Welker's Wikinomics Page - New Pages

inefficient of monopoly

willstshalie — Sat, 11 Apr 2009 12:08:29 CDT

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IB Economics Blog Post Assignment

welkerjason — Fri, 28 Nov 2008 02:27:27 CST

Directions: Enter your name next to one date in the red months and one date in the blue months. Only one student may enter per date. The dates you select represent the deadlines for your ZIS Economists blog posts.

To write and publish a post, follow the link to the login page for the class blog: "ZIS Economists" Look for the link that says "Register" on the left side of the blog.

Register using your full name in the following manner: "Firstname.lastname" for example: Jason.Welker
Enter your email address and click "Register". Check your email for your password, follow the link to the sign in page and sign into the Blog's dashboard.
To change your password, immediately go to the "Profile" link and enter your new password twice.
To write your post, click the "Write" tab at the top of the page.
You can save drafts and come back to them through the "Manage" tab at any time.
If you wish, you may write your posts in MS Word and paste them into a blog post using the "Paste from Word" button in the "Write" screen.

All blog posts should hyperlink to an article relating to something we've studied from the IB syllabus. Posts should be between 400-600 words and follow the Criteria in the Rubric at the bottom of this page.

December:

1	2	3	4 Max Huijen	5 Vladimir Taratynkin
8 Venla aho	9 Sabbie Walsh	10 Nicholas Burnham	11 Bastien Vogt	12 Marc Lemann
15 Benji Rosen	16 Daniel Edmonds	17 Moritz(Momo) R.	18 Jabbo Gehring

January:



12 Simon Strong	13 Laura Perez	14 Christian Evertz	15 Ultan Whelan	16 Fabienne Bergamin
19 Alex Svensson	20 Jonathan Ranstrand	21 Kai Dieter	22 Andrea Eggli	23 Michael Hale
26 Alex Hewat	27 Theresa Mehl	28 Gavin Steinhubl	29 Dominic McNamee	30 Rohan Bhanot

February:

2Emil Mawad	3 Rohan Rajiv	4Alex Han	5 Rocio Perez	6 Amit Zaidenberg
9 Rusty Knaub	10 Maren Rackebrandt	11Finlay Small	12 Juhani Meurman	13 Christian Clausen
16 Virginia Hasenmeyer	17 Helen Poxon	18 Max Spielbichler	19 Thibault Dk	20 Karol R.
23 Laura Nanette Gambineri	24 Gabriel Martin	25 Guillaume Dubois	26Luisa v. W-O.	27 Deniz Lorenzini

March:

2 Laila Brennikmeijer	3 Helene Gleitz	4Aleya T.W.	5 Stefan Bloch	6 Younes Huber
9 Dimitri Da Ponte	10 Venla Aho	11	12	13
16	17 Jabbo Gehring	18 Jonathan Ranstrand	19.Theresa Mehl	20 Marc Lemann
23	24 Alex Svensson	25 Moritz (Momo) R.	26 Juhani Meurman	27 Ultan Whelan
30Alex Han	31 Alex Hewat

April:

		1 Christian Clausen	2 Dominic McNamee	3
6	7	8 Sabbie Walsh	9 Vladimir T	10 Max Huijen
13Benji Rosen	14	15.Theresa Mehl	16Emil Mawad	17 Rohan Rajiv
20 Aleya lol	21 Karol R.	22 Laura Perez	23 Laila Brenninkmeijer	24 Rohan Bhanot
27 Kai Dieter	28 Luisa v. W-O.	29 Guillaume Dubois	30 Deniz Lorenzini

May:

				1 Dimitri Da Ponte
4 Christian Evertz	5 Maren Rackebrandt	6 Finlay Small	7 Simon Strong	8 Amit Zaidenberg
11 Fabienne Bergamin	12 Andrea Eggli	13Gavin Steinhubl	14 Rusty Knaub	15 Rocio Perez
18 Virginia Hasenmeyer	19 Helen Poxon	20 Gabriel Martin	21 Thibault dk	22 Michael Hale
25 Max Spielbichler	26 Nicholas Burnham	27 Laura Nanette Gambineri	28Helene Gleitz	29

June:

1	2 Stefan Bloch	3	4	5 Younes Huber

ZIS Economists Blog post rubric:

Criteria	Low marks	High marks
Length, connection to syllabus (2 marks)	Post EITHER does not relate to the current unit OR is not between 400-600 words 0-1	Post relates to the current unit AND meets the word limit of between 400-600 words 2
Organization and presentation (4 marks)	Post is poorly organized and presented. Quotes from article are missing or used only minimally 0-2	Post is well organized and presented. Author makes effective use of quotes from the article 3-4
Economics Terminology (5 marks)	The post demonstrates minimal use of appropriate economic terminology and there are only limited attempts to define terms 0-3	The post demonstrates appropriate use of economic terminology. Terms requiring definitions are correctly defined. 4-5
Application and Analysis of Economic concepts and theories (5 marks)	The application or analysis of relevant concepts and theories has been attempted, but the linkages to the article are inappropriate or superficial 0-3	Relevant concepts and theories have been identified and suitably applied in the blog post. 4-5
Evaluation (4 marks)	The author attempts to evaluate the economic theories and concepts applied, but the evaluation is limited 0-2	The author demonstrates evaluation of the economic theories and concepts applied with 3-4

Total score for blog post: _____/20

Development Economics

welkerjason — Wed, 13 Aug 2008 08:33:07 CDT

Below are the chapters we will cover in during our unit on Development Economics.

Click on the Unit link to visit that unit's main Wiki page.

Unit 5.1: Sources of Economic Growth and Development	Unit 5.2: Consequences of Growth	Unit 5.3: Barriers to Economic Growth and Development	Unit 5.4: Growth and Development Strategies	Unit 5.5: Evaluating Growth and Development Strategies

International Economics

welkerjason — Wed, 13 Aug 2008 08:33:54 CDT

Below are the chapters we will cover for our unit on International Economics

Unit 4.1: Reasons for Trade and Unit 4.8: Terms of Trade	Unit 4.2: Free Trade and Protectionism	Unit 4.3: Economic Integration and Unit 4.4: World Trade Organization	Unit 4.5: Balance of Payments and Unit 4.6: Exchange Rates	Unit 4.7: Balance of Payments Problems
Chapter 35: International Trade Ch. 35 Wiki Key Q's 4, 7			Chapter 36: Exchange Rates, the Balance of Payments, and Trade Deficits Ch. 36 Wiki Key Q's 2, 7, 10

Development Economics Unit Overview (IB Unit 5)

welkerjason — Wed, 13 Aug 2008 07:08:49 CDT

Unit 5: Development economics

Throughout the course, students are introduced to several important concepts in development economics
and, in particular, to the fundamental distinction between economic growth and economic development
established in section 3. This important distinction needs to be re-emphasized at the beginning of this
section.

