Economics Blog

To this day the most interesting concept I’ve learned over the summer goes back all the way to chapter one. Principal 9 of Macroeconomics talks about why prices rise when the government prints too much money; this concept fosters the idea that the higher the money supply, the higher the inflation rate. For whatever reason this price of information stuck with me, and later turned out to be very beneficial as it made many graphs much more comprehendible. I came into this class knowing nothing about economics, so to be able to study this all summer I think many decisions i make in the future will have at least a little knowledge behind them :).

I find the debate about monetary policy being made by rule rather than by discretion interesting. I feel like many people appreciate things that are set in stone, such as the Constitution. Following a written rule is very different than discretion. Although this policy has pros and cons, I personally disagree with this policy as I believe flexibility is important in our ever-changing world. The book also states that the “problems” with discretion are largely hypocritical, therefore I believe monetary policy should not be made by rule.

Thank you for an amazing summer class Mrs. Cheney-Steen! I’ve learned so much, and really enjoyed reading the textbook, and conversing with peers in discussions. I hope you have a wonderful rest of your summer :)

Trade off between inflation and unemployment work in a negative correlation; that is when one goes up, the other goes down. If policy makers are looking to lower unemployment, they can expand aggregate demand therefore lowering unemployment, but increasing inflation. There is not a long run trade off because unemployment will always retire to its natural rate. This along with a constantly rising inflation rate shifts the Phillips curve vertically.

I estimate short run trade off to last maybe a few years. This is my guess as I never seem to hear about these huge jumps in unemployment, therefore it seems more ethical that these jumps are broadened in long terms and stretched out to a point where unemployment is constantly slowly changing.

A monetary policy is one that refers to central bank activities that are directed toward influencing the quantity of money in an economy. By contrast, fiscal policy refers to the government’s decisions about taxation and spending. Both monetary and fiscal policies have been abundant in the last year regarding COVID-19. In an attempt to lessen the effects of COVID-19, the Federal Reserve Board cut the Federal Funds rate to zero. The federal fund rate, used as a benchmark for short-term lending and the rate to which most consumer rates are pegged, serves as a stand-in for interest rates for the American economy. By cutting the federal funds rate to zero, the Federal Reserve Board implemented a fiscal policy to lessen the effect of COVID-19. The Federal Reserve Board not only cut the federal funds rate to zero, but also embarked in a process called quantitative easing to loosen the effect of COVID-19. Quantitative easing, also known as large scale asset purchases, typically involves a central bank itself purchasing government bonds or other long-term securities in order to restore confidence and, crucially, add liquidity back into the market. This process can be categorized as a monetary policy as it is the central bank’s activity used to influence the quantity of money in the economy. I believe both of these policies have been successful to an extent as they both helped fight against a depression upon very short notice.

The Federal Government also attempted to lessen the effects of COVID-19 though different policy. One monetary policy the Federal Government implemented was the stimulus checks. Stimulus checks were made out to qualifying Americans in hopes of injecting money back into the economy. Since many Americans lost their job or were not working during the pandemic lockdown, these stimulus checks allowed citizens to purchase good and overall contribute to a better economic flow in America. The Federal Government also imposed a Coronavirus Tax Relief. This tax relief allowed families to be more comfortable with their incomes as many were making less than average. The Coronavirus Tax Relief is a fiscal policy as it concerns taxes. I believe that both of these policies were useful, as they allowed families to be more comfortable spending money instead of saving which could have lead to an economic depression.

I don’t by any means think I have the qualifications to diss on the Federal Reserve and Federal Government for their actions during COVID-19. Their actions were all made in efforts to keep the economy afloat — whether they worked or not. I do believe that the policy’s I touched on, though, were useful as they all encouraged buyers to by and sellers to sell. The policy’s easily could have been risky: leading to an economic crash, over saving, and in the end another depression. Policy’s such as the stimulus check especially come with a risk as many people could save the money given out, which wouldn’t have contributed much to the current economy.

