way the tax laws treat the interest earned on the bond.

chp. 24

This chapter examines how economist measure the overall cost of living by using the Consumer price index (CPI) which is a measure of the overall cost of goods and services bought by a typical consumer. It monitors changes in the cost of living over time. A rise in the consumer price index means that the typical family has to spend more dollars to maintain the same standard of living.The inflation rate is the percentage change in the price level from the previous period. When the Bureau of labor calculates the consumer price index and the inflation rate it uses data on the prices of thousands of goods and services. The first step would be to determine which prices are the most important to the typical consumer. The next step is to find the price of the products in three different periods. Quantity is kept the same to isolate the effect of price changes from the effect of any quantity changes. After that a base year is chosen and the index is calculated. The index is calculated by taking the price of the basket of goods and services over the price of the basket in the base year multiplied by 100. The index is always 100 in the base year. Lastly the inflation rate is calculated which is the percentage change in the price index from the preceding period and is calculated by
[(CPI in year 2  -- CPI in year 1)/ CPI in year 1] x 100. The BLS also calculates the producer price index which is a measure of the cost of a basket of goods and services brought by firms.

Chp 23

 This chapter is the first chapter that deals with macroeconomics. Maccroeconomics is defined as the study of economy-widee phenomena, including inflation (rate at which prices rise), unemployment, and economic growth, or simply the study of the economy as a whole. Often times a nations overall economy can be judged by looking at the Gross Domestic Product (GDP). GDp measure the total income of everyone in the economy and the total expidenture on the economy's output of goods and services. Another definition that focuses GDP as a measure of total expenditure would be that GDP is the market value of all final goods and services produced within a country in a given period of time. For an economy as a whole, income must equal expenditure. An economy's income is the same as its expenditure because every transaction has two parties: a buyer and seller. GDP can be computed in one of two ways: by adding up the total expenditure by households or by adding up the total iincome (wages, rent, and profit) paid by firms. Measuring GDP can at times be difficult because assumptions are made, illicit items or items consume/produced at home are excluded, and GDP only includes the value of final goods. GDP (y) is divided into four components: Consumption (C), Investments (I), Goverment purchase (G), and net exports (NX): y= c + I + G + NX. Consumption is spending by households on goods and services with the exception of purchases of new housing. Investment is spending on capital equipment, inventories, and structures, including purchases of new housing.