Given the dynamic nature of the international economy, it is problematic to group countries into clearly
established categories such as developed, developing, newly industrialized countries (NICs) and transition
economies. However, students should understand current terminology and be aware that similarities and
differences exist within different categories. It is important for teachers to help students find relevant
examples of the different categories of countries.

The main purpose of this section is to provide students with the opportunity to understand the problems
faced by developing countries, and to develop an awareness of possible solutions to these problems.

5.1 Sources of economic growth and/or development

Natural factors: the quantity and/or quality of land or raw materials
Human factors: the quantity and/or quality of human resources
Physical capital and technological factors: the quantity and/or quality of physical capital
Institutional factors that contribute to development

banking system
education system
health care
infrastructure
political stability

5.2 Consequences of growth

Externalities
Income distribution
Sustainability

5.3 Barriers to economic growth and/or development

Poverty cycle:

low incomes
low savings
low investment
low incomes

Institutional and political factors

ineffective taxation structure
lack of property rights
political instability
corruption
unequal distribution of income
formal and informal markets
lack of infrastructure

International trade barriers

overdependence on primary products
consequences of adverse terms of trade
consequences of a narrow range of exports
protectionism in international trade

International financial barriers

indebtedness
non-convertible currencies
capital flight

• Social and cultural factors acting as barriers

religion
culture
tradition
gender issues

5.4 Growth and development strategies

Harrod-Domar growth model
Structural change/dual sector model
Types of aid

bilateral, multilateral
grant aid, soft loans
official aid
tied aid

Export-led growth/outward-oriented strategies
Import substitution/inward-oriented strategies/protectionism
Commercial loans
Fair trade organizations
Micro-credit schemes
Foreign direct investment
Sustainable development

5.5 Evaluation of growth and development strategies

Evaluation of the following in terms of achieving growth and/or development

aid and trade
market-led and interventionist strategies

The role of international financial institutions

the International Monetary Fund (IMF)
the World Bank
private sector banks
non-governmental organizations (NGOs)
multinational corporations/transnational corporations (MNCs/TNCs)
commodity agreements

International Economics Unit Overview (IB Unit 4)

welkerjason — Wed, 13 Aug 2008 05:05:48 CDT

Unit 4 International Economics
The purpose of this section is to encourage candidates to understand why countries trade, the problems
involved and how these problems are addressed. Students need to understand how exchange rates affect
international trade. The international trade theory introduced in this section should be related to real-world
examples.

Texts: McConnell/Brue chapters 37, 38 and Sloman chapters 23 – 25

4.1 and 4.8 Reasons for Trade and The Terms of Trade

Differences in factor endowments
Variety and quality of goods
Gains from specialization

Higher level only:

Absolute and comparative advantage.

Opportunity cost.
The limitations of the theory.

4.2 Free Trade and Protectionism

Definition of free trade
Types of protectionism

Tariffs
Quotas
Subsidies
Voluntary Export Restraints (VERs)
Administrative obstacles
Health and safety standards
Environmental standards

Arguments for protectionism

Infant industry argument
Efforts of a developing country to diversify
Protection of employment
Source of government revenue
Strategic arguments
Means to overcome a balance of payments disequilibrium
Anti-dumping

Arguments against protectionism.

Inefficiency of resource allocation
Costs of long-run reliance on protectionist methods
Increased prices of goods and services to consumers
The cost effect of protected imports on export competitiveness

4.3 Economic integration

Globalization.
Trading blocs

free trade areas
customs unions
common markets.

Higher level only

Trade creation and trade diversion
Obstacles to achieving integration

reluctance to surrender political sovereignty
reluctance to surrender economic sovereignty

4.4 the World Trade Organization

Aims
Success and failure viewed from different perspectives

4.5 Balance of Payment

Current account

balance of trade
invisible balance

Capital account

4.6 Exchange rates

Fixed exchange rates
Floating exchange rates
Managed exchange rates
Distinction between

depreciation and devaluation
appreciation and revaluation

Effects on exchange rates of

trade flow
capital flows/interest rate changes
inflation
speculation
use of foreign currency reserves

Higher level only

Relative advantages and disadvantages of fixed and floating rates
Advantages and disadvantages of single currencies/monetary integration
Purchasing power parity theory (PPP)

4.7 Balance of Payment Problems

Consequences of a current account deficit or surplus
Methods of correction

managed changes in exchange rates
reduction in aggregate demand/expenditure-reducing policies
change in supply-side policies to increase competitiveness
protectionism/expenditure-switching policies

Consequences of a capital account deficit or surplus

Higher level only

Marshall-Lerner condition
J-curve

4.8 Terms of trade

Definition of terms of trade
Consequences of a change in the terms of trade for a country's balance of payments and domestic economy
The significance of deteriorating terms of trade for developing countries

Higher level only

Measurement of terms of trade
Causes of changes in a country's terms of trade in the short-run and long-run
Elasticity of demand for imports and exports

Unit 4.1 Reasons for trade: Performance Objectives

State two economic points that explain why nations trade.
Compute, when given appropriate data, the relative costs of producing two commodities in two countries and determine which nation has the comparative advantage in each good.
Compute, when given appropriate data, the range for the terms of trade.
Calculate the potential gains from trade and specialization for each nation and the world when given appropriate data.
State the economist’s case for free trade.

Unit 4.2 Free trade and protectionism: Performance Objectives

Identify four types of trade barriers.
Describe the economic impact of tariffs, including both direct and indirect effects.
Contrast the economic impact of a quota with that of a tariff.
List seven arguments in favor of protectionist barriers, and critically evaluate each.
Identify the costs of protectionist policies and their effects on income distribution.
Describe the major provisions of the WTO.

Unit 4.5 and 4.6 Balance of payments and Exchange rates: Performance Objectives

Explain how imports and exports create a demand for and a supply of foreign exchange; and how a country's imports create a demand for foreign exchange and a supply of domestic currency.
Explain and identify the various components of the balance of payments.
Identify trade and balance of payments deficits or surpluses when given appropriate data.
Explain how a nation finances a “deficit” and what it does with a “surplus.”
Explain how exchange rates are determined in a flexible system.
Explain how flexible exchange rates eliminate balance of payments disequilibria.
List five determinants of exchange rates.
List three disadvantages of flexible exchange rates.
List three ways a nation could control exchange rates under a fixed‑rate system.
Describe a system based on the gold standard, the Bretton Woods system, and a managed float exchange rate system.
Describe two effects of a trade deficit.

