February 2006 Archives

TAKE-HOME PORTION OF THE MACRO-ECONOMICS EXAM IS BELOW...

Welcome back to "Part II" of the Federal Reserve Board Federal Open-Market Committee Meeting
This group meets eight times a year. The FOMC discusses current and near-term economic and financial conditions, prior to making a decision to raise, lower or keep short-term interest rates the same. Here is the official "Press Release" issued on January 31st. The federal funds rate (the one you will consider changing) is currently targeted at 4.5%. (When I did this last year in April, the rate was 2.75.) Those of you wanting more historical data should look at changes in the federal funds rate over time.

Agenda for the Simulation: The resources that you might need are below...

We did do some of this last time, but we'll pick it up where we left off on Friday...

* Chairman Bernanke calls the meeting to order.

* Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your two minutes of fame, try to cover these...)

* provide an overview of current economic conditions in your district
* discuss the prospects for economic conditions for the near future
* identify any economic issues of special concern at the present time
* recommend whether short-term interest rates should be raised, lowered or kept the same.

* Chairman and Board of Governors offer recommendations regarding the direction for short-term interest rates

* Discussion of issues of controversy

* Each member of the Board of Governors and the Bank presidents cast a vote regarding the direction for interest rates, with the decision going to the majority.

"The Federal Reserve Districts and Banks" - Clicking on the area of the map you represent will take you to that district's home page. There you can find information relating to your region.

Board of Governors of the Federal Reserve- Here is their home page.

"The FRB Beige Book" - This collection of information is compiled 8 times a year for use at the FOMC meetings. We'll use the January 18th data. (The next real meeting for them is in March.) This link will take you to the overall summary. In addition, the links on the left will take you to "your" district. There, you can find a one "page" overview of recent developments in your district.

TAKE-HOME PORTION OF THE MACRO-ECONOMICS EXAM

The take-home portion is worth 30 points, and it will be due on Wednesday, March 22nd. The questions are below. Of course, I'd love to get them before break, but that's up to you.

Problems: (10 points)

1. Components of GDP: (4 points) - Determine if each of the items listed below should be included in GDP and under which component or components: Consumption, Investment, Government, Exports or Imports.

1. A cell phone produced and sold in the US by a Japanese company
2. MPA tuition
3. Social Security payments
4. Best Buy stock purchased from Best Buy
5. The purchase of a plane ticket to Shanghai on Air China
6. The purchase of a US Treasury Bond by an individual
7. A new factory
8. The sale of a previously occupied house
9. A bottle of French wine, sold in the US
10. A television produced, but not sold.
11. A dinner at a restaurant
12. A computer produced in the US and sold in Canada

2. Calculating GDP: (3 points) - Given the following data (in billions of current dollars), calculate the current level of gross domestic product.

Consumption spending $6,000
Social security payments 1,400
Income tax receipts 1,700
Exports 1,600
Business purchases of new factories and equipment and changes in inventories 2,500
Federal government spending on goods and services 1,700
Construction of new homes 400
State and local spending on goods and services 1,500
Imports 1,200
Wages 13,000

3. Federal Reserve "Tools" and Effects: (3 points) - For each Fed "action," explain its effect on the money supply. Will the listed action increase or decrease the money supply? Fill in 3a through 3f.

Open Market Operations

3a. The Federal Reserve buys securities
3b. The Federal Reserve sells securities

Discount Rate

3c. Raising the discount rate
3d. Lowering the discount rate

Reserve Requirement

3e. Raising the reserve requirement
3f. Lowering the reserve requirement

Short answer: (20 points - 5 points each) You need to do four of the following "short answer" questions. Choose any four that you would like from the list. Answers should be between 300 - 500 words or so. You can either print them out or submit them electronically to me as an e-mail attachement.

A. You are asked to present an Emmy Award for the category of "The Most Influential Economist". The three nominees, lucky for us, are Adam Smith, Karl Marx, and John Maynard Keynes. Tell me who you think should win the award. More importantly, provide justification for your choice. (This is a carry-over from last year when we also read Explaining Economics. It's certainly one you could easily research, but we didn't really "teach" these guys this time around.)

