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Chapter 16 Reflection

What were the FRB's actions in their attempts to lessen the affect of Covid-19 on the economy? Were they successful?

Some of the things the Fed did to lessen the affect of Covid was create and reinforced existing liquidity programs and adjusted interest rates. The FRB implemented several measures to support the flow of credit for different types of assets and securities transactions. This helped promote maximum employment and price stability goals. – As we can see unemployment rose significantly after Covid restrictions were put in place. While this did not work, fortunately an increase in unemployment benefits helped continue the flow of credit as we have not seen a crash. Other actions taken include discount window, intraday credit, bank capital and liquidity buffers, and reserve requirements. How about the federal government? Were they useful?   The federal government enacted the PPP which helped stabilize markets and allow for employers to rehire employees. They passed the CARES Act, which not only increased monthly wages for households, it helped alleviate impending stress on the credit markets.  – Again, as we have not seen a major crash yet, I believe this example of some of the things the federal government did was very useful.

Do you agree with the actions taken by the FRB and the Federal government? Why or why not?  What are the risks associated with their policies?

I do agree. If there are steps that can be taken to avoid another crash like the one we saw in the early 2000s, I believe we should take them. There can be risks involved when the government intervenes in the economy but generally regarding inefficiencies in production situations. But with their help with income distribution, secured public goods, welfare opportunities, there is high reward to risk.

https://www.dhg.com/article/federal-reserve-board-takes-significant-action-to-support-the-economy-and-market-functioning

https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm

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Chapter 15 Reflection

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Chapter 13 Reflection

Post your 3 favorite margin notes from this chapter. Why did you highlight and comment on these particular points in the text?

1. “Thus, the real exchange rate depends on the nominal exchange rate and on the prices of goods in the two countries measured in the local currencies.” I really enjoyed learning about the real exchange rate and how this can determine a country’s exports of goods and services. Also, the fact that economists look at the price overall rather than individually. 2. The process of taking advantage of price differences for the same item in different markets is called arbitrage. I wrote this down as I liked learning this word. But in this same section I found law of one price interesting as it was something I never really thought about. You see price fluctuations just by going to the town next door, however, there are not crazy price differences on day to day products. 3. “nominal exchange rate between the currencies of two countries depends on the price levels in those countries” I love traveling so I noted this because I have never known how any of the exchange rates were determined. Knowing it is a reflection of goods in the US and the country you are exchanging with. I see now why my dollar was able to so much in places like India and Myanmar.

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Chapter 12 Reflection

What are the costs of inflation? Which is most important? How about deflation? Would that be a problem and for whom? The FRB worries more about deflation. Why? Do you agree? Why or why not?

Some of the costs associated with inflation are levels of investment and economic growth/cycles, value of savings, and transaction costs. I would imagine the economic growth and cycles would be the most important. When you have a high inflation rate associated with growth there is often a recession to follow after that bubble bursts. Deflation is a fall in prices. Deflation seems great to the consumer however, when it comes to borrowers it is concerning. The borrower will now be paying back their loan with money that is “worth more” than what they borrowed.

I think the FRB, who controls the money supply, worries about deflation partially due to the example above and partially because it means the money supply is falling credit falls then prices of goods begin to fall.

As someone who is going through purchasing a home I do not like the idea of deflation and hope I do not see the value of my money decrease as I pay back a mortgage. In that same vein as someone who is going through a home purchase I would love for some of the things I purchase for the home to be more affordable, allowing me to purchase more. Overall, I do not think deflation is completely bad and can see how it can stimulate the economy.

https://www.economicshelp.org/macroeconomics/inflation/costs-inflation/#:~:text=There%20are%20many%20costs%20associated,lenders%20and%20those%20with%20assets. https://www.investopedia.com/terms/d/deflation.asp

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Chapter 11 Reflection

The phrase "printing money" tends to be tossed around in discussions about the money supply.  How important is cash to the overall money supply? 

