Tuesday, November 27, 2007

Respnose to: Should the FED be independent?

In the government there are certain departments that have more freedom than others. The Board of Governors can have a term that goes up to fourteen years which is more than anyother section of the government. That gives the members of the Board of Governors the most freedom for any representative in the United States. This brings up the question, if these members have such freedom, should the public vote for the people to represent the Board of Governors.
For this freedom to be shifted to the people, there will have pros and also have cons. One pro of this is that the public will be in favor of the representatives that are elected. The members that are elected will be chosen because of the public has chosen these people to run this board. This will mean that the public should not attack these representatives or bad mouth them because it the majorities decision to have them be part of the board. Another positive of the public voting on who should be representatives is that the consumer confidence will increase because a member of the FED has been elected by the power of the people. This will cause the people to be happy with hte goverment causing, demand to increase and quantity to also rise. With all this occuring the economy will rise as a monetary fiscal policy will be put into the systems of the economy.
With the positives of the public voting on representatives, there will also be negatives that go along with them. One negative of the public voting is that these days, voting numbers are at a record low and the majority of the number that do vote don't put enough time into focusing on who they vote for. With members that are elected from votes that aren't really true can result in the government becoming careless and policies will be made. Another negative is that with the election of non qualified representatives, the economy will decrease due to bad policies that will make the U.S. money fall. Policies that are used in the wrong way can result in a bad economy and a recession will follow.

Sunday, November 25, 2007

Response to Question: What are the best goals for the FED? Should it lean toward restraint or toward expansion?

In the economy, many questions are asked on what the U.S. should do to have an economic growth. Economists argue back and forth on the topic of what will expand the economy and what will make it go into a recession. Some economists believe that restraint will lead to monetary expansion and that was evident in January 2001 when the Fed lowered it's rate from 6.5 to 3.5 percent. Other economists believe that expansion and not holding back will lead to an increase in the grow of the economy. In this case, interest rates were increased which caused costs to rise and will result in an expansion.
The side that has the stronger case is the restraint because it focuses on the present rate of the economy and not what canh happen in six months. When lowering the Fred Funds Rate, the costs decrease and the cost of living declines too causing price to go down. When there is a restaint occuring it steadies out the economy as the costs decrease and production increases and a high stress economy is an after thought. The average fed funds rate in January was almost 6 percent, well above many market interest rates, while the Treasury's 30-year bond was just 5.5 percent, and all bonds with shorter maturities were even lower. This means that banks cannot borrow Fed funds and relend them with a profit; causing monetary policy to be unavoidable. At this point monetary policy finally became expansive, and the money supply began growing. The strategy to lower the fed funds rate and have a restraint causes a monetary expansion and the economy grows.

Wednesday, November 14, 2007

Week Nov. 12- Nov. 19 Assignment 2 Inflation

1) The inflation of the U.S. is a key piece to determine important economic strategies. For the past 20 years the inflation rate has increased at a steady pace. The production price index since 1980 has increased at an even keal as for every ten years, the price index increases at about 25. For the CPI it is a different story as there is less inlfation as the prices since 1980 has decreased at an uneven rate. So for the PPI and the CPI, there is no pattern as for the past 20 years, each price index has either decreased or increased with the same slopes. The PPI has stayed at a positive slope and the CPI has stayed at a negative slope.

2) When the price indexes are different and the slope of each line is the opposite, there are certain factors that have caused this occurance. This difference in the price indexes is caused by the consumer demand for a time period of when the prices are either falling or rising. Supply and demand are constantly changing which causes the price indexes and yearly numbers to never be at a constant rate. This has happened over the past 20 years and has caused inflation to be different as the factors of demand and production has made this occurance happen.

3) The price index that I would want to have to adjust my wages and salary is the Production Price Index. I would pick this price index because over the past 20 years, this price index has increased every ten years and as the demand for good increases, then the production will also. With increasing price index, my wages and salary will also increase as the nation's income with rise.