B. Martians have landed on the earth, and they want to better understand the American economy. You are allowed to teach them about the two (and only two) economic measures or indicators that you believe reveal the most about the economy. Which two would you choose to explain? Why?

C. Assume that the United States needs a new "chief economist". You have been tapped for the job. At your Senate confirmation hearing, you are asked if your macroeconomic "view" relies more heavily on the "demand" approach or the "supply" side. What would you tell them? Why?

D. Taxes are, however unfortunately, a fact of life in America. Assume that you are on the committee appointed to look at "tax reform". What would you recommend as the best system of taxation in America? (You don't need to talk about specific numbers, but be sure that your choices reflect the values you would want to emphasize in our society.)

E. Here's a "softball" for you. What do you believe should be the role of government in managing and/or regulating the economy?

F. The Federal Reserve Board has been responsible for conducting our nation's money supply for decades. Critics charge that it is often ineffective, sometimes making things worse. Based on what you know, should changes be made in the way the Fed operates? Why or why not?

G. Do budget deficits matter? Justify your answer with reference to ideas discussed in class or the readings.

Welcome to the Federal Reserve Board Federal Open-Market Committee Meeting
This group meets eight times a year. The FOMC discusses current and near-term economic and financial conditions, prior to making a decision to raise, lower or keep short-term interest rates the same. We'll go through this in an abbreviated form today with the presentations. We'll "deliberate" on Tuesday. Here is the official "Press Release" issued on January 31st. The federal funds rate (the one you will consider changing) is currently targeted at 4.5%. (When I did this last year in April, the rate was 2.75.) Those of you wanting more historical data should look at changes in the federal funds rate over time.

Agenda for the Simulation: The resources that you might need are below...

* Chairman Bernanke calls the meeting to order.

* Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your two minutes of fame, try to cover these...)

* provide an overview of current economic conditions in your district
* discuss the prospects for economic conditions for the near future
* identify any economic issues of special concern at the present time
* recommend whether short-term interest rates should be raised, lowered or kept the same.

* Chairman and Board of Governors offer recommendations regarding the direction for short-term interest rates

* Discussion of issues of controversy

* Each member of the Board of Governors and the Bank presidents cast a vote regarding the direction for interest rates, with the decision going to the majority.

* Hypothetical situations (if we have time...)

"The Federal Reserve Districts and Banks" - Clicking on the area of the map you represent will take you to that district's home page. There you can find information relating to your region.

Board of Governors of the Federal Reserve- Here is their home page.

"The FRB Beige Book" - This collection of information is compiled 8 times a year for use at the FOMC meetings. We'll use the January 18th data. (The next real meeting for them is in March.) This link will take you to the overall summary. In addition, the links on the left will take you to "your" district. There, you can find a one "page" overview of recent developments in your district.

We'll continue with "Taking Sides" debates... We can try and squeeze in a make-up one if there is time. Otherwise, we'll do test review today...

"TAKING SIDES" FORMAT: Basically, you'll each get 4-5 minutes to outline the arguments for "your" side of the topic. Then, you can help guide the rest of us in a relatively short conversation/debate on the question. Feel free to mark up the article and use specific quotations/ evidence to support claims. These are worth up to 10 points for your preparedness and contributions.

Session #5
Has the North American Free Trade Agreement Hurt the American Economy?

REMINDER: You should have read Chapter 10 in Naked Economics by now. You should have blog entry #5 posted by next Tuesday. (We'll do this one a little differently and wait until we have the start of the simulation on Friday.)

Banking and the Federal Reserve System: To fully understand banking, you need to get beyond seeing banks as simply places where people keep money. Only a small percentage of deposits are actually on hand at a bank at any given time. Instead, we operate on the fractional reserve system. Banks keep a percentage of deposits on hand, but they are able to loan out the remaining funds in order to generate profits. Think about how that fits into our macroeconomic model of the economy.

The Federal Reserve System (FED) was created in 1913 to strengthen the nation's banking systems. You can learn more about how it works by consulting "The Federal Reserve System."

The nation is divided into twelve districts, and most banks within each district are members of the system. Each district has a Federal Reserve Bank. These twelve banks are governed by the seven members of the Federal Reserve Board in Washington DC. These members are appointed by the President to serve fourteen year terms, so they are designed to be the "independent" authority for monetary policy. The Chairman of the Federal Reserve system is also a Presidential appointment, and that is currently Ben Bernanke. (Alan Greenspan just finished his fifth 4-year term as Chairman. Reagan, Bush, Clinton and Bush all named him to that post.)

