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.

Revised Response to: Is inflation caused by changes in aggregate demand or aggregate supply?

During the periods of 1979-1982, 1995-1999, and the past four years there has been an inflation that has affected the U.S. economy. Inflation describes an increase in the average price level initiated by excessive aggregate demand. Both supply and demand can cause inflation by either demand increasing too much making high prices or supply decreasing too much causing high prices. What caused this inflation for the past four years is aggregate demand because the CPI, PPI, and GDP deflator for the past four years showing that both demand and supply have increased. But with supply increasing it means that it couldn't have caused inflation because on a graph when supply has increased, the line shifts rightward. What has increased though is demand and that means inflation because the prices has risen. When demand on a graph increases it shifts to the right, meaning it goes upward on the graph meaning that price has increased. In the past four years, the inflation that has occurred was caused by too much demand and not enough production.

Revised Response to: The government should eliminate the underground economy.

As a representative for the Department of Justice and I have to present the advantages and disadvantages of the underground economy, I would give strong argument for both sides. I would start off the presentation by giving the disadvantages of the underground economy. The disadvantages of the underground economy are that it hurts the economy and everyone in the country that contribute to the economy. Those who participate in the underground economy avoid their tax responsibilities at your expense, and place an unfair burden on all law-abiding taxpayers. Unpaid taxes mean less money for programs, such as health care, childcare, employment insurance and pensions. Also the underground economy undermines the competitiveness of businesses and citizens because it takes away their taxes and goes against the legal ideas. The underground economy is illegal because of what it does to the economy as a whole and it takes away money from the people and gives it to others who don't deserve it. Again it is against the law because of tax evasion and the result is the loss of a job, business, homes, family, and freedom. A long jail sentence and The IRS has access to a variety of tools to detect and prosecute those who do not report all of their income, including information-sharing agreements, on-site visits by officers, information obtained from third party reporting systems, leads from other audit files, and lifestyle audits. There aren't that many advantages of the underground economy and they only involve the people that are in the illegal economy. For consumers, paying "under the table" for a job is not a better deal; if you pay cash you have no warranty, no recourse for poor workmanship, and the added risk of liability if an injury takes place on your property. As a person who is involved in this economy the risk is jail but if they are good at it, there are no taxes to be paid, no insurance or liabilities. Also if a person is good at breaking the law and not getting caught then a lot of money can come out of it because of the high demand for illegal goods that are purchased on the black market. The avoidance of tax is the biggest part as the consumer will avoid a tax on the good and the producer doesn’t have to give any money to the government for the good or anything. That is why it is so illegal for this black market to be occurring underneath the government's nose.

Response to: Why has oil price surged recently?

Recently gas prices has soared just like it has many times in the oast couple years. It is the holiday seasons and when there is a time of year when there is high demand going on in the economy then gas prices also increase. When demand and quantity increase, then prices increase too causing gas prices and prices for other items to increase along with demand. If prices increase too much then inflation will occur but as far as gas prices are concerned, as long as demand increases, then the price on gasoline will be high. The time when prices for gas are low is during the spring leading into the summer when it is not a high shopping season and people are going on a lot of vacations. But as the seasons turn and Christmas approaches, then prices start to increase again and then they get to an all time high.

Response to: "Scalping” tickets for major sporting events and economics

On the outside of a stadium at every sporting event there are many people braking the law and trying to scalp tickets. It happens hundreds of times every season for every sport and what it does to the U.S. market it troubling. It hurts the market as it is similar the underground economy as items are being traded with money and having no effect of the economy. Just like the underground economy, there are no taxes put onto the tickets and the money is going right into the pocket of the person that is scalping the tickets. This creates market shortages as no taxes are being given to the government and the economy is not benefiting from these transactions being made. The underground economy is illegal and so is scalping tickets and the government is trying to stop this because it is unfair for people to make money of items that have no taxes on them. Other ways that these tickets can be distributed is that these people that want to sell these tickets can give it to the team that is playing in the game. Then after that person gives the team those tickets then that team can sell those tickets. Once that team sells those tickets with a tax on them, then the person that is giving the tickets to the team to give away for a price will receive a part of the profit from the tickets. That way there are taxes on the tickets and both sides will receive a profit and then there won't be anyone losing money.