4) With the situation of adjusting my employees wages and salary, I would choose the production price index. PPI would be my choice because consumers affect demand and when demand is low then prices decrease causing more consuming and more production. When this happens, there will be more money to circulate will make wages increase and more demand for jobs. Also this will cause more output and more production causing the income to rise.

Tuesday, November 13, 2007

In order to complete this independent study...

Hi, Drew: Now after carefully planning and selection, I posted 14 additional questions for you to contemplate and analyze and answer. They cover a wide span of economic topics, such as demand and supply, PPF, choice, positive and negative externalities (market failure), inflation, unemployment, GDP, inflation, business cycles, fiscal policies, budget and deficit, money and banks, the Fed and monetory policies. If you can satisfactorily answer all of those question before Dec 19, I think you will get a good and complete grade for this course. Otherwise I have to give you a Incomplete grade and let you continue working on them. I just want to make sure you learn enough from this course.

Good luck!

P.S. If you have trouble with the questions, remember you are not alone. I am here ot help. Please feel free to discuss them with me.

What are the best goals for the FED? Shout it lean toward restraint or toward expansion?

Policy advisors differ in their advice to the US Federal Reserve Board. Should the Fed be more concerned about inflation, or should it be more concerned about jobs and economic growth in the short run?

For a summary of these two sides go to:

The National Center for Policy Analysis for a description of the dangers of an expansionary monetary policy (“restraint is better”). http://www.ncpa.org/pd/economy/econ6.html

The Financial Markets Center for a description of the costs of a restrictive monetary policy (“expansion is better”). http://www.fmcenter.org/fmc_superpage.asp?ID=127
What are the weak points in the argument on each side?

Overall, which side makes the strongest case?

Should the FED be independent?

As chapter 14 points out, the Federal Reserve System has a large measure of political independence. The Board of Governors, appointed by the US president and confirmed by the US Senate, serve 14 year terms. In addition, the Federal Open Market Committee includes representatives of private banks in the Federal Reserve system.

Proposed: The public should directly elect some of the representatives who make monetary policy (as the public elects representatives who make fiscal policy)

Identify two strong arguments in favor this proposal.

Identify two strong arguments against this proposal.

The Future of Money and Banking

Imagine you come back to your economics class in the year 2050. How will the textbook describe money and banking? Based on trends you see today, make a prediction for the future of money. Explain why you think this trend will occur and how it will affect the US economy.

For information on the currency now in circulation go to:
http://research.stlouisfed.org/fred2/series/currcir

and the US Department of Treasury “frequently asked questions” at:

http://www.ustreas.gov/education/faq/currency/index.html

For information on electronic transactions see:

http://www.moneypage.com/emoney/

For current regulation of electronic funds transfer see:

http://www.federalreserve.gov/pubs/consumerhdbk/electronic.htm

Are banks special?

Most US banks are privately owned, profit-making organizations. Although they provide a service just as many other businesses, banks differ because of their importance in the macroeconomy. Policymakers have debated whether banks should be permitted only do to banking business, or whether banks should be permitted to engage in other lines of business such as selling insurance or buying and selling stocks and bonds.

1) What are the risks for the macroeconomy if a bank fails that do not exist for other businesses?

2) If banks could participate in other lines of business what benefits would there be for consumers?

3) Overall, should banks be allowed to enter other lines of business?

A Balanced Budget Amendment?

The text describes (on page 290) a proposed amendment to the U.S. Constitution that would require a balancing the federal budget every year. Should the U.S. pass such a requirement?

1) What are two strong arguments against requiring a balanced Federal budget every year?

2) What are two strong arguments in favor of requiring a balanced Federal budget? (For each argument you make, you may qualify your support. That is, you may add words to the proposal to balance the federal budget every year in order to make it acceptable to you.)

What’s the best fiscal policy?

The text(ch11)explains the connection between the state of the economy and the appropriate fiscal policy. If output is too low, below the full employment level, then too-high unemployment is likely the main problem facing the economy. We should raise government spending or cut taxes. If output is too high, above the full employment level, then rising inflation is probably the main economic problem. We should cut government spending or raise taxes.