Chapter 36: Exchange Rates, the Balance of Payments, and Trade Deficits

welkerjason — Wed, 16 Apr 2008 07:56:47 CDT

The Balance of Payments

Chapter 35: International Trade

welkerjason — Mon, 28 Apr 2008 09:39:53 CDT

Diversification-for-stability argument

Infant industry argument

Protection against dumping argument

Cheap foreign labor argument

AP Econ in the News - Macro Unit IV and V: Inflation, Unemployment, and Economic Growth

drewvenkatraman — Mon, 21 Apr 2008 08:29:08 CDT

Dollar PanicPost a link to an article relating to the topics we're studying this unit. Include a short summary and analysis of how the article relates to the topics we're studying in class.
DrewVenkatraman: Oil spikes to record prices
Oil has soared to new inflationary prices. This supply shock would shift the whole phillips curve to the right, increasing both inflation and unemployment."Oil prices spiked to a record $117.40 a barrel after a Japanese oil tanker was hit by a rocket near Yemen and militants in Nigeria claimed two attacks on pipelines." This has severly affected the world market and the U.S. economy
Mina Song : Greek January unemployment at 8 pct, down from 8.9 pct in December
This article is exactly what we were studying through this chapter. In Greek, the umemployment rate increase. and its GDP increase but higher inflation, higher increase in interest rate causes the financial crisis.

Howard Jing: Gasoline sets a new record
Average gas prices have risen again to an average of $3.365 per gallon in the United States. They have increased 19.9% from last year, when it was$3.365 a gallon. Oil prices have reached a new high as well, now at $112 per gallon. Because of this, companies that rely on fuel and oil to produce their products are facing rising production costs (cost push inflation). This means that the government can either try to stimulate aggregate demand to boost production and face increasing inflation, or they can leave the economy alone and hope for nominal wages to fall back down to a low enough level to shift aggregate supply to its original location. A third option is to research alternative fuel sources and hope that it becomes efficient enough to serve as a substitute for oil.

Jonathan Lau: Dollar falls below 7 yuan for first time since 1993
The dollar slipped below 7 yuan for the first time in over a decade. The fast appreciation of the yuan is partly due to the weakness of the dollar and partly due to diplomatic pressure by China's major trading partners for faster appreciation to cut the huge Chinese trade surplus. The central bank of China declared for the first time that it would use the exchange rate actively to fight inflation, which hit an 11-year high of 8.7 percent. Yuan appreciation has become especially important to restrain inflation since the start of this year as the central bank has partially loosened domestic monetary policy. Yuan appreciation is expected to slow in the second half of the year as inflation eases.

Judy Chen: Deflation is worrying the Japanese authorities as much as inflation
Unlike most of countries in the world now, Japanese is worrying about deflation which is completely different from what United States and China is worrying now. Even the higher prices for energies, the Japanese hit its highest inflation of 1 percent in decades, which is still much lower than China and United States. Some companies even take advantages to rise products' prices while wages stay same.

Rebecca Sung: IMF head warns about food prices
This article talks about the inflamed food prices causing many dire consequences in developing countries. Inflation can also lead to imbalanced trade. Since "richer countries" are demanding a lot of biofuel, food prices are increasing rapidly which causes many people to not afford food in countries like Africa, where children are starving and malnourished. "Richer countries" are also cutting aid programs which is definitely not helping the situation. A proposition to help the situation was IMF reform by giving developing countries with rapidly growing economies like China more say in the operations of IMF. By doing this, the IMF head said it "will strengthen the fund's role in promoting financial stability and international monetary cooperation."

James Tsao: A Second Great Depression?
In this article from Forbes Magazine, Oxford Analytica examines the similarities of the current economy to the economy in the 1930s during the Great Depression. Factors include credit flows, asset prices, asset locus, and boom/bust cycles. Fortunately, the article also outlines certain weaknesses of the Fed's monetary policies that no longer exists today, in addtion to a couple of other distinct factors that draw differences between the U.S economy of the 1930s and the U.S economy nowadays.

Alex Goldman: World Finance Leaders Tackle Bank Reform
This article discusses how "world financial leaders facing the gravest economic crisis in at least a decade are pledging tighter control of banks and other financial institutions." They are doing this because of the severe credit crisis, which is predicted to cost over one trillion dollars by the tim eis it is over. The damage in US economic growth is being caused by the weak housing market, together with high energy prices and stress in financial markets. Although the credit issue is in America, many other coutnries are concerned because the U.S.'s economy affects theirs.

Angel Liu: The Bust Begins
Halifax, a part of Britain's HBOs revealed that British house price fell by 2.5%--the lowest since 1992. Previous downs in the housing market dragged economic growth to new low. In 2005, there wasa drop in house price and household spending rose only 1.5%--also a record low since 1992. Many Britains can also look oversea to the American economy, where the burst in the housing market led to the crumpling of the US economy. Today, the British economy might face similar fate as its brother.

Jack Lo: A Political Comeback - Supply Side Economics
A Political Comeback: Supply-Side EconomicsSince President Reagan's tax cuts in the 1980s, supply-side economics has become the "central tenet of Republican political and economic thinking". They argue that people will have more incentive to work if taxes are reduced. A spouse might pick up a new job, for example. As a result, tax revenue might actually INCREASE even though the tax rates are cut. According to Robert Solow, a Nobel laureate in economics who worked in the Kennedy administration, the supply side argument is mostly used to appeal to the upper-income level. "They are protrayed as the golden geese, and you don't want to discourage them from laying their eggs", he says, "but the Democrats are convinced they'll lay their eggs anyways, without tax cuts as an incentive."

Jo Lo: How Hunger Could Topple Regimes
Haiti is in flames as food riots have turned into; Egypt's authoritarian regime faces a mounting political threat over its inaba violent challenge to the vulnerable governmentility to maintain a steady supply of heavily subsidized bread to its impoverished citizens; Cote D'Ivoire, Cameroon, Mozambique, Uzbekistan, Yemen and Indonesia are among the countries that have recently seen violent food riots or demonstrations. World Bank president Robert Zoellick noted last week that world food prices had risen 80% over the past three years, and warned that at least 33 countries face social unrest as a result.

Jessica Ng: Sweet and Sour Pork
This article discusses whether the huge inflation in China is driven by the supply of meat or money, in other words, to what degree should monetary policies in China be tightened in order to combat inflation? Many believe that the inflation due to food prices will be tamed this year, thus there is no need for a serious in interest rates. Some policy makers argue that in fact, a contractionary monetary policy that results in higher interest rates will have a reverse effect. If China raised interest rates at the same time as America is cutting them, this would attract bigger capital inflows into China and the extra liquidity could actually worsen inflationary pressures. China already has an excess surplus of money; the money supply is out of control, and it is part of the blame for the rising inflation in China.