Response to: Do we work too hard?

Everyone knows that U.S. citizens are the hardest working people in the entire world. That shows when the data of hours worked per year are given and the U.S. workers work three hundred more than workers in France. There is a law though in Europe limiting their workers to certain amount of hours per week. There also have been questions about whether the United States should have this law. I don't agree with this because it will hurt the Economic Growth os the U.S. and it will cause many recessions. Income will decrease along with the economy as less hours will be worked along with the amount of money made every week. Economic growth will decrease because less hours worked and more vacations means that there will be less money made, less production, and less money circulating around the economy. Also production possibilities will decrease because companies will not be able to make their quotas as less amount of hours will be worked. As workers don't work the hours that are used to being worked then production will go down due to not enough work being done. As economic growth and production decrease, so will the market mechanism of the U.S. economy. With less hours being worked and less production, then the market will also decrease along with thsoe two. Some people might say that with less hours being worked more people will have more time to be out buying items, but that won't effect the market mechanism like less hours being worked and more vacation time will. Less production and not enough economic growth will cause the market to decrease as there are not enough materials and money circulating.

Response to: Who should pay the external costs of driving?

Pollution is the most major concern that is on the minds of the citizens of the United States. As a result of pollution there are greater chances of consumption of CO2 andn other dangerous chemicals. This can lead to health problems that might not be able to be paid off will just insurance and health costs continue to increase. There was an idea to put a tax on gasoline so that health costs can be paid for by that tax. This has created a controversy and like every argument, there are pros and cons that go along with the subject. The pros for this tax are that if there are any porblems with any person's health then their medical care can be paid for by the tax. Harmful chemicals that are released into the air by the burning of gasoline can cause many different health problems like cancer and birth defects. The procedures that will need to be put in place to fix these health problems will cost a lot of money and with this tax, the people affected can pay for this medical care. Another pro about a tax on gasoline is that with a tax in place for health care other things that need to be paid for with a tax can be funded as more money is going into the economy. Why leave anything untouched that is needed to be funded? This new money could be put into for health care leaving other money left over to provide some help on other problems going on in the country. One con about this tax that is to be put on gasoline is that people will have to more money when they fill up their car at the gas pumps. This tax will cause an out cry from the people of the U.S. as they will complain about the new outrageuos prices that will now be on gasoline. Another con about this tax is that gas prices will increase and new pollution laws will be in place and put a limit on having automobiles on the road that have harmful emissions and use up a lot of gas mileage. Because of this new limitation, thousands of cars will be taken off the road and thousands of families will have to be required to purchase new cars and trucks.

Response to: Should you pay less for your education?

There have always been controversies with subsidies going into something so that it can get funded. The most common controversy is the one on giving subsidies to public schools and public universities. It is argued for schools to get funded because adults don’t want to pay so much money on something that they are a part of. But they a part of the school system as their children go to the schools in their local town and they need a good education for them to be successful in life. That is why education is so important so children and teenagers can learn about life, failures, success, and the courses in their school. Every person wants to live a good life and be successful so they are happy, with a good education that will come as they will be the best at what they have as a career. Without the subsidies from the taxpayers then there will not be a school system in place in a person’s community and there will be no education for the citizens of the town. For universities they need subsidies so that they can stay a college in the town and state that they are in. Also colleges need to keep their campus up to date and looking clean and appealing to people that go there and want to go there. They need subsidies to keep students going there and for students to keep coming in or they will have to stop being a college.

Response to: Should you pay less for your education?

There has always been a controversy on subisides given to certain thigns so that they can be funded. One certain controversy that involves subsidies is on ethanol fuel and whether it should be funded so that it can be in ful stream use. Another subsidy controversy is a funded public school system and public universities. The problem is that people think that taxpayers shouldn't need to pay so much for a school system that they aren't involved in. This shouldn't even be a situation that is argued because we need to educate the future of our nation. Without funds and money from the taxpayers going into the school system in towns then there will be no school system for our children to get educated. The amount of money that is going into the schools is just right because right now, education is at a high level and test scores are increasing along with graduate numbers. There are a great amount of students that are being successful in our schools right now and a lot of students are graduating and for something to be changed it would not be good for the school system. Also for universities, they don't need a good amount of subsidies but as part of a local community or state then there needs to be funds to keep the campus going. Subsidies that colleges receive will make the campus look up to date and not dirt, and it will keep the school in the town and the students

Response to:"Where should we move?"

