Chp. 34

Chapter 34 covers how a government's monetary (supply of money set by the central bank) and fiscal (the levels of governments spending and taxation set by the president and Congress) policies affect aggregate demand. The aggregate demand curve shows the total quantity of goods and services demanded in the economy for any price level. For the U.S economy the most important reason for the downward slope of the aggregate demand curve is the interest rate effect. The theory of liquidity preference is Keyne's theory that the interest rate adjusts to bring money supply and money demand into balance.    The nominal interest rate is the interest rate usually reported, and the real interest rate is the interest rate corrected for the effects of inflation. The first piece of the theory of liquidity preference is the supply of money, which is controlled by the federal reserve. The fed can alter the money supply through open-market operations, changing reserve requirements (amount of reserves banks must hold against deposits) or the discount rate (interest rate at which banks can borrow reserves from the fed). In this chapter the money supply will be fixed, therefore a vertical curve. The second piece of the theory of liquidity preference is the demand for money. The liquidity of money explains the demand for it: people choose to hold money instead of other assets that offer higher rates of return because money can be used to buy goods and services. If the interest rate is above the equilibrium level the quantity of money people want to hold is less than the quantity the fed has created.

Chp 33

Chapter 33 introduces aggregate demand and aggregate supply and shows how shifts in these curves can cause recessions. A period when output and incomes fall, unemployment rises, is known as a recession when it is mild and a depression when it is severe. Three key facts about economic fluctuations is that economic fluctuations are irregular and unpredictable, most macroeconomic quantities fluctuate together, and as output falls unemployment rises (because when firms produce fewer goods and services they lay off workers). Classical theory is based on the dichotomy and money neutrality. Classical dichotomy is the separation of economic variables into real and nominal while money neutrality is the property that changes in the money supply only affect nominal variables not real variables. These assumptions are an accurate description of the economy in the long run but not the short run.Therefore in the short run, changes in nominal variables such as money and prices are likely to have an impact on real variables. Short run nominal and real variables are not independent. As a results, in the short run, changes in money can temporarily move real GDP away from its long-run trend. The model of aggregate supply and aggregate demand can be used to explain economic fluctuations. This model is graphed with the price level, measured by the CPI/GDP deflator on the vertical axis and real GDP on the horizontal axis. Aggregate demand curve shows the quantity of goods and services households, firms, the government and customers abroad wish to buy at each price level. The aggregate supply curve shows the quantity of goods and services that firms produce and sell at each price level. Price level and output adjust to balance aggregate supply and aggregate demand. GDP=C+I+G+NX. A decrease in the price level increases consumption, investment, and net exports.

ARticle 8

The first thing that caught my attention was the way monetary policy was described as "creature of each nations domestic politics" and that the Narrative of Central Bank Omnipotence is in turn devolving into a Narrative of central Bank competition. This structural change in the 21st century is happening because of massive global debt. Instead of international economic cooperation everyone is competing and things just don't look too good. As discussed early in Micro, trade and cooperation is pretty good. Like in the prisoners dilemma. If we could only all trust each other everyone would be better off. But as humans we are incapable of it and put our self-interest ahead. Global trade volumes everywhere peaked in Quarter 4 and quarter 3 in 2014 and have declined since. I can tell that isn't exactly a good thing but I can't tell to what degree, just like the article predicts. But apparently the small percentage of decline in exports is kinda rare. With these small percentage declines its "next to impossible for a real economy to expand when exports are contracting" in the way they are today. I like how the dude says "real economy". It's funny how calling things "real" in economics is taken so seriously. Person A: blah blah blah percentage decline blah blah. Person B: Yes but is it a real percentage?? According to the this dude the U.S is already experiencing a recession. Luckily he gets right too it, unlike Stockman who just can't stop playing around and can no longer be taken seriously because of his weird choice of words. Anyway, yes, recession. A "mild" recession. An "earnings recession" because "the decline in export values has only started to show up as a decline in export volumes" which is "pretty much all macroeconomic evils". I like this guy, straightforward, doesn't mess around, cool dude cool dude.