Jacques Zhang: World Fertilizer Prices Surge 200%
Energy prices soar, the oil resources are now low and diminishing still. Oil prices have hit record-highs, and the world is looking at alternative methods of producing energy to sustain our everyday lives. The world turns to corn and other crop-based energy, provided by farmers around the world. The increase in the demand for corn and other crops increases the demand for fertlizers, which have now hit a record-high in cost.

Jessica Chiang: Education May Not Be the Answer
As we all know, education and training increases productivity. Bush, along with the Chairman of the Fed, Greenspan, is enthusiastic about increasing education; he has even proposed to increase funding for community colleges across the nation. However, some economists argue that there are many educated Americans who still have low-paying jobs. Others have simply "given up" and say that maybe people should just learn to accept lower wage rates.

Kevin Huang: Analysts See 200,000 Banking Industry Layoffs
Wow.... And that is only in the banking industry. Think of the amount of unemployment there will be in according to analysts the next 12-18 months. This 200,000 is out of 2 million jobs in the banking industry and that is equivalent to an unemployment rate of about 10%. Amazing how powerful of an effect housing prices can be on other parts of the economy.

Michael Daily: Inflation Down in Venezuela
With so much going on in the news right now about the increasing inflation in the U.S., China, and many other countries in the world, I thought I would find a happier article. This article talks about how inflation in Venezuela is decreading while employment remains stable and the country is experiencing economic growth. The country has been successful in now experiencing 17 consecutive trimesters of growth, primarily in the private sector. The prime minister has worked hard to maintain a policywith the intention of stimulating investment and achieving full industrial capacity in the country.

Yun Qi Mok: Rights and wrongs
"THE story of global banking in the past year has been one of riches to rags." Interesting, considering how banking has always been a prestigious job, and where one can go from rags to riches. With the decline in the US economy, banking has become one of the industries more affected, because it relies on the faith of the people that the economy will not plummet. Once people panic and wish to withdraw their money, banks will collapse as they do not have the amount of liquid cash necessary. In fact, it is even debateable whether or not the intervention by the Fed with their direct injection of money into the system will be good or bad for the banks, since inflation might soar even higher. Read on to find out.

Elaine Lung: Middle East inflation soars
As most of us know, the value of the dollar has been declining for quite some time now. Currencies in the Middle East, dependent on the US dollar, originally enjoyed the benefits of being tied to the dollar -- relative stability, value, etc. -- but are now being hit hard by its instability and the subsequent rising prices. Not only has the cost of living increased twofold in the region, but the cost of food has also risen worldwide. While the US has the Federal Reserve Bank to help with inflation problems, the Middle East lacks such a body. The available options to deal with the inflation appear to be revaluation, which risks creating expectations for future revaluations and which could potentially lead to economic instability,and subsidies on staple goods.

Helen Chu: Inflation is Asia's Biggest Risk, Says ADB
This article analyzes the different types of inflation problems in Asian countries. In India (and most other South Asia countries), government subsidies are dampening the impact of inflation and now "inflationary pressures are grossly under the table". China's main problem is to rein in the high inflation while avoiding hampering the economy too much. The ADB (Asian Development Bank) concludes that Asian governments need introduce a "blend of monetary and fiscal tightening" in order to bring inflation under control.

Kristie Chung: 80,000 Jobs Lost. Unemployment Peaks.
The unemployment rate rises in the United States: it increased from 4.8% to 5.1% in February. In the Labor Department's report released recently, it showed that there is a net loss of 80,000 jobs in March. It was the third month in a row that jobs have decreased: In January and February, 76,000 jobs were lost in each of the two months. In total, the Labor Department estimates that the economy has lost 232,000 jobs within the first three months of 2008. Job losses were seen in different sectors: retail employment, business and professional services, manufacturing employment and construction sector. Economists believe that given the current problems in the economy, it is unlikely that jobs will be picked-up. Some even believe that the job losses will continue to increase.

Michael Chow: Rising inflation puts dent in consumer confidence
CHINA'S consumer confidence dropped in the first quarter of this year as higher inflation lowered people's expectations of continued economic growth. The Consumer Confidence Index hit 94.8 in the first three months of this year, down 1.7 points from the fourth quarter of last year, the National Bureau of Statistics said. The business confidence index remained in the ''prosperous'' category as it hit 140.6 in the first three months of this year. It was a rise from 139.6 in the previous three-month period.

Andy Xu: The Great American Showdown
This great artical discusses the view that while the foreshadowed U.S. recession may end quickly, its recovery will take longer. The author argues that unlike the brief recession in 2001, the one we may be currently experiencing involves a sharper decline the in aggregate demand of our economy. The weak demand for food, gasoline houses along with the recent credit crunch and unemployment rates suggests that recovery of this current recession may last longer than what we expect.

Kevin Yeh: Middle East inflation soars
The rapidly growing economies of the Middle East are experiencing demand pull inflation as the price of food and other day-to-day basis commodities are skyrocketing in price. In the US, often times the Fed (and central banks in other countries) uses contractionary monetary policy to reign in inflation, but in the Middle Eastern nations there is no such body. With the price of oil remaining high, it looks like the economy will remain strong, but there will continue to be no solution to the inflation problem

Conrad Liu: Lower Gas Prices...Oh Wait, Just Kidding!
Gas prices from way back when have been increasing at an alarming rate, as we all discussed numerous times in class. Just last month, oil prices have risen to a high $111.80 a barrel. However, retail gasoline prices have recently dropped from an all-time high of $3.339 to $3.331. Okay, so that doesn't seem like much, but it's a drop. This drop might just lull consumers into a false sense of security, as a new government forecast predicts that gas prices could rise again during the summer, to a whopping $4 a barrel. As we all know, because gas prices have been incredibly high lately, demand for vehicles dependent on gas have fallen since January, and the analysts expect demand to decrease by a further 0.4% during the summer months (I won't really notice though since SCHOOL WILL BE OVER). One of the main reasons why gas prices might skyrocket again? Other than the possibility of oil becoming even more costly per barrel, the power of the dollar will further decrease, because as the Federal Reserve Bank lowers the reserve ratio from 2.5% to 2.25%, the dollar bill becomes weaker.