Federal Reserve Board simulation: Next time, we'll do a simulation of the Federal Reserve Board and a Federal Open Market Committee (FOMC) meeting. You'll each play a role as either a representative of one of the Federal Reserve districts or a member of the Board of Governors.

The Federal Reserve Districts and Banks - Clicking on the area of the map you represent will take you to that district's home page. There you can find information relating to your region.

The FRB Beige Book" - This collection of information is compiled 8 times a year for use at the FOMC meetings. We'll use the January 18th data. (They will meet again in March.) This link will take you to the overall summary. In addition, the links on the left will take you to "your" district. There, you can find a one "page" overview of recent developments in your district.

Preparing for the simulation: Most of you will represent one of the districts. Figure out who you "are" by consulting "your" district's home page. Browse around there for a while. In addition, go to the "Beige Book" above, and be sure to read both the overall summary and the page for "your" district.

Come prepared to speak for maybe two or three minutes on conditions in your district. Be ready to make recommendations as to whether the Federal Reserve should take action to either "speed up" or "slow down" the economy.

Several of you will represent the Federal Reserve Board of Governors itself, and another of you will be Ben Bernanke. You might brief yourselves on the summary information, and you might browse the homepage of the Board of Governors of the Federal Reserve.

By the way, only five Reserve Bank Presidents at a time actually serve on the FOMC, but we'll let you all come to the meeting...

The "Tools of Monetary Policy" - The Fed has three main tools at their disposal.

Reserve requirements: These are the percentages of deposits that banks need to keep on hand in their vaults or on deposit at a Fed bank. (The Fed last changed this rate in April of 1992, and it is a rarely used tool of monetary policy.)

* If the reserve requirement were raised, banks would have less money available to lend.

* If the reserve requirement was lowered, banks would be able to increase lending.

Discount rate: This is the interest rate that the Fed charges banks for loans. Member banks can borrow from the "discount window" at this lower rate. This is now rather symbolic, as the Fed considers itself to be the "lender of last resort." Banks are encouraged to borrow from other banks.

* When the discount rate rises, it would typically slow economic activity.

* When the discount rate is lowered, it would typically stimulate economic activity.

Open market operations: This is when the Fed buys or sells previously issued government (Treasury) securities.

* If the Fed wants to expand the money supply (boost the economy), they buy Treasury securities. That puts additional money into the banking system, and that should influence interest rates downward.

* If the Fed wants to tighten the money supply (slow the economy), they sell Treasury securities. That removes money from the system, and that should influence interest rates upward.

As of today, the discount rate is at 4.5%, and the prime rate is at 7.5%. These drive a wide variety of interest rates for different types and durations of borrowing.

SITE OF THE DAY: FED 101 is great. Check it out.

NOTE: As of now, there is a lag between your submitting a post and its appearance on the blog. I have to "approve" them by clicking on them. Don't resend.

REMINDER: In order to receive credit, these comments need to be posted by 11:10 AM on Wednesday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 4, “Government and the Economy II.” You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. Take a crack at the "Goldilocks" question (page 77). "Is the role that government plays in the United states economy too big, too small, or just about right?" Explain.

2. Wheelan writes on page 79 that, "The United States is a richer but more unequal place than most of Europe." Should we be satisfied with that distinction? Why or why not?

3. Wheelan talks a good deal more about taxation and regulation in this chapter. If you'd like to react ot any of those points, you can do that here...

READING: You were asked to read chapter 4 in Naked Economics for today. Your Blog entry #4 will be due by class time on Wednesday. Please read chapter 10 for Wednesday as well. Yes, I realize chapter 10 is out of order, but it will work out. Yes, I always realize I originally said read it for Friday, but this will work better. Trust me...

Taxpolicy.com invites you to "Build Your Own Tax Policy." It asks you a series of questions and then sketches out your broad views on taxes as derived from those answers. We can talk about this if anyone actually did it last time.

What is money? I know, dumb question. However, the reality is a bit more complicated.

