chp 32

Chapter 32 is a continuation of chapter 31 and goes over a macroeconomic theory of the open economy. To understand the forces at work in an open economy the supply and demand of two markets have to be focused on, the supply and demand in the market for loanable funds  (which coordinates the economy's saving, investment, and the flow of loanable funds abroad (a.k.a net capital outflow)) and the supply and demand for foreign-currency exchange (which coordinates people who want to exchange the domestic currency for the currency of other countries). Whenever a nation saves a dollar of its income, it can use that dollar to finance the purchase of domestic capital or to finance the purchase of an asset abroad. The supply of loanable funds come from national saving (S), and the demand for loanable funds comes from domestic investment (I) and net capital outflow (NCO). Loanable funds should be interpreted as the domestically generated flow of resources available for capital accumulation. The purchase of capital assets adds to the demand for loanable funds, regardless of whether that asset is located at home (I) or abroad (NCO). When NCO> 0 the country is experiencing a net outflow of capital; the net purchase of capital overseas adds to the demand for domestically generated loanable funds.

Chp 31

Chapter 31 is the beginning of macro-economics in open economies. A closed economy is an economy that does not interact with other economies in the world whereas an open economy does. An open economy interacts with other economies in two ways: it buys and sells goods and services in world product markets, and it buys and sells capital assets such as stocks and bonds in world financial markets. Exports are domestically produced goods and services that are sold abroad, and imports are foreign produced goods and services that are sold domestically. The net exports of any country are the difference between the value of a country's exports - the value of a country's imports. Net exports are also called trade balance since net exports can sell us whether a country is a buyer or seller in the world markets. If net exports are positive the country suns a trade surplus If negative then it is a trade deficit. If zero than the country has a balanced trade. Factors that influence a country's net exports are 1.) the tastes of consumers for domestic and foreign goods 2.) the prices of goods at home and abroad 3.) the exchange rates at which people can use domestic currency to buy foreign currency 4.) the income of consumers at home and abroad 4.) the cost of transporting goods from country to country and 5.) government policies toward international trade. Net capital outflow refers to the difference between purchase of foreign assets by domestic residents and the purchase of domestic assets by foreigners.

Article #7

In this article David Stockman totally destroys Janet Yellen and her thoughts on the possibility of negative interest rates. He refers to her as a "delusional Simpleton" and a person who says "the same stupid thing over and over again. One interesting thing in the beginning was that the US economy cannot be supported, or more so rescued by central bank policy intervention (according to Stockman). I've said this once but I'll say it again. Stockman, you sir, are a ray of sunshine. Apparently there a two ways that the Fed can our economy today. It can inject central bank credit to raise prices and lower yields. Or it can falsify money market interest rates and the yield curve which will push households and businesses to borrow and spend more. I don't think I know enough or fully understand to make an opinion of either of the options. I want to comment on the whole getting houses and business borrowing and spending more than they have to. Wouldn't that just lead to some more problems. I know borrowing and spending is very good for the economy. Putting money into a bank increases the money supply since interest is applied to it. Spending makes the economy grow as well. But what about spending more than you can actually spend. I believe Mr. Waller once said that its alright and actually healthy for the economy to go through some recessions. It builds immunity since you learn what not to do in the future. So I guess this isn't too bad. Then again I'm just typing this off the top of my head. Sorry if I don't make sense...I tried.

Chp 30

Chapter 30 is on money growth and inflation. The phenomenon in which prices fall over a period of time is called deflation. Prices in recent history have had a substantial variation in the rate at which prices rise. The first insight about inflation is that it is more about the value of money than about the value of goods. Inflation is an economy-wide phenomenon that concerns, first and foremost, the value of the economy's medium of exchange. If p is the price of goods and services measured in terms of money, 1/p is the value of money measured in terms of goods and services. When the overall price level rises, the value of money falls. The supply and demand for money determines the value of money. The demand for money reflects how much wealth people want to hold in liquid form. The quantity of money demanded depends on the interest rate that a person could earn by using the money to buy an interest bearing bond rather than leaving it in a wallet or low-interest checking account.One variable that stands out in importance that affect the demand for money is the average level of prices in the economy. A higher price level (a lower value of money)increases the quantity of money demanded. The time horizon is what ensures that the quantity of money the Fed supplies balances the quantity of money people demand. In the long run, the overall level of prices adjusts to the level at which the demand for money equals the supply.

Chp 29

Chapter 29 is about the monetary system. haha "gastronomical desires". Anyway, the social custom of using money for transactions is extraordinarily useful in a our society. If there were no paper money than we would have to rely on barter, which is the exchange of one good or service for another. An economy that relies on barter will have trouble allocating its scarce resources efficiently. This economy is said to require double coincidence of wants, which is the unlikely occurrence that two people each have a good or service that the other wants. Money is the set of assets in an economy that people regularly use to buy goods and services from other people. According to the economist's definition, money includes only those few types of wealth that are regularly accepted by sellers in exchange for goods and services. Money has three functions in the economy. It is a medium of exchange, a unit of account, and a store of value. A medium of exchange is an item that buyers give to sellers when they want to purchase goods and services. A unit of account is the yardstick people use to post prices and record debts. To measure and record economic value, money is used as the unit of account. Store of value is an item that people can use to transfer purchasing power from the present to the future.

Article #7

This article is about the continuous decline in the labor-force participation rate and the unemployment rate. One interesting thing is always how the data is collected and how calculations are made. Although this article did not go into too much depth it did say that “data is derived from a one-time survey of households that is only updated when population estimates are revised”. A one-time survey seems bound to have some mistakes and be a little off. Especially if it is only revised once in awhile. Apparently the unemployment rate looks alright or “healthy” because so many people have dropped out of the labor force, therefore lowering the labor force participation rate. If the labor force participation rate would have stayed the same from 2006 onwards, last year’s participation rate would have gone up to 11.4%, significantly more than the reported 6.2%. The biggest concern at the moment is that the share of “prime-age” men in the labor force is going down. I guess it would be less worrisome is the women’s labor force participation rate would go up but it hasn’t. The biggest reason for the decline in the labor force was summarized in a neat sentence. “With broader eligibility for the government-provided food stamps, health care, and disability benefits, it has become advantageous for some people to stay home than to work”. This is probably not a good thing since what makes economy grow is productivity.