Jeewon Oh: What job woes mean to you
Nearly a quarter-million jobs were lost so far this year, and the unemployment rate has increased. The weak labor market in the United States is leading to smaller wage increases for workers, as "employers get more conservative." The biggest problem is that the workers cannot keep up with inflation, since food and energy prices are soaring. Even when the wages are adjusted for inflation, "the modest gain in wages" reported for March will probably be wiped out by price gains when the Consumer Price Index is reported for the month. Inflation could also get worse if the Fed cuts rates in order to spur the economy.

Tim Chu: China raises 2007 growth figure
Found this on the Welker Universe site. pretty interesting stuff. The article is basically some facts and figures (like most econ articles are :D) on China's recently revised GDP of 2007 which was originally set at 11.4 but is now being raised t 11.9% As the article states, China is now overtaking Germany as the world's third largest economy! It also seems that China has finally succumbed to the pleads of other governments that China's currency is way too low for what it should be. Now, the currency is officially less that 7.0 RMB to 1 USD. Looks like China's headed for a bright future...if we fix the pollution that is :(

Chan Min Park: Rising cost of oil threatens vulnerable economy
This article was written in November 2007. It talks about rising oil prices and how this means a rise in resources costs. This will certainly shift the supply curve left. The article says that at this rate, continuously rising oil prices may actually put the US economy into a recession. There are certain efforts being madeto counter this recession, but as we can see, 6 months later, recession occured.

Alice Su: Hong Kongers Turn to Stronger Renminbi
This article discusses the impact of changes in the value of Chinese and foreign currency on "Hong Kongers." According to the article, Hong Kong citizens are increasingly opening bank accounts across the border in mainland China, turning their local HKD savings into RMB deposits. Part of the reason this is happening is that the Chinese RMB's value is rapidly rising, especially against the weakening U.S. dollar. At the same time, the Hong Kong dollar is pegged to the USD- while China raises interest ratest to counter inflation, Hong Kong is forced to follow the Federal Reserve in lowering interest rates as it fights the U.S. recession. As a result, interest rates right across the border in mainland China are far higher than those in Hong Kong banks, thus encouraging Cantonese citizens to save their money in China rather than in Hong Kong.

Dana Yeon: Pity the Pizza, in the Land of Nuggets
Cost push inflation is taking its toll in the American market. Drastic rises in prices of dough, eggs, and dairy products have recently led to less sales in pizza, and pizza restaurants are now in the red. Pizza Hut, Papa John's International, and Domino's Pizza have all reported decrease in sales. Not only that, the relative price of $10 pizzas to $3, $4 McDonalds meals are leading to even more heightened tension amongst fast food chains. As Andrew Martin, the author of the article, puts it, the pizza industry should either slash their prices (highly unlikely considering resource prices have increased) or they should "try to figure out a way to make pizzas out of bacon and lettuce."

Howard Lin: "Real Wages Fail to Match a Rise in Productivity",
This article is from The New York Times Online, August 28, 2006. Although the U.S. economy has enjoyed sustained economic growth since 2000, the situation has not resulted in higher real wages for American workers. This is the first period of strong and consistent growth since World War II that has not raised real wages for most workers. People are working harder but getting less!

Kevin Ma: Indian Economic Growth To Dip To 7.9 Percent: IMF
This article from News Post India talks about how the economic growth in India is going down to 7.9 percent due to weaker demand for indian export and higher financing costs. It also mentions that China's economic growht rate is going down to 9.3 percent. It also mentions that investment would be greatly hurt. India's inflation has risen 7.41 percent, thats just crazy.

Richard Tu: "Jobs % economic growth."
This article elaborates upon the topic of economic growth. The United States are encouraging business to invest more and to expand. For example, on April 7th President Bush met with small mid-sized business owners to discuss temporarily tax incentives in the economic growth package. "This growth package meets the criteria the President laid out in January – it amounts to more than $152 billion, or about one percent of GDP, provides tax rebates to more than 130 million American households, and offers temporary tax incentives for businesses to invest in their companies and create jobs this year." This article not only focuses on Bush's opinion but also other people, such as, the President of McCutcheon's Apple Products...etc, in order to gather their opinion towards the US recession. check it out!

Jennifer Choi: U.S. dollar facing imminent collapse?
Even as the stock market is hitting new record highs almost every day, the Federal Reserve and Treasury Department are quietly coordinating a devaluation of the dollar that the Bush administration hopes will be a slow decline rather than a dollar collapse. The conclusion of John Williams, an experienced professional econometrician, is that Bush administration wants to get China's cooperation in preventing a dollar collapse.

Kevin Chiu:U.S. Trade Deficit Unexpectedly Widened on Imports
This aritcle discusses an evidence of weakend aggregate demand in the United States as trade deficits are occuring; according to the article, there has been a jump in imported automobiles and machinery increasing the gap to 5.7%. However, some still remain optimistic because they believe the little economic growth in the US will weaken consumption and the weak dollar will increase the consumption of goods exported from the US.

Nicole Wong: New jobless claims fall back
Just 2 weeks ago, the U.S. labor department found had 410,000 applications for unemployment benefits. This article emphasizes the recession that the U.S. economy is currently going through, as hundreds of thousands of American citizens are now finding themselves unemployed. Perhaps a ray of hope is emitted from a decrease to 357,000 applications in the past week. However, is this "retreat" from a spike of applications going to last? Or are Americans going to increasingly find themselves unemployed?

Chris Seah: Consumer Confidence Falls to New Low

Consumer confidence in the states has fallen to a new low, as if things weren't already bad enough for the economy. This was caused because of huge layoffs (Motorola and Dell, notably). As a matter of fact, consumer confidence is now its lowest since 2002, which, as we all recall, was the year after the dot com bubble burst. Housing, credit, and energy prices have all contributed to the new statistics. An economist at Wachovia is quoted as saying that "consumers are very pessimistic". This new cautious attitude has been reflected in very bad consumer spending for the month of March; the lowest, in fact, in thirteen years! The article closes with a very ominous allusion: "What confidence? There is no confidence. It's like 1929." And we all know what happened in 1929. Oh dear.

Jeff Ye (Yeah YEAH!): Don't "hibernate" Bollard tells marketplace
Reserve bank of New Zealand governor Allan Bollard announced that banks and businesses should not “hibernate” but instead continue making quality investments. He states that the New Zealand economy remains fundamentally sound and creditworthy, and that banks should not overreact to the economic downturn. The New Zealand government has been using expansionary fiscal policy, and relatively tight montary policy to combat inflationary

Sharon Li Durable-Goods Picture Shows Surprising Strength
This article is kind of outdated. It discusses the unexpected growth in the durable goods market, while the housing market continued to slump. Durable goods rose by 3.4%, much more than what Wall Street predicted. If this growth in durable goods continues to demonstrate strength, this would expand aggregate demand and create economic growth in real GDP. Maybe, this increased demand for capital goods could even increase AS.