Money is something that we can use to make purchases with. Generally speaking, there is a continuum of ways to make purchases, but some are clearly easier than others. Liquidity refers to the ease with which an instrument can be used to buy things.

What is considered "money"? Certainly, the currency and coins in your pocket are money. What about checks? Credit cards? Savings accounts? Bonds? Well, the answer depends on just who you are asking.

The Federal Reserve holds that money has three functions:

* serves as a medium of exchange - People will accept money in exchange for goods and services.

* serves as a standard of value - Money is a unit of measurement that can be used to specify the value of other things.

* serves as a means of saving or storing purchasing power - Money is a form in which wealth can be held.

Various definitions of "Money Supply": These are the most common classifications. They get "bigger" as you go down the list.

M1: currency (in circulation), demand and checkable deposits (banks and thrifts)

M2: M1 and savings accounts, additional (small time) deposits, and retail money-market funds

M3: M2 and additional (longer time) deposits, and eurodollars, and institutional money-market funds

"Money Supply for Dummies" - If you can get past the demeaning title, this is a really informative article.

If you want to look at changes in the money supply (M1) over recent years, you can manipulate this data from "Economagic" to produce graphs.

The Government and the Public Sector: Last time we were together, we looked at the "numbers". Today, we'll try to make some sense of them...

READING: Please read chapter 4 in Naked Economics for Thursday (2/16) and chapter 10 for the following Friday (2/24). Yes, I realize chapter 10 is out of order, but it will work out. Trust me.

Office of Management and Budget: Budget Highlights: You were asked to identify some points of interest here. Let's chat.

The Budget Deficit: You were asked to read the handout on "The Mythology of Deficits", from The Armchair Economist. Let's hear what you thought of that.

The National Debt: You were asked to look around the Grandfather Economic Report by Michael Hodges. What did you found interesting there?

On to the new stuff for today...

Taxes: There's an old saying that, "there's nothing certain but death and taxes." Today, we'll spend some time looking at the less depressing half of that adage... Hopefully, you've been convinced by now of the economic necessity of some form of taxation. (If not, contemplate life without roads, schools, police, and national defense for a while...)

So, if we work from the common assumption that taxes are a necessity, there remain several questions:

* Who should be taxed?

* What should be taxed?

* How (at what rate) should the tax be levied?

* What should happen to the money collected from the tax?

The history of taxation: Of course, the history of taxation is long. If you want more information than you can ever use, consult "The History of Taxation" at the "Taxworld" website.

Types of taxes: There are several broad categories of taxes. Economists generally classify taxes as progressive, regressive, or proportional. (Another type of tax is called a "head" tax. Everyone pays the same amount.) Let's make sure we understand the differences.

Discuss: Which type of tax do you think is most fair? Are there any that you strongly oppose? Is the sales tax regressive?

The Federal Income Tax: This, of course, is the "big one". It has been in place since 1913, and it is the single largest source of governmental revenue.

One of the legacies of the Reagan years was a period of tax reform. Now, there are six federal income tax rates: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.

For married couples, the 15 percent rate currently applies to taxable income up to $56,800, whereas the 25 percent rate applies to taxable income between $56,800 and $114,650.

Discuss: Do you think it is fair to tax higher levels of income at a higher rate? Would you like to see a more or less progressive income tax?

Of course, Minnesota gets its share of income as well. You can learn more about that at the "Minnesota Department of Revenue Home Page." You can also browse around here to find a copy of the tax forms you would need to file as well.

For comparisons, here are State Income Taxes for the rest of the nation.

The "Flat" Tax: One of the "new" movements in tax reform has been the call for a flat tax. Here are two articles to consider...

Christian Science Monitor: "US already moving toward a flat tax."
Economist: "The flat-tax revolution."

Taxpolicy.com invites you to "Build Your Own Tax Policy." It asks you a series of questions and then sketches out your broad views on taxes as derived from those answers.

We'll continue with "Taking Sides" debates. The schedule is below, and I can show you who signed up for which days if you have forgotten...

FORMAT: Basically, you'll each get 4-5 minutes to outline the arguments for "your" side of the topic. Then, you can help guide the rest of us in a relatively short conversation/debate on the question. Feel free to mark up the article and use specific quotations/ evidence to support claims. These are worth up to 10 points for your preparedness and contributions on that day.