The text also suggests a connection between the state of the economy and the federal budget. When output is below full employment, it says a budget deficit is in order. When output is above full employment, it says we should run a budget deficit.

Use the first web site listed below to find the budget surplus or deficit for the last three years. Use the second web site to find the unemployment rate during those same years. Explain whether you think fiscal policy was appropriate during the last three years, assuming the economy is at the full employment level when the unemployment rate is 5 percent. Make your reasons clear.

The Congressional Budget Office provides nonpartisan analysis of the economy and the budget to Congress. Go to their home page (see the URL below), click on “Historical Budget Data,” and then roll down to look at the last three years of data in Table 1. Write down the last three numbers in the fourth column, the “on-budget surplus or deficit”.
www.cbo.gov

The Federal Reserve Bank of St. Louis maintains a free database of economic data called FRED II. Go to the page (find the URL below) and click on “Civilian Unemployment Rate.” Look at the chart to get the unemployment rate over the last 3 years.”
research.stlouisfed.org/fred2

Is inflation caused by changes in aggregate demand or aggregate supply?

Inflation is sometimes identified as being demand-pull and sometimes as cost-push indicating the source of the inflationary pressures. Demand-pull inflation describes an increase in the average price level initiated by excessive aggregate demand. Cost-push describes an increase in the average price level initiated by excessive increases in the costs of production.

Look at the data for inflation, the growth rate of real GDP, the unemployment rate (all available at http://research.stlouisfed.org/fred2/ )and the employment cost index (http://bls.gov/ncs/ect/home.htm ) for the periods 1979-1982, 1995-1999, and for the last 4 years. Be sure that you understand the definition of each variable you use. Analyze for these three periods and graphically show what you think is happening in the macroeconomy.

A comparison with the Canadian experience can be done by looking at comparable Canadian data from http://strategis.ic.gc.ca/sc_ecnmy/sio/homepage.html . At this data site, you can also use cost of production which is more general than simply the employment cost index.

Is the inflation of the last four years demand-pull or cost push?

The government should eliminate the underground economy.

Drew, remember that we discussed the limitation of using GDP as a measure of a country's economic well-being. The textbook indicates that GDP does not capture several sources of output production in the economy. One of these sources is the underground economy. Now imagine you work for the Department of Justice and are asked to present a briefing on the advantages and disadvantages of increasing expenditures to reduce tax avoidance.

"Where should we move?"

Imagine that a friend is planning to marry and his/her intended is from another country __________ [fill in one of the following countries: Sweden, Republic of Korea, Israel, Ireland, Japan or Australia]. The couple needs to decide whether to remain the US or to move to this country. Compare GDP/capita for each country as well as the United Nation Human Development Indicator at http://hdr.undp.org/statistics/data/


Based on this information prepare a list of reasons:
a)Why should the couple remain in the US?
b)Why should the couple move to the other country?
c)What are the problems with using GDP/capita in their decision?
d)What are the problems with using the UN Human Development Indicator in their decision?

Should you pay less for your education?

Why should taxpayers subsidize public colleges and universities? What benefits are generated by higher education?

Who should pay the external costs of driving?

As the textbook points out (Ch4), driving a car has external costs. The health cost of pollution alone has been estimated between $.40 and $6.00 per gallon of gasoline consumed. (It is very difficult to measure the health costs. We are uncertain which health problems pollution causes and the cost of particular health problems are difficult to measure.)

"Should the external costs of driving cars be paid through a tax on gasoline?"
Identify the strongest two arguments in favor of such a tax and the strongest two arguments against such a tax.

Do we work too hard?

One of the limiting resources in our economy is time. As a society, we make choices about the allocation of time between work and other pursuits. In the US, most workers are eligible for overtime pay if they work more than 40 hours a week, whereas most European workers become eligible at 35 hours per week. In addition, workers in Europe have guaranteed vacation time-- five weeks in France-- a benefit not available in the US. As a result the typical US worker puts in about 2000 hours per year compared to 1700 hours per year in France and Germany.