While we cannot just “print money” as it would greatly increase inflation, cash is very important to the money supply as it helps economists develop policies regarding the supply. Knowing how much cash is in supply helps determine inflation, interest rates, and the business cycle. 

Think about the structure of the FRB.  How are they related to the Federal government? Recently they have injected a huge amount into the money supply. How did they do that?

The Federal Reserve Banks are not apart of government, but more of a private sector bank however, congress oversees the Federal Reserve Systems through the Board of Governors. The Fed injected money into the supply by purchasing bonds from banks. 

And of course the all important question - what was the FRB's most recent change to the money supply and why? What is your analysis of the current policies efficacy?

The most recent change I could find was 2.3 trillion into the economy back in April due to the hit from the Covid pandemic. It would appear as if this increase was somewhat effective. We have not seen a massive crash and things like real estate are booming at the moment, however,  we still see business shutting down and unemployment growing.

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Chapter 18 Reflection

What concepts or theories did you find most interesting and/or useful?  Is there an area where you changed your thinking?

It was really interesting to me to get a better understanding of how the housing crisis in the early 2000s happened and how the Federal Reserve was involved. The subject has always been a little confusing to me and so it was great to be able to understand each component from – banks and subprime mortgages. I also learned how to interpret and critically think about macroeconomics without getting my personal opinions involved – not all the time, still working on it a bit – but I found that by looking at situations strictly in economic terms I was able to understand they what and why of economic lessons.

Re this chapter:  Which debate do you consider most important and interesting?  Which side do you agree with? Why?

This was tricky as each one seemed so important. I believe “Policy Makers Should Not Try to Stabilize the Economy” was most interesting and important and I side with the Con. “It might be desirable for policymakers to eliminate all economic fluctuations, but such a goal is not realistic given the limits of macroeconomic knowledge and the inherent unpredictability of world events.” Looking at this quote right away my mind went to the pandemic. If policy makers are trying to predict trends and spending they may make decisions that end up detrimental to the economy. We cut taxes on the wealthy and middle and lower class individuals are now struggling and relying on a stimulus check that may or may not have come. I believe it is also another way for policy makers to manipulate constituents and financial backers by passing or killing a bill.

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Chapter 17 Reflection

Ch. 17 Reflection Describe the short run trade-off between inflation and unemployment.  Why is there not a long-run trade-off?  How long do you think the short-run lasts? (Or do you believe there is a trade-off at all - many economists don't.  Why?

There is a trade-off between inflation and unemployment. Meaning, as unemployment rates increase, inflation decreases and as unemployment rates decrease, inflation increases. While there is no long-run trade-off, the long-run shows unemployment over the long term stays steady regardless of inflation rate, there is no trade-off because in the long term they are exclusive.

The short-run time can sometimes be determined as the time horizon over which the scale of an operation is fixed and the only available business decision is the number of workers to employ. I believe the trade-off to be when you adjust inflation – ex: increasing wages – you increase the demand for jobs.

https://courses.lumenlearning.com/boundless-economics/chapter/the-relationship-between-inflation-and-unemployment/#:~:text=Short%2DRun%20Phillips%20Curve%3A%20The,tradeoff%20between%20inflation%20and%20unemployment.&text=As%20unemployment%20decreases%20to%201,inflation%20rate%20drops%20to%202%25.

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Chapter 10 Reflection

Why will there always be at least some unemployment?  Give an example of a public policy that affects the unemployment rate.  Is it positive or negative? Why?  

There will always be unemployment due to frictional and structural unemployment. According to the text one government policy that affects the unemployment rate is Government programs that try to facilitate job search such as, “through government-run employment agencies, which give out information about job vacancies.” This assistance can keeps, “the labor force more fully employed and that they reduce the inequities” Some argue should not get involved however in cases such as college career offices or word of mouth a large demographic of people get left out if they are not in school and or do not have personal/professional connections to learn about job openings.

As a part of the Federal response to the Covid-19 pandemic a $600/week federal unemployment stipend was added to the state unemployment stipends. How would you expect that to affect unemployment? Was it an appropriate response to the pandemic?  Why or why not?