Session #4
Are Protectionist Policies Bad for America?
Should We About Sweatshops?

Session #5
Has the North American Free Trade Agreement Hurt the American Economy?

NOTE: As of now, there is a lag between your submitting a post and its appearance on the blog. I have to "approve" them by clicking on them. Don't resend.

REMINDER: In order to receive credit, these comments need to be posted by 11:10 AM on Monday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 3, “Government and the Economy.” You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. Using specific examples, comment on the efficacy and/or efficiency of the government taxing externalities.

2. Wheelan says, "Government does not just fix the rough edges of capitalism; it makes markets possible in the first place. (p. 51)" Discuss.

3. React to Wheelan's comments in the footnote on Africa and AIDS drugs (p. 55).

4. Pretend that you are a Nobel Prize winner yourself for a minute: "Answer" the question posed by 1998 Nobel Laureate Amatya Sen on page 60.

REMEMBER, NO CLASS ON FRIDAY DUE TO SENIOR PERFORMANCES... Small group C will meet on Thursday.

A reminder that you should have read Chapter 3, "Government and the Economy," from Naked Economics for class today. We can take some quick comments on that. Your blog entry #3 will be due before your arrival for class on Monday.

The Government and the Public Sector: Today, we'll focus on the numbers. These numbers, of course, will vary from year to year...

Where does the federal government get its revenue from?

44% from individual income taxes
36% from Social Security payroll taxes
11% from corporate income taxes
4% from excise taxes
2% from customs duties

Where does the federal government spend its money?

22% is spent on Social Security
20% is spent on defense
9% is for other "direct" spending
10% on Medicare
6% on Medicaid
15% on interest on the national debt
other areas are smaller
about 2% is spent on welfare
less than 1% is spent on foreign aid

The largest single source of revenue for state governments is the sales tax. Local governments depend most heavily upon property taxes.

The Fiscal Year 2006 Budget: These links are from the Federal Government's Office of Management and Budget, and they deal with the most recent budget proposal.

Office of Management and Budget: Budget Highlights: DO THIS: Look through this overview and find three budget priorities that you support and three that you disagree with. Make note of these for discussion in class.

The Budget Deficit: There is a great deal of diagreement about just how important budget deficits are, as well as about the specific ways in which they impact the economy. Assessing the desirability of deficits requires a balancing of these costs and benefits:

* Lower unemployment: Keynsian style fiscal policy would recommend risking a budget deficit to keep the economy closer to full employment.

* Public investment: Deficits allow the government to borrow for projects with a high social payoff; perhaps education or infrastructure.

* Lower national saving: Deficits require the government to bid up the interest rate to obtain financing for the deficit. This may crowd out private financing and decrease growth.

* International implications: Higher interest rates attract foreign investors. They need to obtain dollars to purchase bonds, and that tends to increase the value of the dollar. This makes our exports relatively more expensive to foreigners and their goods relatively more inexpensive to us.

* Debt monetarization: Deficits create a risk that government will choose to finance them by printing money, or monetizing the deficit. Inflation is the clear risk.

* Growing national debt: Deficits will increase the national debt. This means growing interest payments on that national debt, potential tax raises, and a burden on future generations.

DO THIS: Read the handout, "The Mythology of Deficits," from The Armchair Economist. Give careful consideration to the "parable," and then read through the "myths" and determine whether you agree with the authors.

The National Debt: This is simply the sum of all outstanding government deficits.

Here's the Debt Clock that we saw earlier. See what your share is today...

Grandfather Economic Report: Michael Hodges had put together this large site concerned with presenting information on the national debt. You're directed to the portion of the site concerning economic issues, but you may want to look around further.

DO THIS: Browse through this report. The pictures and graphs are very user-friendly. Find five things (statistics, graphs, comparisons) that are of interest to you, and make note of them to share in class. Then, make at least two "policy recommendations" for the US government based on what you have learned.

There are economists who would tell you to ignore everything that we talked about last time They would argue that the economy is best understood from the "supply" side of things. They are in the minority, but their opinions are certainly worth considering...

READING: We'll discuss chapter 3 from Naked Economics next time. You blog entry #2 was due at the beginning of class today.