Annie Sung: High gas prices hit small town USA
This article covers the economic crisis of families in Camdem, Alabama, who have had to take out double the amount of money than last year from their paychecks in order pay for gas, from $30 to $65. This is an example of how prices are increasing so much faster than the wages of the people. As a result, not only are consumers suffering, but other small businesses too, as people have less money to spend in general.

Mond Gu:Unemployment Rate at 4.2 Percent

Unemployment were higher than expected. It rose from 4 to 4.2%, although .2% does not sound like much, when you take into account the size of the labor market, you realize the number of jobs lost are simply staggering. The increasing unemployment may need some sort of expansionary policy to correct it, otherwise the decrease is aggregate supply could possibly result in higher prices and lower output, aka stagflation.

Jinny Kwon Jobless Claims Soar to Highest Levels Since 2005

According to the Labor Department, new applications filing for unemployment insurance increased by 38,000 to 407,000 for the week of March 29. This increase in unemployment has been the highest since Hurricane Katrina in 2005. The unemployment rate resulted to be worse than what the economists had predicted and now, businesses are continuing to lay-off more workers due to economic uncertainty. As this continues, US is falling deeper into a recession. In order to tackle this situation, the main goal is to increase employment by either imposing an expansionary fiscal or monetary policy to boost aggregate demand. However, sharp increases in inflation should also be considered because it might cause side-effects if AD increases too much.

Claire Moon Dollar PAnic
The American Economy is facing the decreasing value of dollar recently, and this have been a pretty big issue.
The author questions Der Spiegel’s warning of an “economic Pearl Harbor.”Saying that "Willem Buiter, who I know well and is a perfectly reasonable guy, thinks we’re in big trouble." adding up to his disagreement, he also adds up another point of what he thinks might happen, He argues taht the imports only adds up 1.2 or so percentage points to inflation and he thinks the Fed would probably view this as a temporary non-"core"blip. He questions that whether it really feels compelled to defend the dollar, even at the cost of a serious recession

Is Growth Desirable and Sustainable?

CalebLiao — Sun, 20 Apr 2008 08:43:47 CDT

The anti-growth view

Critics of growth say industrialization and growth result in pollution, global warming, ozone depletion, and other environmental problems. These negative externalities occur because inputs in the production process re-enter the environment as some form of waste.
- The more rapid our growth and the higher our standard of living, the more waste the environment must absorb.
Critics of growth also argue that there is little evidence that economic growth has solved sociological problems such as poverty, homelessness, and discrimination.
- In the antigrowth view, American poverty is a problem of distribution, not production. As a matter of fact, such is the case in several other parts of the world.
- The requisite for solving the problem is commitment and political courage to redistribute wealth and income, not further increases in output. To distribute wealth more effectively would mean growth in government power, which would pose a problem to anti-growth supporters.
- If one resources became too costly then there should be a substitute, but wont it be overpriced as well?

In defense of economic growth

Defenders of growth argues that growth leads to greater material abundance and higher living standards, which is wanted by the majority of the people.
- Rising output and incomes allow people to buy more, and growth also allows societies to improve the nation's infrastructure, improve the care of the sick and elderly etc.
- High standard of living increases the amount of leisure time and allows people to have more time for reflection and self-fulfillment.

Economic growth may actually be the only realistic way to reduce poverty as there is little political support for the redistribution of income. In order to improve the conomic position of the poor, household incomes should be increased through higher productivity and economic growth.
Contrary to what critics have suggested, economic growth doesn't make labor more unpleasant or hazardous.
- New machinery is usually less dangerous than the older machines.

Growth advocates believe that the relation between growth and environment is tenuous: increases in economic growth doesn't necessarily mean increases in pollution.
- However, growth proponents do admit that there are serious environmental problems, but they don't agree that growth is the reason behind it. In fact, growth has allowed economies to reduce pollution, and at the same time increasing household incomes.

Growth is sustainable.
- If growth was depleting natural resources faster than they were being discovered, then the prices of the resources would increase. Hosever, for most natural resources, their prices have declined.
- Also, if one resource became too costly, another resource would become its substitute.

Economic growth has to do with expanding and applying human knowledge and information.

In this view, human imagination is the only limit to economic growth.

Production Possibilities Analysis

kevinyeh — Thu, 10 Apr 2008 10:29:36 CDT

Growth and the PPC

The PPC shows the possibilities a certain economy can operate at. At the border of the PPC is the economy operating at it's maximum (economic efficiency), both allocatively and efficiency wise. To expand beyond the PPC, the economy must either increase quantity or quality of resources (both natural and human) and/or increases in technological innovations (i.e. supply factors must improve for the PPC to move out).

4 supply factors (improvements in any of these can push the PPC curve out): natural, human, capital resources, technology

Demand Factor: In order to expand, the firms and businesses have to be willing to hire people in the labor force. If the labor force simply expands but no one is willing to hire them, then they will be left unemployed.

Labor and Productivity

Real GDP = hours of work X labor productivity
hours of labor input depend on the size of the employed labor force and the length of the average workweek
Labor force participation rate: the % of working-age population actually in labor force
labor force participation rate + size of working-age population determine the labor-force size
labor productivity is determined by technology, amount of capital available for use, quality of the labor, and how efficiently inputs are allocated, combined, and managed

Growth in the AD/AS model

When the economy experiences growth, it's PPC shifts outwards, which is equivalent to a rightward shift in the Long-Run Aggregate Supply, which is vertical and increases output. At the same time the ADwill increase because consumption and investment spending increase due more income being distributed to households and businesses from the increased output.

Rules of Discretion? - the Macro Policy Debate

jlau21 — Sun, 13 Apr 2008 07:25:17 CDT

Monetarists are in support of policy rules which restrict government's ability to use monetary policy.

The usage of monetary policy, according to monetarists, leads to macroeconomic instability because of the high risk of inflation resulting from measures taken by the Fed.
- Their reasoning is that an easy money policy would temporarily boost investment and real GDP, but that the gains would be dissipated in higher nominal wages for workers and higher price levels, leading to no increase in real output or employment.

Monetarists also disapprove of discretionary fiscal policy due to the "crowding-out" effect:
- when the government "borrows" from the public by selling securities on the open market, it is competing with privately-owned businesses for funds.
- This competition will increase the demand for money, thus raising the interest rate and "crowding out" private investment that would be profitable only at lower interest rates.