A) The country that I have picked for the intended to be from is Australia for no specific reason. They should remain in the U.S. because of the U.S. is known for their strong economy and rights for each individual citizen. Also Australia's GDP per capita is low showing that their market for this decade has been weak and there hasn'r been a lot of production. An economy that is weak is not a good sign for the country and if there was a family or a person looking to move to that country, the smart thing to do would be to stay in the United States.

B) Even though the market in Australia is weak and it's GDP per capita is low there are some pros about moving to the coutnry that was founded by Great Britain. One pro is that the life expectancy for the country is high which means that the medical mal practice is strong. Having a high life expectancy for the country is a good thing to look for when wanting to move to that country. Another pro which is big for Australia is that it's unemployment rate is low and it's job market is very strong. The availability for employment in Australia is 113% showing that the chances of getting a good job that will help you raise your family is high and the job market is at an all time high.

C) The problems of looking at GDP and basing a decision of whether to move because of it are that the numbers could be off. This year could be better than the last and the numbers could be from a year that wasn't successful. The economy for any country isn't consistent and you can't base such a big decision of moving to a different country on one year of GDP per capita. Look at other things such as medical, employment, interest rates, and banking systems to base a decision on.

D) The problems of using the UN Human Development Indicator in their decision to move are that the numbers for the data can be off or just plain incorrect. Slso the data that is being reviewed is from the year 2005 which can mean many things such as it was two years ago and the numbers could have shifted immensely from that year until this year. Again an economy isn't consistent just like anything and the numbers for 2005 can be totally different from the next years results and then the year after that.

Response to: "Where should we move?"

Response to: The government should eliminate the underground economy.

As a representative for the Department of Justice and I have to present the advantages and disadvantages of the underground economy, I would give strong argument for both sides. I would start off the presentation by giving the disadvantages of the underground economy. The disadvantages of the underground economy are that it hurts the economy and everyone in the country that contribute to the economy. Those who participate in the underground economy avoid their tax responsibilities at your expense, and place an unfair burden on all law-abiding taxpayers. Unpaid taxes mean less money for programs, such as health care, childcare, employment insurance and pensions. Also the underground economy undermines the competetiveness of businesses and citizens because it takes away their taxes and goes against the legal ideas. The udnerground economy is illegal because of what it does to the economy as a whole and it takes away money from the people and gives it to others that don't deserve it. Again it is against the law because of tax evasion and the result ios lose of job, business, homes, family, and freedom. A long jail sentence and The IRS has access to a variety of tools to detect and prosecute those who do not report all of their income, including information-sharing agreements, on-site visits by officers, information obtained from third party reporting systems, leads from other audit files, and lifestyle audits. There aren't that many advantages of the underground economy and they only involve the people that are in the illegal economy. For consumers, paying "under the table" for a job is not a better deal. If you pay cash you have no warranty, no recourse for poor workmanship, and the added risk of liability if an injury takes place on your property. As a person who is involved in this economy the risk is jail but if they are good at it, there are no taxes to be paid, no insurance or liabilities. Also if a person is good at breaking the law and not getting caught then a lot of money can come out of it because of the high demand for illegal goods that are purchased on the black market. The avoidance of tax is the biggest part as the consumer will avoid a taz on the good and the producer doesn;t have to give any money to the government for the good or anything. That is why it is so illegal for this black market to be occuring underneath the government's nose.

Response to: Is inflation caused by changes in aggregate demand or aggregate supply?

During the periods of 1979-1982, 1995-1999, and the past four years there has been an inflation that has affected the U.S. economy. Inflation describes an increase in the average price level initiated by excessive aggregate demand or excessive aggregate supply. Both supply and demand can cause inflation by either demand increasing too much making high prices or supply decreasing too much causing high prices. What caused this inflation for the past four years is aggregate demand because the CPI, PPI, and GDP for the past four years showing that both demand and supply have increased. But with supply increasing it means that it couldn't have caused inflation because on a graph when supply has increased, the line shifts down. What has increased though is demand and that means inflation because the prices has risen causing inflation. When demand on a graph increases it shifts to the left, meaing it goes upward on the graph meaing that price has increased. In the past four years, the inflation that has occured was caused by too much demand and not enough production.