I believe the extra stipend was absolutely appropriate. I know many people who were laid off due to the Covid pandemic and the $600/week extra was key in helping them stay afloat whether it be for rent and food costs or covering health costs as they just lost coverage. Some were making more than when they were employed and were finally able to save some money. Unemployment does not and did not cover their paychecks and with the help of the extra stipend they were able to make up for much of what they were losing. I would expect that the additional unemployment stipend would not increase nor decrease unemployment. You cannot receive unemployment if you leave on your own so I imagine people were not quitting their jobs – especially if they had the security of keeping one during this pandemic – to get an unemployment benefit they would be ineligible to receive.

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Why do you save?  Why does a firm need to pay you something to use your "extra" money? (The rate of return on bonds is generally positive.) How do you balance risk and return when you make investments (or how will you do that in the future)?  

Currently I invest a percentage of my bi-weekly salary and a small percent of my Health Savings Account to a diversified portfolio that has a modest rate of return. When choosing how much to invest – my risk and return -  I look at what I need each month to pay of bills, save for emergency funds, save for housing, and how much I want to have as spending money. Because I have a higher cap of the amount of cash I want to have on hand at the moment, I have chosen a lower risk investment account even though it predicts a lower return.

Did you think about potential jobs/salaries when you chose your major?  How about risks associated with the strength of the economy?

I absolutely thought about potential jobs/salaries when I decided to pursue a nursing degree. When thinking about where I want to be physically and financially, I know I want to be here in Aspen and I know I want to be financially stable and not trying to juggle the year-round-ski-bum lifestyle.

Considering the affordability of CMC I will not need to take out a loan as I did the first time I went to school. Because of this my rate of return stays quite high. I, financially, will be investing around $10,000 all together and according to an article on Science Direct, “The 5-year return on the investment in a college education is 138%...” “The average 5-year return on investment for a baccalaureate degree in nursing is 212%. Only pharmacy, physical therapy, and several different engineering majors outpace nursing.” Based on some searches on indeed.com the average Nursing salary in Aspen is around $83,000, solidifying my belief that I am pursuing a very promising and encouraging return.

Or should you change majors?  How do you value the non-monetary aspects of your potential career?  Does that change your results?

I do not have any desire to change majors after this research. I like helping people and I like being there for my community. While the stability is a major driving force in my motivation for getting my degree, the potential to show up and care for my community is what piqued my interest in nursing in the first place.

https://www.nursingoutlook.org/article/S0029-6554(01)85826-7/fulltext

https://www.indeed.com/career/registered-nurse/salaries/Aspen--CO

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Chapter 8 Reflection

This chapter is an important link in how we understand government policies today in the midst of the Covid-19 crisis.  The Federal government is running record deficits in an attempt to avert or minimize a recession/depression.  Look back at this chapter and discuss how this should affect the market for loanable funds.  Is that what we have seen happen (where is the equilibrium interest rate now - up or down?)  You should be left with a question - why have interest rates not increased?  

How does the loanable funds market help define/choose which investment projects are funded each year?

“When the government reduces national saving by running a budget deficit, the interest rate rises and investment falls.” Thus, reducing the economy’s growth rate. Loanable funds are defined to mean “flow of resources available to fund private investment” and with a reduced saving and growth rate the deficit means interest rates increase and the demand for loans would decrease.   I had a difficult time finding the current equilibrium interest rate, I did find this comment on the federal reserve website, ‘A corollary of this finding is that the U.S. equilibrium rate may be substantially lower than estimated in U.S”. It does not state whether or not this claim has been proven or what that number is. I would imagine that with the increased government spending due to Covid will increase the interest rate and decrease the demand for loanable funds which would have a downward effect on the equilibrium rate.

