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. 

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.