Should US laws be changed to require a shorter work week and longer vacation time?

For each side of the question list three strong arguments. Use the following concepts from the chapter at least once.

Production possibilities curve
Economic growth
Market mechanism
Market failure

Scalping” tickets for major sporting events and economics

Can you explain the practice of “scalping” tickets for major sporting events in terms of market shortages? How else might tickets be distributed?

Why has oil price surged recently?

Hi, Drew: Did you notice that the oil price has soard recently? Can you apply what you have learned from ET101 to analyze this phenomenon?

Sunday, November 11, 2007

Week Nov. 12- Nov. 19 Assignment 1

1) In the U.S. economy is growing, the unemployment rate is low and employment is close to getting full. The U.S. should strive for this every quarter because it means that more people have jobs, higher wages, better income, and the economy is growing. Most economists want every quarter to have a goal to have a low unemployment rate because of the benefits it has towards the economy, but some disagree with the idea. The reason for this is because of when the unemploymenr rate gets too low it creates inflation and it doesn't go away, it creates an inflationary spiral. Even though the fear of inflation is a big part of this plan, the reality of a weak economy because of a weak foundation. There also is an uncertainty with the plan with the guiding of policy makers to construct the right plan so that what can come out of it is no inflation. The best argument for these two sides are the realities of a stronger economy with more jobs and more money versus the weak plan of less inflation that might occur. The idea of striving for a stronger economy will always beat the idea of less inflation because what will come out of the plan. More jobs, better income, higher wages, and full employment creates a strong base and shouldn't falter rather than a plan for more unemployment becuase of an idea to reduce inflation. This idea would not work because of the reality of a weak economy that could crumble as the inomce, labor force, jobs, and wages decrease.

2) To succeed with the ideas that are given by economists, there needs to be a lot of people that agree with the plans. The plans that could be done for the idea of striving for a low unemployment rate consist of The House Plan, The President's Plan, and Senator Baucus's Plan. The House Plan would distribute balances from federal unemployment insurance (UI) trust funds to the states to strengthen their ability to pay UI benefits and provide job-placement assistance. It would appropriately leave specific UI program changes to the discretion of the governors and state legislators. The President's Plan would increase spending for National Emergency Grants to states to extend and expand UI benefits. In addition, it would create a temporary extended UI benefit program that would target states with the largest increases in unemployment. Senator Baucus' Plan would create a broad temporary extended UI benefit program for all workers who reach the limit of their regular state UI benefits and would also place three new federal mandates on state UI programs. These plans were revealed to make low employment rate a reality and for a stronger economy to occur. There is also the plan to make increase the unemployment rate so there is no employment. The plan was given by the NAIRU and they wanted to strive for the unemployment rate to increase. The plans that were revealed for each idea had there own benefits and also had cons.

Week Nov. 12- Nov. 19 Assingments 1 and 2

Ok, I will get those two assignments done by the end of the week. I will do whatever it takes to not receive and incomplete for this Independent Study.

Thank You Proffesor Li,

Drew Garcia

Tuesday, November 6, 2007

Week Nov 12-Nov19 Assignment 1; What is full employment?

Economists disagree about what is full employment(see page 236)—and the best policies to achieve full employment. For two opposing points-of-view see position papers from the liberal Economic Policy Institute at:
http://www.epinet.org/content.cfm/workingpapers_full-employment

and the conservative Heritage Foundation at:
http://www.heritage.org/Research/Budget/BG1506.cfm

Please post your answer to the following questions:
1. Should the US aim to achieve a low unemployment target? List the arguments on each side of this debate. What are the strongest two arguments on each side?

2. What policies are needed to achieve this target? Describe the policies recommended by each side.

Week Nov 12-Nov 19 Assignment 2 Measuring Inflation

(Drew: for next week I want you to do something different)

The exact level of inflation is an important piece of economic data because it is used to determine the cost-of-living adjustments for social security, pension payments, labor contracts, federal employees, and military personnel.