It depends on who is obtaining the loanable fund that determines what projects will be funded. People and organizations seek loans, for investment purposes. Businesses, will seek loans to pay for capital assets, such as a factory or machinery.

https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=59831315224872897917093326&eISBN=9780357133668&id=843764442&snapshotId=1829463&

https://voxeu.org/article/impact-covid-19-crisis-equilibrium-interest-rate

https://study.com/academy/lesson/loanable-funds-definition-theory-quiz.html#:~:text=Definition%20of%20Loanable%20Funds,-Loanable%20funds%20is&text=One%20way%20to%20make%20an,as%20a%20factory%20or%20machinery.

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Chapter 7 Reflection

This chapter focuses on the importance of productivity as a part of growth in GDP, the somewhat obvious idea that you can't consume something that was never produced, thus consumption is tied directly to productivity.  How does that concept support national subsidies in education and health?  How about infrastructure? 

Population growth tends to be a "hot topic".  What are the negatives associated with additional population growth? What are the positives?  (In terms of growth in GDP).  Where do you fall in the discussion? Why? 

To quote the book, “Education, investment in human capital- is at least as important as investment in physical capital for a country’s long-run economic success.” Currently the federal government provides about 8.5 percent of the funding for K-12 schooling, helps students finance higher education through loans and grants, and give favorable tax treatment to educational institutions. These subsidies allow for a larger population to receive access to quality educational institutions, thus enhancing the standard of living. 

This goes hand in hand with health care. By offering lower or no cost health care you are able to provide quality to care to a larger population and a population that could not otherwise afford health care. Improving the health and education of the workforce will improve human capital per worker. 

Infrastructure enhances the efficiency of production, transportation, and communication.  

“problems caused by poor infrastructure; and more income diverted to transportation, electricity, and water/wastewater costs” Poor infrastructure costs the taxpayer more money which in turn results in less savings inhibiting the growth and productivity of the economy. 

https://budget.house.gov/publications/report/strong-infrastructure-and-healthy-economy-require-federal-investment

Some of the arguments against population growth in regard to GDP are overuse of resources, rapid population growth tends to overuse natural resources especially in terms of agriculture. Per capita income tends to slow during rapid population growth, it leads to a rise in cost and consumption of goods and a decline in the accumulation of capital because of increased expenses. An increase in unemployment and under-employment takes place as jobs cannot increase if not matched my complementary resources. And social infrastructure, a scarcity of resources make it difficult to provide educational, health, medical, transport, and housing facilities to the entire population. 1

Conversely, the arguments in favor of population growth in regard to GDP such as economic boost, more people are working and innovating thus increasing labor output. Increased innovation can help develop ways to serve a larger population while preserving resources. A growing population can also be a sign of a healthy society. Growth can be a sign of lower mortality rate due to advancements in health and science. 2

I believe population growth is positive for the growth of GDP. A stagnant population leads to a stagnant society lacking in new and innovative ideas. Diversity in skills and trade in a growing population leads to an increase in labor opportunities and increased output. 

1. https://budget.house.gov/publications/report/strong-infrastructure-and-healthy-economy-require-federal-investment

2.https://www.sociologydiscussion.com/demography/population-growth/12-main-consequences-of-population-growth/3162

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Chapter 5 Reflection

While it wasn’t my question, it was the one I found to be most interesting. Is GDP a Good Measure of Economic Well-Being? The GDP is often used to determine the well-being and prosperity of a country yet those standards are not included in determining GDP �� i.e quality of environment, quality of life, distribution of income. You could take Denver for example. It has a GDP of 193.97 billion for a population of 619,968. On the surface this looks like a decent GDP for a city however recent reports show 12.2% of Denver’s population lives at or below the poverty line. The blaring issue of income disparity is hidden in the high GDP. 