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 increase and prices will decrease and taxes will be low. If the unemployment rate increases then a 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 but not great as the economy is in need of more of a surplus. The policy that is in need is an expansionary policy because the economy needs to get up to 4 percent surplus by lowering taxes and increasing government spending. If this does not change by 2008 then the economy will drop but if there is an expansionary fiscal policy which will end up helping the economy. Demand will increase and production will increase causing there to be a new equilibrium.

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, low. 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 government spending to decrease along with consumer confidence. Another reason why a balanced federal budget should be restricted 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 FED can control the balance of the budget then it puts then in control and it can make them 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 a expansionary fiscal policy or automatic stabilizers that stabilizes 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.

Response to: A Balanced Budget Amendment?

Response to: Are Banks Special?

1) The risk for the macroeconomy 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 becuase 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 to in other ways for businesses, what will happen is the opposite of if banks were limited on their funding of busniesses. This will cuase 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 ans 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 causing 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.

Response to: Are Banks Special?

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 uprise 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, as the demand for more U.S. money increases causing the cost to make dollar bills to increase, 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 rates. 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 happnes the Euro will become more valueable and countries whose currency value is depleting, they will convert to the Euro and the United States will follow. This is what the extbooks are going to say about this occurance 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 curreny. 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.

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.

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.

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.

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?

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

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.

Strong Halo 3, PC Sales Lift Microsoft

Since the first Halo came out in the 2000's, the game along with Microsoft has lead the gaming world. The franchise has set records for sales of the games for XBox and XBox 360 with three different games, each with records. The games have revolutionized the way that video games are made and when Halo 3 came out in on September 25, 2007 Microsoft's profit increased for the quarter from $15.6 billion to $16.1 billion. After Halo 2 came out more than two years ago and set new records for sales the hype for Halo 3 already started and the demand for the game was very high. This increase in the stock, demand, profit, and revenue make Microsoft who is already a huge power in the market for computers, a legendary company who can control so many things. They are already the world's largest softeware maker and in a market where there is high demand for personal computers loaded with its Microsoft Windows operating system gives them the ability to control their own destiny. They can now raise prices and raise wages as the demand for their services arwe so high that they can get away with increasing prices. But that doesn't seem like it's in the cards as in the future it looks like Microsoft will keep their prices the same as analysts say that they will keep earning their fair share of billions of dollars. When a company like Mircosoft that can make millions off a video game when they already make billions off of computers, they can control the market in ways that many other companies can't. With control like that they can make moves to their prices and wages in anyway that they feel will benefit their company.

Raytheon Profit Falls 7% in Period

Expectations are a big part of Economics as they can affect supply and demand. When Raytheon, maker of missiles, radar, and other defense and communitcations systems, had their profit fall 7 percent in the last period they looked back at what Wall Street had estimated. As their third quarter profit slipped 7 percent as charges from the firm's sale of commercial aviation businesses offset a revenue gain that nearly beat Wall Street estimates. When the profit of a company goes down then and expectations are not met then the price of the goods decrease along with demand. This can offset a company in a big way when certain profits fall like they did for Ratheon and it caued them to lower costs and sell their merchandise for undisclosed amounts of money. Raytheon is fortunate that their previous profits did not have that big of a decrease. However, Raytheon is forecasting smaller 2008 profits and revenue than industry analysts had predicted, sending Raytheon sahres down 1.7 percent. This causes wages to be more flexible as the compant tries to get more workers to come and be oart of the comapny. Raytheon might want rto do this as some companies find it profitable to have more workers come in so Raytheon migth need to lower wage rates or make then more flexible. What it true is that Raytheon's profit is decreasing and the future doesn't seem bright so what they need to do is lower wages, lower prices, and hire more workers.

Welcome Aboard!

This is an independent study course in economics. The primary purpose of this course is to develop analytical skills and apply economic theory to analyze current events.