Look at the data for the Producer Price Index, the Consumer Price Index, the GDP Deflator and core inflation for the last 20 years. You can get the price indexes data at: http://research.stlouisfed.org/fred2/ and the core information from: http://data.bls.gov/cgi-bin/surveymost?cu. Read about core inflation definitions in Todd Clarke's "Comparing Measures of Core Inflation": www.kc.frb.org/publicat/econrev/PDF/2q01clar.pdf

Now please answer the following questions:
1.Do all of these measures indicate the same pattern of inflation in the same time period?
2. Explain why some indexes provide a difference of when inflation is occurring.
3. Explain which index you would want to adjust your wages and salary and why.
4. Explain which index you would select to use to adjust your employees' wages and why.

Analysis #2: Chevron Profit Slips 26% as Costs Increase

Chevron, a major oil company was the last of the big oil corps. to post their thrid quarter earnings. they reported that there was a repeating of rising crude prices that are biting into profits as refining margins fall. The major corporation is the second largest oil company by stock market value reported that their profit fell 26% in the quarter as it was unable to recover its high costs at the pumps. This fall in profit has caused the Chevron gasoline prices to increase to live up to the amountof money that they have lostvfor this third quarter. This fall in profit is because of weak refining and marketing conditions in the United States. This has been the case for many oil companies resulting in higher oil prices since August after a long summer of oil prices that didn't live up to the high expectations that were predicted in the spring. As the demand for pretroleum and crude oil increased, the prices increased but a lage in the production of the oils caused the supply to decrease. In the case of Chevron's profit falling causing the costs to increase affects both supply and demand as suply decreases and demand increases. It is due to the low amounts of production of oil causing the prices to increase and no sales. Profits from Chevron's oil and gas exploration and production slipped on lower output a sa result of renegotiations with other countries. Chevron is saying that they will do whatever it takes top lower costs and to get there profits to increase, but if they continue to have the lag in production with high demand then there will be no change.

Analysis #2: Chevron Profit Slips 26% as Costs Increase

Analysis #2: Strong October Jobs Growth Sends Another Mixed Signal on Economy

In the Wall Street Journal for November 3, 2007 there is an article by Sudeep Reddy on an increase in jobs during the month of October. There was a surprising surge in October payrolls that created a growth in the number of jobs available. Employers added 166,000 jobs during the eleventh month of the year which is the most in the past five months. With the surging availability of jobs and the increase in payroll, the unemployment rate remained unchanged which comes at a relief as in the past months a recession was expected.
As the number of jobs increased and payroll went up there was a conflict occuring that was happening behind the woodwork. When the report came about, it capped a week of conflicting signals. Earlier in the week, the government said the economy has grown at a 3.9% pace in the third quarter caused bhy increasing exports. Yet, consumer confidence fell, and a recent survey reveiled that there was a loss of momentum for manufacturers. This is huge conflict as one side has demand surging with an increase in exports, payroll, and jobs which can cause the manufacturers to increase their production. But on the other side of the conflict it is saying that demand is decreasing because of a fall in consumer confidence which is one of the factors of demand and when that decreases it takes demand along with it. Also there was a loss in the momentum of manufacturing which causes demand to decrease, causing quantity to go down resulting in the economy struggling. This conflict is a big worry for economists because of the misleading information that has been given to the public. With this information, people don't have a real grip on what's happening with the economy.
It has been found that even with this upbeat employment report, financial markets continue to anticipate another quarter point rate cut in december. With all this excitement about the increase in payroll, jobs, and no unemployment change there is still an expectation of the economy slowing down significantly. In the future, there is an expectation of consumer spending to fall creating demand to decrease and a weaker economy to come abroad. Even with all these expectations of the economy weakening, there is a feel of optimism coming from some economists but they feel that there needs to be an increase in more of the population aseeking for employment.