Keynsians (mainstream) are in support of discretionary stabilization policy. They believe that investment is the main determinant of stability. They oppose both a monetary rule and a balanced-budget requirement. To achieve macroeconomic stability, the government must:

Achieve full-employment
Create price stability
Stimulate economic growth

Discretionary Monetary Policy

Crucial for economic stability
Rationale for the monetary rule is flawed
In SR, the money supply is not closely related to nominal GDP
Velocity of money is unpredictable and variable

Discretionary Fiscal Policy

Support the use of discretionary fiscal policy to prevent the deepening of recessions and the worsening of mild inflations
Does not support a balanced-budget requirement
Does not consider crowding out a serious problem
A balanced-budget requirement might worsen recession and inflation because tax revenues fall sharply during recession and rise rapidly during demand-pull inflation
It causes the government to increase tax rates and reduce government spending during recession->worsen inflation
It causes the government to reduce tax rates and increase government spending during inflation->fuel inflation

Does the Economy Self-Correct?

CalebLiao — Sun, 20 Apr 2008 08:35:09 CDT

The Classical view of self-correction:

An increase in AD will offset equilibrium by shifting the AD curve to the right, thus increasing output and price level.
Once prices increase, workers will demand higher wages (nominal and real wages would increase).
Therefore, contracts will be negotiated; ultimately making the supply curve shift inward. Firms faced with paying higher wages (higher production costs) will need to take steps like firing more workers which would decrease supply output (more workers make more products...at least up until a certain level).

Therefore, the economy will have the ability to recover on its own (self-correction) but it will pay the price of higher price levels and unemployment.

The Mainstream view of self-correction:

Basic View: The economy does not correct itself as fast as new classical economists claim. Mainstream economists oppose the concept of a monetary rule where the Fed is required to increase the money supply at a fixed rate each year. Rather, DISCRETIONARY fiscal and monetary policy is needed. By using fiscal and monetary policy to actively control and make changes in the economy (ie. creating budget deficits and surpluses), mainstream economists believe that such policies can help achieve full employment, price stability, and economic growth.
- Hence... output CHANGES (unlike classical view), while P level stays the same (because nominal wages are inflexible downward). This explains the
An example of what could happen to the economy without government regulations would be what happened to the economy which resulted in the Great Depression.

Rationale: (for example, AD shifts left, causing a recession)
- downward wage inflexibility, due to:
  - labor wage contracts, minimum wages
  - Efficiency Wage Theory:
    - greater work effort: high wages increase the opportunity cost of job loss, hence workers try harder not to lose their jobs
    - lower supervision cost: due to greater work effort, less supervisors are needed to ensure worker productivity. (Ie. when you are doing the things you are more interested in, it is more likely that you will stay on task even without someone looking over your shoulder constantly.)
    - reduced job turnover: same reason as "greater work effort". This factor reduces the firm's costs of hiring and training new workers.
- Due to downward wage inflexibility, when AD shifts left, P stays at original level, and only output decreases because the firm's resource costs (nominal wages) don't decline, hence AS doesn't shift out to balance the shift in AD.
- Therefore, to counter a recession, the government must engage in expansionary fiscal policy and the Fed in expansionary monetary policy, so that AD will shift outwards again and settle into long run equilibrium again.

Classical Economics and Keynes

mina.song — Mon, 14 Apr 2008 13:05:54 CDT

Two Theories:

The Classical View

In this view, the AS curve is vertical & is the only determinant of the level of real output, while the AD curve is stable and is the single determinant of the PL.
Adam Smith believed in laissez-faire (government should not intervene in any economic affairs) because full employment is norm to market economy therefore government should not intervene but "let it be."
Prices and wages are flexible.
If PL ↓, the economy will self correct.
According to this view, the economy is relatively stable.

Vertical Aggregate Supply Curve:
- Economy will operate at its full-employment level of output because wage and prices are flexible. Output does not change in response to PL changes.
- The view is that input costs would fall along with product prices, so real profits and output will not change.
Stable Aggregate Demand:
- The amount of real output that can be purchased is determined by:
- As we move down the vertical axis, PL ↓ = the purchasing power ↑. if supply of money ↑ --> AD shifts right, demand-pull inflation occurs.

The Keynesian View

Product prices and wages are downwardly inflexible or sticky over very long time periods: therefore is graphically represented as a horizontal AS curve.
AD is subject to periodic changes caused by changes in the determinants of AD.
John Keynes believed laissez-faire capitalism is subject to the recurring recessions that bring about widespread unemployment.
In this view, it is believed that active government policy is required to stabilize the economy as well as to prevent valuable resources from going to waste.
AS is horizontal up to the full employment level, and then becomes vertical
leads to more unemployment, lower GDP.
more government involvement e.g. when spending declines, the government does whatever it can do to solve it, using expansionary fiscal policy as well as expansionary monetary policy.
According to this view, economy is relatively unstable.

Horizontal Aggregate Supply Curve (to Full-Employment Output):
- This AS curve only exists when the economy is fully employing its resources. (This includes the natural rate of unemployment) At full employment, AS becomes vertical.
Unstable Aggregate Demand:
- Unless there is increased AD, output will be below the full-employment output. Government policies are needed or else recession and depression will occur.

Causes of Macro Instability

Robert.Wang — Sun, 13 Apr 2008 12:15:36 CDT

The Keynesian view of Economic instability:

Two Sources of Economic Instability

Investment (a main factor of AD):
- formula for changes in investment spending: C+Ig+Xn+G=GDP
- Significant increases in investment spending get multiplied into even greater increases in AD -- produces demand-pull inflation.

Aggregate Supply Shocks
- sudden increases in resource prices
- shifts AS left, causes cost-push inflation and recession

What stabilizes the economy? -- discretionary monetary policy

The Monetarists' view of instability focuses on:

money supply
holds that markets are highly competitive
a competitve market system gives the economy a high degree of macroeconomic stability

Government's role in the economy should be limited (e.g. by Policy Rules)
- Economy will self correct due to wage/ price flexibility
- Laissez-faire ("let it be")
Vertical AS curve, since wages respond perfectly to changes in price levels. In the 18th century, there were no such things as unions and minimum wage. Workers' rights were also unprotected. Wages could be changed any time, and workers could get fired at any time.
Stable AD as money supply is stable
- real output depends upon : quantity of money possessed by household and businesses
Velocity of money is stable, but not necessarily constant. Over time, widespread use of credit cards and faster means of payment enable the gradual increase in money velocity.
Wages price level flexible - causes fluctuations in aggregate demand to alter product and resource prices rather than output and employment.
Equation of exchange: fundamental equation of monetarism.
- Money Velocity = Price Quantity = GDP
- MV: Represents the total amount spent by purcahsers of output.
- PQ: Representes the total amount received by sellers of that output.