The current GDP for the US in Q4 19.41 trillion which is down 34.3% or 2.15 trillion from Q1. Due to COIVD there was a rapid decrease in spending. “The decrease in PCE reflected decreases in services (led by health care) and goods (led by clothing and footwear). The decrease in exports primarily reflected a decrease in goods (led by capital goods) …” The list goes on to include motor vehicle retail, transport equipment, and single-family housing. After seeing the impact COVID has had on the GDP I believe it is necessary to include disaster/uncontrolled large-scale events in balancing out the GDP. 

https://www.statista.com/statistics/183883/gdp-of-the-denver-metro-area/#:~:text=Denver%20metro%20area%20%2D%20GDP%202001%2D2018&text=In%202018%2C%20its%20GDP%20amounted%20to%20193.97%20billion%20U.S.%20dollars.

https://www.bea.gov/news/2020/gross-domestic-product-2nd-quarter-2020-advance-estimate-and-annual-update

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QuartIn many large cities you can now use your cell phone to call Uber or Lyft instead of hailing a taxi. Would you expect this to affect the prices of taxi medallions (that is really the supply of taxis)? Why or why not? Talk about supply and demand curves in your answer.

With the emergence of ride sharing apps I would absolutely believe it would affect the prices of taxis. While I cannot speak on behalf of cost comparison off the top of my head, my first instinct would be convenience and security. Until the introduction of Uber I barely used ride share services (taxis) and a couple times that I did the driver manipulated the price by running the meter or taking a longer route. With Uber and Lyft I am able to know who is taking me where, when, and how much I will be spending all at the tap of a few buttons on my phone. This positive experience has lead me to use Lyft or Uber regularly when I am in larger cities and or traveling. 

After doing some research, taxi companies in Europe protested Uber because it was able to offer cheaper rides by enabling its monopoly because Uber “avoids their expensive license fees and bypasses local laws it creates unfair competition (Investopedia)”. While this protest resulted in tighter regulations of Uber in Europe, it still furthers the point that Uber and Lyft would affect the prices of taxi medallions. You also see Uber’s effects on supply and demand in their surge pricing. “When demand for rides outstrips the supply of cars, surge pricing kicks in, increasing the price (Quartz)”. 

If you were to graph the use of Uber or Lyft to standard taxis, the demand curve would shift to the to the right, increasing quantity and the supply curve would also shift right increasing the supply of drivers thus decreasing the price equilibrium. The demand curve for taxis would shift to the left as there is an decrease in demand, as well as shift to the left on the supply curve causing the price equilibrium to increase. 

Investopedia. https://qz.com/505031/uber-got-two-economics-phds-to-explain-how-supply-and-demand-works/#:~:text=When%20prices%20drop%20back%20down,kicks%20in%2C%20increasing%20the%20price.&text=If%20you%20still%20want%20a,consent%20to%20that%20higher%20price.

Quartz. https://www.investopedia.com/articles/personal-finance/111015/story-uber.asp

Minimum wage is another classic example. What happens to the quantity demanded of labor when the minimum wage is increased? How about the quantity supplied of labor?

When minimum wage is increased, from an employers perspective, businesses will decrease the demand for employers with the rising cost of paying them. This will move the demand down to the right . This will also cause a decrease in supply as employers decrease their openings moving the supply down to the left resulting in a shortage. 

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What in this chapter made you think about an economic concept differently than your previous beliefs?  

This chapter made me realize that economics and psychology are a symbiotic relationship. I understood that there is a level of human behavior influencing the economy, I did not realize how deep we could get into the human psyche rather than the normal blanket explanation of “supply and demand”. Citing incentives(pg.6), the subtle responses to the addition of seat belts leading to a spider web of outcomes whether it be the drivers speed to the cost of the accident.

What new questions do you have now about the US economy based on this chapter?

A question on many minds...what is going to happen?

We are in such a tumultuous time I believe it would be incredibly difficult to not only study human behaviors and trends, but the government behavior as well. We also saw a huge market dip in March due to the pandemic which is still struggling to recover and there are market predictions stating the upcoming year will look a lot like 2008 (https://www.brookings.edu/blog/future-development/2020/04/14/the-world-economy-in-2020-the-imf-gets-it-mostly-right/). It is interesting...scary? to predict what is going to happen when we see the full impact of this pandemic on the economy all while under an unpredictable White House.