Thursday, September 13, 2007

Possible IA article + abstract

China Investors Must Rest Easy as Growth Surges: Andy Mukherjee
Abstract: On April 19th of 2007, Beijing claimed that China's GDP has grown 11.1% in relation to 2006--indicating an immense leap in the economy. Despite assumptions that the authorities would "tighten monetary screws", no monetary policy has been established in order to slow down the rapidly growing economy, for, as claimed by Jonathon Anderson, UBS AG's cheif Asia economist in Hong Kong, "interest-rate adjustments and base-money liquidity tightening have no real impact on equity demand." As a result of this high growth rate in China, prices are beginning to climb. Nevertheless, "the government isn't in a hurry to cool the economy".

Saturday, September 1, 2007

Chapter Sixteen: Phillips Curve (Article + Short Analysis)

German August Unemployment Falls as Economy Expands
This article states that Germany's economy is rapidly growing, causing unemployment to fall to an all-time low. According to the article, "German unemployment will fall to the lowest average level in 14 years in 2008 as persistent growth spurs hiring...". As the economy is growing and new businesses and firms are being established, factories must be expanded, and more workers and employees are demanded. This will most likely not only increase the number of people in the work force with jobs, but will also increase the amount of people in the work force. This is due to the fact that those initially out of the work force will notice the rapidly growing economy and will therefore decide that perhaps the opportunity cost of not working is greater than that of being hired to work.
The fact that the amount of people in the work force with jobs will increase with the growing economy means that the unemployment rate will decrease. Despite the claim by this article that the decrease in the unemployment is beneficial to the economy, analyzing the situation using a Phillips curve will prove otherwise. The Phillips curve draws the relationship between the unemployment rate and inflation, illustrating the fact that as unemployment decreases, the level of inflation will rise (graph needed here). This can also be seen on the graph of the economy showing the aggregate demand and supply. The article states that consumer confidence is rising, signifying an outward shift of aggregate demand. As the AD curve shifts out (second graph needed here), it will intersect the Short-run AS curve at a higher level of output (i.e. lower unemployment), but also at a higher PL (i.e. a higher level of inflation). However, this solely shows the short-term effects of the increased aggregate demand. The increased price level will cause nominal wages to rise as employers will need more money to buy every-day goods. This increase in wages means higher costs of businesses, leading to an inward shift of Aggregate Supply. As can be seen with the Long Run Aggregate supply curve, the level of output will decrease back to its original point, while inflation will be much higher.
Therefore, despite the article's claims that this decreasing level of unemployment in Germany is beneficial, it is important to note that once the unemployment level is at a point beyond the level of full employment, high levels of inflation will result.

Sunday, August 12, 2007

Summer Article #3: Income Inequality & Poverty

Brown calls for action on poverty

This article explains Brown's recent proposal regarding the elimination of poverty in the world. Poverty in the world is a result of many different factors, including ability, education & training, discrimination, unequal distribution of wealth, market power, and misfortune. Ability refers to the clear and simple fact that not everyone on earth is born with the same abilities; some are born intelligent, others are born physically capable, and some are born artistic. There are also those who are born with physical or mental impairments which prevent them from having the capability of receiving an income. It is here that the problem begins. Education and training is another major factor of the poverty in the world. Those living in Africa are not provided with the same opportunities for education as those, say, living in the US or in Europe. This turns into a vicious cycle, as lack of education leads to a less capable adult generation who, in turn, can not improve the education. An uneducated population is not able to live and prosper in the way an educated population can. In other words, this population lives in poverty. Unequal distribution of wealth also contributes to poverty. While income refers to the flow of money received by a particular person over a period of time, wealth refers to the assets owned by an individual which are worth a particular amount of money. While many people in developed countries are very wealthy in that they own fixed assets which are worth a large sum of money, it is safe to assume that the number of Africans who own a valuable piece of land or house is minuscule. The lack of wealth leads to fluctuation in their standards of living, as the amount of money they possess solely relies on their income, which is most likely not stable or anywhere near a large amount of money.
Brown's idea is most definitely one of the best proposals yet, but, taking into account all of the causes mentioned above, it seems to be easier said than done.

Summer Article #2: Global Growth; hao bu hao?

Global growth not dollar boosting U.S.: Paulson

Secretary of treasury says strong growth outside U.S. is behind increase in U.S. economy: interview.

July 27 2007: 10:35 AM EDT

WASHINGTON (Reuters) -- The U.S. economy's strong performance in the second quarter, particularly in exports, is being driven by strong growth outside the United States, not the weak dollar, U.S. Treasury Secretary Henry Paulson said on Friday.

"I'm very much for a strong dollar, that's very important," Paulson said in a television interview.

Growth picks up, inflation tame

"Now I believe what we're seeing is a strong global economy. This is the strongest global economy I've seen in 32 years. The growth rate in Europe has doubled. We've got growth throughout Asia. Japan is now growing, so I think this is being driven by strong growth outside of the U.S.," he told CNBC Television.

The Commerce Department said earlier that U.S. economic growth rebounded to 3.4 percent during the second quarter, its strongest pace since the beginning of last year on a surge in business investment, increased government spending and improved trade performance.

The data marked a big turnaround from anemic 0.6 percent growth in the first quarter, a figure previously reported as 0.7 percent.