SUMMARY: with a stable velocity Nominal GDP depends upon the money supply

Chapter 16: Economic Growth

judy_chen — Fri, 04 Apr 2008 02:39:03 CDT

Ingredients of Growth

Supply factors
Demand factors
Efficiency factor

Production Possibilities Analysis

Growth and the PPC
Growth in the AD/AS model

Accounting for Growth

Labor inputs vs. labor productivity
Technological advance
Quantity of capital
Education and training
Economies of scale and resource allocation

Productivity and the "New Economy"

Reasons for productivity acceleration
Implications: more-rapid economic growth

Is Growth Desirable and Sustainable?

The anti-growth view
In defense of economic growth

From Short-run to Long-run Aggregate Supply

drewvenkatraman — Mon, 21 Apr 2008 08:17:04 CDT

Short Run Aggregate Supply (Fixed Wages)

When the AD shifts, AS the remains stable.
Nominal wages (and other input prices) do not respond to price level changes because:
- Workers are not immediately aware of the extent inflation changed real wages
- Many workers have fixed-wage contracts

The SR curve is based on three basic assumptions:
- The Initial price level is P1.
- Firms and workers have established nominal wages on the expectation that this price level will persist.
- The price level is flexible both upward and downward.
When the price level rises, the output will also rise along the SRAS curve. When price levels drop along the SRAS curve, output will also fall. It is a direct relationship.

Long Run Aggregate Supply (Variable Wage)

Nominal wages in the long run are fully responsive to changes in price level (thus the perfect inelasticity).
Real wage = nominal wage/price level
Increase in price level means worker's real wages have declined (determined by nominal wages divided by price level). In response, workers advocate higher wages, and since nominal wages are an input cost that shifts the aggregate supply curve, the AS curve shifts left to the full-employment level of output.
A decrease in the price level works the opposite way: wages down, aggregate supply curve shifts right, restore full employment output.
After all Long Run adjustments, real output always returns to full employment, regardless of specific price level, thus explaining the vertical AS curve at the full-employment level of real GDP.

Long Run equilibrium in the AD-AS model

Long run equilibrium occurs at the intersection of the aggregate demand curve, the long run aggregate supply curve, and the short run aggregate supply curve.
The long-run supply curve is also usually at the full-employment level of output, where there is neither a negative nor positive GDP gap.

Chapter 15: Extending the Analysis of Aggregate Supply

kevinhuang — Sat, 05 Apr 2008 23:00:06 CDT

From Short-run to Long-run Aggregate Supply

Short-Run Aggregate Supply
Long-Run Aggregate Supply
Long-Run equilibrium in the AS-AD model

Applying the extended AD/AS model

Demand-pull inflation
Cost-push inflation
Recession

The Inflation-Unemployment Relationship - the Phillips Curve

The Phillips Curve
AS shocks and the Phillips Curve

The Long-run Phillips Curve

SR Phillips Curve
LR vertical Phillips Curve
Disinflation

Taxation and Aggregate Supply

Taxes and incentive to work
Incentive to save and invest
The Laffer Curve

Criticism of the Laffer Curve
Evaluation of the Laffer Curve

Substantive Issues relating to the Debt

ElaineLung — Mon, 17 Mar 2008 10:01:16 CDT

Income distribution:

Distribution of ownership of gov. securities - highly uneven
- Ownership of public debt (stocks & bonds) concentrated in wealthier groups
However, since the Federal tax system is only slightly progressive, payment of interest on the public debt mildly increases income inequality
Income is transferred from people who have lower incomes to higher-income bondholders
- This redistribution is undesirable as greater income equality is one of society's goals

Incentives:

The interest charge for debts must be paid out of tax revenues
Higher taxes dampen incentives to bear risk, to innovate, to invest, and to work.
A large public debt may reduce economic growth

Foreign-owned public debt:

Internally owed debt - 75% of debt (in year 2005) is not considered an economic burden because the U.S government owes the money to U.S Securities. In other words, the debt is 'to ourselves'.

Note: of this 75%, 51% is held by the Federal government and Reserve. The other 24% is held by state/local governments, U.S. financial institutions, and U.S. individuals.

Externally owed debt -Foreign-owed public debt IS an economic burden. Government can't create new bonds to pay off old ones, they have to repay the debt with goods, services, or money.
- Wealth transfered from home nation to foreign nations
  For instance, 30% of America's debt is in the hands of China, through bonds

Crowding-out effect:

Increased government spending --> Government is already in debt and needs to take out more loans--> GDP INCREASES...but -->less excess reserves for banks to loan out--> real interest rates increase --> less private investment spending and consumption -->GDP DECREASES
a burden to future generations in the form of lower GDP and a potentially lower standard of living by passing on to them a smaller stock of capital goods
- The crowding out effect causes a leftward movement along the investment demand curve (might cancel out the increase of AD)
Public investments + public-private complementarities -offset net econ. burden shifted to future generations

The Public Debt

Robert.Wang — Tue, 18 Mar 2008 13:18:10 CDT

Public Debt: the total accumulation of the deficits (minus the surpluses) the Federal government has incurred over time, which was $7.96 trillion in 2005, of which $3.9 trilllion is held by the public and $4.06 trillion held by Federal Agencies and the Federal Reserve.
Why did public debts emerge?

War financing
Recessions
Fiscal policy
Lack of political will by Congress

Ownership:

Total public debt ("the national debt")= total amount of money owed by the federal gov. to holders of U.S. Securities or the accumulated total of all the US securities sold to the public and the government.
Public, in this case, consists of American individuals in America and abroad, state and local governments, and U.S. financial institutions
- U.S. Securities (loan instruments): financial instruments issued by the federal gov. to borrow money to finance expenditures that exceed tax revenues
Four types of US Securities (in order from short to long term)
Most of the U.S. debt is held internally, as opposed to externally. Foreign ownership consisted of about 25% of the public debt in 2005.

Debt and GDP:

A wealthy, highly productive nation can incur and carry a large public debt more easily than a poor nation can
The size of the debt needs to be assessed in relation to the GDP. If GDP is considerably bigger than the debt, then the debt is fine. However, if the debt is bigger than the GDP, the country may be in some trouble.

International comparisons:

It is not uncommon for countries to have public debts.
US has the world’s largest public debt, but not largest debt as % of GDP (Italy has the world's largest public debt to GDP ratio)

Interest charges:

Primary burden of debt comes from the interest rate payments accruing from bonds sold to finance previous debt.
Ex. interest on the total public debt in 2005 was $184 billion, or 1.5% of GDP
These interest charges have to be paid back through tax revenue. If not, the national debt builds up.