Revised Response to: 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 keel as for every ten years, the price index increases at about 25. For the CPI it is a different story as there is less inflation as the prices since 1980 have 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 slope. 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 occurrence. This difference in the price indexes is caused by the prices of good and a change in those prices changes demand and then can cause inflation. 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 occurrence happen.3) The price index that I would want to have to adjust my wages and salary is the CPI. 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 will rise.4) With the situation of adjusting my employee’s 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 consumption and more production. When this happens, there will be more money to circulate which will make wages increase and more demand for jobs. Also this will cause more output and more production causing the income to rise.

Revised Response to: 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 a stimulus will lead to monetary expansion and that was evident in January 2001 when the Fed lowered its rate from 6.5 to 3.5 percent. Other economists believe that expansion and not holding back will lead to an increase in the growth of the economy. In this case, interest rates were increased which caused costs of borrowing to rise and will result in a contraction.The side that has the stronger case is the restraint because it focuses on the present rate of the economy and not what can happen in six months. When lowering the Federal Funds Rate, the costs decrease and the cost of living declines too causing price to go down. When there is a restraint occurring it steadies out the economy as the costs decrease and production increases and a high stress economy is an afterthought. The average federal 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. 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 stimulus causes a monetary expansion and the economy grows.

Revised Response 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 any other 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 for 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 is the majority’s decision to have them be a part of the board. Another positive thing about the public voting on who should be representatives is that the public’s 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 the government causing demand to increase and quantity to also rise. With all this occurring 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 con about 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 who are elected from votes that aren't really true can result in the government becoming careless and policies will be made. Another con 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.

Revised Response to: The Future of Money and Banking

In the year 2050 the U.S. economy and the country as a whole will be completely different. The money, the technology, the culture, almost everything will be change and be totally different than it is in 2007. The future predicts an increase in the circulation of the U.S. dollar and it has been on the rise since the beginning of the 20th century. But what is also happening is the value of the dollar is decreasing making paper U.S. currency almost having no value what so ever. As this is happening, the Euro, European currency, is increasing and more countries continue to change their money to the increasing Euro. In the future, the value will continue to decrease making the Euro the new currency in the United States. In fact, the majority of the world's countries will transfer to the Euro and the world's currency will be based off of the same values. Also the dollar production will still not be the same as the production of other commodity goods. It costs about 2.5 cents to print one hundred dollar bills and that will continue. In the future, there are predictions that many businesses will converge and be together producing technology that will change the U.S. economy is the upcoming years. As this happens the Euro will become more valuable and countries whose currency value is depleting, they will convert to the Euro and the United States will follow. The countries that do switch to the Euro won’t just use the Euro they will use their currency in their own country but for their international reserves and trade they will start to use the Euro. This is what the textbooks are going to say about this occurrence of the U.S. dollar. The textbooks will describe the fall of the U.S. dollar and they increasing demand and value for the Euro and how the Euro has become the world's currency. This will cause the U.S. economy to rise as it will become easier to trade as production of exports and imports increase. This will cause the economy to flourish and other countries’ economies to also increase.

Revised Response to: Are Banks Special

1) The risk for the macro economy if the banks fail to exist with other businesses is that the economy will decrease because of the decrease in the money circulation. There will be less money going around from business to business because the banks are not funding them or getting money from them. My step-brother works at Citi Bank in the marketing department and he drives around from car dealership to dealership promoting Citi to fund their business. If this is forbidden from happening, then businesses will lose money causing the economy to fall and banks won't be able to make the money that they usually receive. This will cause the economy to be shaken up and rattled causing it to fall.2) If banks can contribute in other ways for businesses, what will happen is the opposite of if banks were limited on their funding of businesses. This will cause the economy to rise as more money will circulate and banks will be able to fund businesses. Businesses will get more money in return as banks have the freedom to control the funding and ending up controlling the businesses. Businesses might not like this to happen but when the banks control the money, then the businesses don't really have a choice on that matter. This will cause the economy to rise but in the long run, there will be a conflict between banks and businesses on the money situation because when the banks control funding, they will want to control the entire business. The businesses won't like that cause a clash between the two.3) Overall banks should not control the lines of businesses because of the money issue. Businesses should be able to control their own money and if the banks want to control business's money, it will get out of control. When banks fund a business, they want to control the business as a whole. This is unfair for the business as their freedom is in jeopardy and they need to control their own profits, spending, savings, investment, and money as a whole.

Revised Response to: A Balanced Budget Amendment?

1) The Federal budget becoming balanced is a confusing idea that can help the economy or hurt it. One reason that there should not be a balanced Federal Budget because the budget should not be balanced, it needs to be like it is now, a huge budget deficit. The federal budget is below balanced and it has kept taxes low and Government Spending high. If a balanced federal budget was required then taxes would have to increase because of a debt that will be caused and needed to be paid off. Also demand will decrease due to the increase in taxes which caused consumption to decrease along with consumer confidence. Another reason why a balanced federal budget should be enforced is because it will cause the economy to fall because of the rise in taxes and low demand. Quantity decreases and price increases, causing the economy to fall. With the federal budget staying below the balanced level, the economy will stay normal and taxes will remain the same.2) One reason to favor a balanced federal budget is that is it easier to balance the budget. If the Federal Government can control the balance of the budget then it puts then in control and it can make then choose what the amount should be to raise the taxes. Another reason that is beneficial to have a balanced federal budget is that it can cause new economic policies to be made and put forth into action. When a problem like a balanced federal budget comes abroad, new policies like an expansionary fiscal policy or automatic stabilizers that stabilize the economy. When a problem in the economy comes along, there will always be a way to fix the problem. With a balanced federal budget there will be new policies that can be produced to change the budget. This also can limit impulsive and excessive government spending. This causes taxes to increase and demand to decrease.

Revised Response to: What the Best Fiscal Policy

For the past three years the unemployment rate determined from the website: http://research.stlouisfed.org/fred2/categories/10/downloaddata is 4.7 percent. This unemployment rate is good as it is below 5 percent meaning that the country's economy is growing. As long as this rate stays the way it has been for the years 2005, 2006, and 2007 the economy will continue to grow and prices will decrease and taxes will be low. If the unemployment rate increases then an expansionary fiscal policy will be in order because the economy is falling. If the unemployment stays the same or gets better there is no need for a policy because the economy is at a rate where it wants to stay so it can continue to rise.The surplus for the past three years based on the data from the website: http://www.cbo.gov/. The surplus percentage for the years 2005, 2006, and 2007 as an average is 3.1 percent. This is good and there is no need for any policies. There is no need for any policies because an expansionary fiscal policy will result in a budget deficit. No contractionary fiscal policy is need either because there is a need for a surplus and no need for the economic growth of the U.S. to decrease.