I expect my local economy to follow those shifts in the spring 2020 SRAS. I expect this as my community faced the same problem that people nation wide faced: COVID-19. I believe that the short run effect of COVID-19 lasted for awhile, as most people predicted the pandemic to end sooner and nobody prepared for the pandemic, meaning there was less quantity of money but more production. Due to this, I believe the long run equilibrium will fall below the average for a few years, but then will return to normal.

Jumping to summer of 2021, we are still seen restraining the SRAS, but not the the same degree of last summer. Many businesses are still working their way back to normal around the world and production for many products, such as cars and other goods, is still low resulting in a lower SRAS. AD is also still recovering as they both dropped in the last year, I do predict it will return to normal though.

For this reflection I decided to analyze the above article: “Why Did the US Trade Deficit Sharply Deteriorate During the Pandemic?” published by The Hill. The author of this arrival sums up the deterioration of the trade deficit during the pandemic to underlying structural trends and unusual developments associated with the pandemic shock. I think this author analyzed the deterioration very well as they incorporate many perspectives in their writing and they seem to be credible on the topic. I also agree that some activities that spawned due to the pandemic are one of the main causes of the deterioration.

Trade deficits/surpluses are directly related to capital flow as trade deficits and surpluses are always offset by capital flows. All of these terms are tied together as they relate to exchange rate as well; each term represents a different aspect of trade and economic flow between different countries.

The first comment I had on chapter 13 of The Principles of Macroeconomics was on page 260 where the factors of trade are listed. This was my first comment on this chapter as it introduced me to aspects of the chapter I would soon read about. One question I had in particular regarding these factors of trade was what are some of the government policies toward international trade? I also made a comment on this section of the chapter as there were tons of new vocabulary words introduced, such as the definitions of exports, imports, balanced trade, and many others. Since vocabulary is so important in this class i always find it helpful to note these definitions.

Another margin note from this chapter I made was on page 266. Table one in particular posed importance to me as I read about saving, investment, and their relationship to the international flows. Table one sums up some of the hard to explain equations that are associated with trade deficit, balanced trade, and trade surplus. And sure enough this handy little table was super useful during this chapters homework and the quiz!

My final footnote for chapter 13 was on page 269. I made a footnote under the caption “The Prices for International Transactions: Real and Nominal Exchange Rates”, as I assumed this section of the reading would address my question from the first margin note I made. Sadly I think I’ll need to take my question to google as I couldn’t find the information I sealed in this section of the chapter. This chapter was still very informational though. It explained exchange rates, which as someone who wants to travel in the future, is super important!

Overall chapter 13 was super fun to read and probably one of my favorites! I really enjoy the math part of macroeconomics so it was perfect for me.

There are many coats of inflation such as decline in competitiveness, fall in real value of savings, menu costs, boom and bust economic cycle, potential fall in real incomes, and cost of reducing inflation, but I believe the most important costs is the uncertainty inflation brings. Uncertainty in inflation can make it hard to plan financially which can lead to economic losses, falls in income, debt, and much more. Currently this uncertainty is a problem for me as I am looking into the expenses of college. Determining which schools are in my families price range is very important and uncertainty in inflation can definitely mess things up. The FRB worries more about deflation because deflation means less money, specifically taxes, which they use to continue the flow of our economy. This is a legitimate concern for the FRB, as it need money to continue our economy and without it we could revisit the 20th century depression.

I asked my dad if he is concerned about future inflation and he explained to me that he is because he is retired and inflation effects social security. His Social Security benefits are adjusted due to inflation, this is better known as the “cost-of-living adjustment”. With this adjustment my dad needs to be sure he can continue affording all of his expenses.