_____________________________________________________________________________________ According to this article, our global economy is "the strongest global economy [we've seen] in 32 years." There is a total of six factors which are usually considered when analyzing economic growth; however, only several are relevant to our growing world today. First of all is an increase in the quantity and quality of human resources. As education throughout the world is on the rise, the 'quality', (i.e. the brains) of the working force is increasing. Furthermore, as farmers and inhabitants of rural areas migrate over to big cities to find work, the quantity of human resources (i.e. labor) has been on the rise as well. A second factor contributing to the strong global economy is the fact that there are constant improvements in technology. Improvements in technology refer not only to new production techniques such as machines or capital goods, but also to new ways of management and organization. Technology also allows for our increasingly scarce resources to be used as efficiently as possible without any loss of possibly useful 'waste'. Both of these factors are part of the supply-side of the economy. Correspondingly, in order for economic growth to occur, demand must be high in order to 'eat up' the high supply resulting from technological advances and a larger and better human work force.
When reading the statement made by Paulson, it is easy to assume that such growth is desirable. However, several economics claim that economic growth--especially such drastic economic growth--is far from enviable. These economics tend to be more aware of environmental issues and social problems such as poverty and injustice. For example, increased capital goods can only occur if new factories are built. Such industrialization doubtlessly contributes to the growing problem of global warming and pollution in our world. Also, the constant concern and need for economic growth leads to less attention being paid to underdeveloped countries which require a lot of aid and help.

Everyone always seems to believe that economic growth is what the world needs. But what does it matter if countless cities are underwater when
Antarctica melts from global warming? Time to think again.

Wednesday, August 8, 2007

Summer Article #1: Exchange Rates

Dollar-euro? It's the yen, stupid

This article discusses the impact of the strengthening yen on the American economy. Although many people often compare the dollar the Euro, claiming that it recently "
hit a record low against the Euro", this article argues that the concern lies in the drastically increasing value of the Japanese yen. In the past years, Japan has been known for its extremely low interest rates, causing a large number of American investors to borrow and sell Yen. This form of trade is so popular it has come to be known as the "yen carry trade." According to Ashraf Laidi, chief analyst at CMC Markets in New York, the strengthening yen is becoming a problem: "The yen is a funding currency. When it rallies, it makes the repayment of those yen loans more expensive, even though interest rates are low," he said. The American investors initially borrowed the yen due to the relatively cheap cost of doing so; however, they now face the consequence of the increased value of the yen: what they must pay back is of greater value of what they borrowed. Although low interest rates means the actual amount of yen the investors must pay back has not drastically increased, the fact that the exchange rate is now higher means that the value of the yen they must repay has increased. In other words, whatever profit they made have made off of their investments will drastically decrease.
On the other hand, a positive effect of the relatively low value of the dollar is the fact that exports will dramatically increase, as the cost for other nations of buying raw materials and products from the US is relatively lower to anywhere else in the world (or at least Europe and Japan). The US will therefore be exporting more goods to other countries and import less. For the United States, which usually has a trade deficit as it has a large number of imports, increased exports may benefit their economy as it will increase their balance of trade, which is defined as a country's exports minus it's imports.
In other words, the increased value of the yen and the Euro may be horrible for American investors, but in the end, the American economy may be benefiting.

Thursday, May 3, 2007

Unit 3.3, Chapter 11, the Last Word

1) Weigh the two arguments regarding unemployment in Europe. Is unemployment high because of high because of high natural rates of unemployment or because of deficient aggregate demand?
**Argument 1::High natural rates of unemployment. It has been claimed by many economists that the high unemployment rates in Europe are considerably normal, and are simply due to the high natural rates of unemployment in these countries. They believe that the full-employment level of real output has been reached, and there are simply high levels of frictional and structural unemployment. Therefore, for these countries to increase aggregate demand (for it has also been claimed that the high unemployment rate is due to deficient aggregate demand) would cause the countries to produce at a level higher than full-employment and would thus lead to demand-pull inflation. There is one main reason for the high natural rates of unemployment in these countries: the cost of hiring workers is relatively high while the cost of being unemployed is low. Because of this, firms do not hire low-skilled workers due to the high minimum wages, and the large amount of welfare benefits far from encourage people to look for jobs.
**Argument 2::Deficient Aggregate Demand. Other economists claim that the high rates of unemployment in Europe result from "insufficient aggregate demand". The believe that, for fear of causing inflation, European governments have not established policies in order to increase aggregate demand, and countries are therefore producing a real output lower than it should. According to these economists, an outward shift in the aggregate demand curve would simply expand output and employment without causing inflation.

Perhaps the reason for high unemployment rates in Europe lies between these two arguments; natural rates of unemployment may be relatively high in comparison to the united states due to the high minimum wages and generous welfare benefits offered by European governments; however, aggregate demand might also be slightly lower than it perhaps should be. Therefore, a combination of lower minimum wages, a slight reduction of welfare benefits, and expansionary government policies such as reduced interest rates would perfectly solve the problem of the high unemployment rates in Europe.

2) Explain the experience of the US between 1996 and 2000 when the economy was at greater than full employment with high GDP growth while maintaining low levels of inflation. What allowed this so-called "New Economy" to occur, and what brought it to an end in 2001?

Between 1996 and 2000, the US economy was about to operate at greater than full employment with high GDP growth while maintaining low levels of inflation, for both AD and AS shifted out. Therefore, GDP increased while the Price Level remained fairly constant.

Thursday, April 26, 2007

GOOD LUCKKKK with your surgery :)