I cannot tell you how many times I’ve heard people my age ask, “why can’t we just print more money?”. This question is always tossed around in random discussions at school and I’ve heard it been asked on the popular social media app TikTok a bunch as well. I don’t blame the people who ponder this question; printing money seems like an incredibly valid option when discussing topics such as homelessness and national debt. Printing more money would be very detrimental to the value of a dollar though. The more money cycling through our economy, mean the less it’s worth therefore every dollar, even the small (very small) amount in my wallet, is important to the overall money supply.

The Federal Reserve System (FRB) is the central banking system of the United States of America. Although the FRB is independent of the federal government, the FRB has a very similar structure as it is composed of seven members including a chair, who is appointed by congress. Recently the FRB injected $1.5 trillion to prop up crashing markets. This was possible because of the Federal Reserve Act. The Federal Reserve Act allows the FRB to ask Treasury to sign things off, insuring Treasury funding which can amount to buttloads of money.

The FRB’s currently is raising inflation to achieve a long term constant inflation rate of 2%. By raising the inflation rate now the FRB is hoping it will become constant at 2%. The FRB is also injecting $80 billion per month to foster smooth market functioning and accommodative financial conditions, thereby supporting economic flow as a whole. I personally am worried about future inflation, as inflation seems to be continuously rising. I do believe that the FRB was very effective during COVID as it was so unexpected and they put in effort to stabilize the economy and avoid another depression, which they pretty much did.

There will always be at least some unemployment because humans will be humans. Whether it’s because people are switching jobs, or focusing on education, unemployment will always be persistent. One public policy that affects the unemployment rate is unemployment insurance. This policy insures that people who have lost their jobs will continue to receive a portion of their previous earnings. This policy can be super helpful to people who got laid off, but can also foster a higher unemployment rate. I don’t think there is a “right” unemployment rate, but I do believe it’s important for that rate to exist as it allows companies advertise and find workers.

The reduction of the $600/week federal unemployment payments adjustment to $300/week was an appropriate response to the end of the pandemic as it encouraged people to find available work. This work is important especially after COVID as many businesses are struggling and in need of employees. I think labor will respond to this very well as it is hard to live off of $300/week compared to a paid salary. This will also boost business, which many need after COVID.

To be completely honest I save my money because my parents tell me to, but after reading this chapter I now understand why they want me to save money in the first place. A firm needs to pay you something to use your “extra money” because when a firm uses your money they are taking away some of its future value and need to reimburse you with present value money.

Seeing as college is right around the corner for me majors have been a very adamant thing on my mind. I have searched on multiple occasions “top 10 highest paying jobs” to look at jobs with high salaries but have also considered my personal likelihood to enjoy different occupations and have final narrowed down my desired major to be either biochemistry, chemistry, or pre-med. All of these majors would give me an option to continue my education after college as a medical school student. This future plan of mine does come with a very hefty price tag although. To look at the risk of this, I decided to look into becoming an anesthesiologist. The average annual salary of an anesthesiologist was $261,730 in 2019. This is a very high annual salary, but to become an anesthesiologist you need about 12 years of school and residency. During this 12 year period future anesthesiologist make very little money, while also needing to pay large amounts of money for schooling. Without any schooling this career path is impossible, as it requires the education. Therefore, this career path has a very high risk but high reward in my opinion. If one is dedicated to this study and truly has a passion for the work, then the cost of schooling and amount of work is worth it and can always be compensated for in the future. I’m not sure if this will be my potential career but with the majors i’m looking at it is definitely one of my options. I think risk in my future is going to be very persistent as many careers in the medical field have lots of schooling but also a high reward when finished.

COVID-19 will depress the demand for loanable funds as interest rates are higher. The equilibrium interest rate is high as COVID-19 produced less business for many companies. Since demand for these companies was low, interest rate is now high as an effort to reach equilibrium.

Loanable funds are defined by those who want to save supply funds and those who want to borrow to invest demand funds which choose the investment projects that are funded each year. Interest rates directly effect return in investments because the higher the interest rate the higher ROI. During a recession ROI would decrease immensely, as the value of stocks would decline, making the demand for money much greater. The opposite can be said for an economic boom: as stocks increase ROI increases and the demand for money decreases.

Since consumption is tied directly with productivity, facilities with higher productivity will experience a higher rate of consumption. This concept can be portrayed in national subsidies in education and health as facilities such as schools with higher productivity will have more students. As a high school student currently looking into my future, I find college to be a prime example of this. Colleges with higher ranks (productivity) tend to have many more applicants than schools ranking lower. This idea can also be applied to health and infrastructure as facilities with more productivity will always be more sought after as they are the better alternative in most cases. To determine the proper subsidy for activities that improve productivity I believe it’s important to look at the possible consumption of said activity. If the possible consumption is high, then the subsidy should also be correspondingly high.

Although population growth can result in economic growth, population growth can have many negative side effects such as over consumption, lack and depletion of resources, and a negative impact on the environment. Population growth could also be a positive thing as population growth also could foster economic benefits such as increased consumer spending, more economic flow, and creation of more business. Personally I believe that over consumption is a big problem in today’s society and that even I contribute to the depletion of resources such as natural gas. I also contribute to the consumption of products that negatively impact the environment such as plastics.

Subsidizing parents can have both a positive and negative effect on the economy. As I stated earlier, population growth effects the economy tremendously, and if the government subsidies parents, child birth rate will grow. With a higher child birth rate, population will grow as well meaning some of the effects of a higher population will take place. On the other side of the argument, subsidizing parents could contribute to a better quality of life for families, over all potentially contributing to a better national GDP.

I believe the problems with CPI are pretty low-key. Problems such as the introduction of new goods isn’t necessary a bad thing for the economy. Introducing competition in markets could positively affect buyers and their overall well being. Although introductions new goods may increase the value of a dollar, which CPI will not recognize, I believe this “problem” is vital to the progression of our economy, while a accurate CPI may not be as important.

Coming from a very small town I definitely believe that our inflation rate is different than that of urban areas. Different products may have a higher inflation rate such as gas; in my small town gas is much less needed than if it were to be a big city sole because in my town we drive less. Therefore, the price of gas in my town may be less than that of a big cities while other products here such as bike services or rafting services, may be more expensive as they face a higher demand.

I think all of the uses for CPI are somewhat appropriate. I mean, to someone somewhere information such as the effectiveness of government policy may be important. Personally though, I never take CPI into account consciously. I don’t happen to view my purchases and economic activity in such a large scale, but I can see CPI being important on a larger scale, perhaps for governments?

Whilst looking over the headings for this chapter of Brief Principles of Macroeconomics, the heading “The GDP Deflator” stuck out to me. I believe this heading stuck out to me because I had no idea what it meant, and had never heard of such a term. My question regarding this heading was what is a GDP deflator? After a brief reading, I’ve found that a GDP deflator is a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100. This equation looks a little like this: GDP Deflator = Nominal GDP/Real GDP x 100. The GDP deflator is used to measure the changes in price for all goods and services produced in an economy, it helps economists compare the levels of real economic activity from one year to another, and the GDP inflator is a more comprehensive inflation measure than the CPI index as it isn’t based on a fixed basket of goods.

The U.S. GDP is currently $22,676 billion and this time last year it was $22,198 billion. GDP in the U.S. is growing, which it looks like it has been for the last couple of years. This growth matters because GDP is directly related to the quality of life in a nation. Therefore, as the GDP increases things such as life expectancy, years of education, and overall life satisfaction increase. In the last year, we have all had to face COVID-19, which, I would assume affected GDP enormously. Although in the last year the U.S. GDP has risen, I can see many 3rd world countries struggling to maintain their GDP through the pandemic as governments and people are spending much more money on cosmetics to fight the virus.

This chapter of Brief Principles of Macroeconomics was HARD. The graphs are a little bit confusing, so please bare with me as I explain my graphs :)

Beginning with example one, the graphs depict the supply and demand of both taxis and ride-sharing companies. The first thing I should say is that I do believe companies like Lyft and Uber affect the prices of taxis. I believe this because there is a higher demand for ride-sharing companies, so taxis may lower their prices to deal with this competition. As you can see in my (lovely) drawings, the demand for ride-sharing companies shifts to the right, and I have taxis demand shifting to the left. This could cause a change in price like I mentioned previously. This difference in demand also can affect the equilibrium price in each market as demand for the different rides dictates price.

In example two, I depicted minimum wage. To begin I placed the equilibrium right in the middle of the chart as I imagine the equilibrium minimum wage to be around $10.00 and hour. With that being said the first graph depicts a $7.35 an hour minimum wage, where both supply and demand are below equilibrium. This is because with a lower minimum wage there will be less demand for people to want jobs. In the second graph I depict $15.00 an hour minimum wage. This graph is the opposite of the other, as both supply and demand are above equilibrium. This is because as people get paid more, more people are interested in getting jobs. This difference in $7.35 an hour and $15.00 in monumental in my amateur graphs as I predict the change in minimum wage to increase the demand for jobs a great deal which could result in lower unemployment, a decrease in homelessness, and many other beneficial consequences.

Once again I would just like to remind you these graphs are no where near perfect and probably not accurate, but I sure did try! Hopefully my graph drawing skills will increase a ton thought this class.

The most surprising concept in this chapter of Brief Principles of Macroeconomics was the idea of comparative advantage. Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. This idea made me realize how complicated trade really is, and now I can see why it is such a debated topic in the news.

Personally, after reading this chapter I believe international trade is beneficial. Not only does it allow countries to specialize in specific talents, but it also demises peace around the world. Before reading the chapter I’m not sure if I necessarily had an opinion on trade before reading this, but I believe I am a supporter of it now!

Trade between China and Wyoming are two different ball parks. Trading with Wyoming could be looked better upon because it is trade within the U.S., which many people may favor, while trade with China may be looked at more as trading with our competition. That being said, both trade with China and Wyoming are beneficial because it allows people to specialize; Wyoming can specialize in producing products like sheep wool, while China can produce technology like computers.

Recently I purchased a bunch of makeup for my upcoming senior pictures. Most of the makeup was made in China. There is a small shop in my town that sells overpriced dupes for some of the items that are “made in house”. I don’t believe I personally could have opted for a “locally” produced — an item produced in my town — as I believe the quality is compromised and the price is incredibly high.

My favorite policy-maker would have to be Joe Biden. Biden is the current President of the United States and in a statement on June 5, 2021, Biden said, “In the decades since, more than 700,000 Americans and 32.7 million people worldwide have been lost to AIDS — related illnesses — a heartbreaking human toll that has disproportionately devastated the LGBTQ+ communities, communities of color, and underserved and marginalized people around the world”. This statement from Biden is a positive statement as it is fact based, being derived from statistics death rates due to AIDS. In the same statement made on June 5, 2021, Biden explains, “We must provide moral leadership to eradicate the stigma and discrimination still faced by those living with HIV, rededicating ourselves to continuing the vital work of ending this epidemic once and for all.” This statement can be defined as normative because it is an opinion of Biden’s that we need to continue the vital work of ending this epidemic. Identifying positive and normative statements is crucial in decision making as positive statements are fact based, being backed up by statistics and science, while normative statements are simply opinions, which could indicate bias in the argument.

In the chapter, the table of propositions was very fascinating. A few of the propositions I agree with from an economical stance, but disagree with on a personal stance. For example, proposition 16: The United States should not ban genetically modified crops. From an economics point of view, genetically modified crops look much nicer and therefore attract more customers, they are easy to produce at fast rates, and they are cheaper for a consumer when compared to their organic counterparts. Personally, although, I believe banning genetically modified crops could lead to better health in America, healthier food options, and a more transparent buyer-seller dynamic.