Supply, Supply, Supply: We'll look at the competing theory to the previous lesson's "grand explanation" of the economy.

For quite a while, the ideas we learned about last time were almost completely accepted in economic circles. Keynes' analysis, even though it focused almost completely on demand, was accepted as economic "gospel".

By the early 1970s, serious questions emerged about relying solely on this explanation:

* Supply "shocks", such as the OPEC oil embargo of 1973, hit the economy, but the Keynsian model alone could not offer advice for dealing with these crises.

* For the first time, America was facing rising unemployment and rising inflation. The Keynsian approach alone couldn't explain these type of departures from the "business cycle" model.

* This approach tended to be short-term in its focus, and that diverted attention from longer term issues like economic growth and standard of living.

It was out of these concerns that a new approach, supply-side economics, emerged. It had its strongest impact during the Reagan years. (Many called it "Reaganomics".) Although the overall approach doesn't find as many supporters among economists today, looking at its approach still helps fully understand macroeconomic theory.

Here it is; a brief tour of the "supply side"...

The first key idea was found in the early 1800s when a French economist named J.B. Say got a law named after him...

Say's Law: "Supply creates its own demand..." This idea held that overproduction and underproduction would never be problems since production itself generated enough income to purchase what is produced. "Gluts" or shortages would lead to price adjustments until the glut or shortage disappeared. According to the theory, full employment would soon reappear.

The experience of the Great Depression, and its sustained, high unemployment, led to an acceptance of the ideas of Keynes and discredited "Say's Law".

Modern "supply-siders":

The key to understanding this approach is the idea of incentives. Keynes assumed that an increase in demand automatically meant an increase in supply unless the economy was at "full capacity". Supply-siders disagree, saying that the production won't happen if the costs are too high.

What could make the costs too high? Things like taxes and interest rates.

The "solution"? Incentives- particularly in the form of lower taxes.

* They argued that reducing costs will lead to more production by business.

* Also, lower taxes would encourage household savings, creating more funds for investment.

* Further, some claimed that decreasing tax rates would lead laborers to work more, furthering the cycle.

The second key difference is the effect of government deficits, or the theory of crowding-out.

Here's the argument: When spending exceeds taxes, the government borrows money in financial markets. (States and locals also sell revenue bonds to finance projects.) The federal government also sells treasury bonds.

Supply-siders say these actions pull money (capital) out of the private markets and raise interest rates. These actions "crowd out" private investment, lowering output and employment.

You may have noted a potential contradiction here. How can you hope to both cut taxes to stimulate the economy and avoid budget deficits that might crowd out investment? What do you think?

Remember, although relatively few economists still hold these ideas, the concepts of "supply-side" economics still influence public policy decisions today.

The Debate over Government: What do you think? An introductory discussion...

* Is the US government responsible for ensuring that all its citizens have an adequate standard of living? If so, how should they go about doing that? If not, why not?

* To what degree should the US government pursue policies of "income redistribution?" How?

* What "transfer payments" (welfare, social security, unemployment, etc.) do you support? Why? Are their changes that you would make?

* Should recipients of welfare be required to work in order to receive benefits?

* What would be the fairest system of taxation in this country?

* Should the inheritance tax be abolished in the United States?

SITE OF THE DAY: Time 100 - John Maynard Keynes. This feature is from Time's list of the 100 most influential people of the 20th century. Your new favorite economist is one of them.

We'll do the "Taking Sides" debates at the next 2 1/2 "small group" sessions. The schedule is below, and I can show you who signed up for which days if you have forgotten...

FORMAT: Basically, you'll each get 4-5 minutes to outline the arguments for "your" side of the topic. Then, you can help guide the rest of us in a relatively short conversation/debate on the question. Feel free to mark up the article and use specific quotations/ evidence to support claims. These are worth up to 10 points for your preparedness and contributions on that day.

Session #3
Are Profits the Only Business of Business?
Should Cities Subsidize Sports and Sports Venues?

Session #4
Are Protectionist Policies Bad for America?
Should We About Sweatshops?

Session #5
Has the North American Free Trade Agreement Hurt the American Economy?

NOTE: As of now, there is a lag between your submitting a post and its appearance on the blog. I have to "approve" them by clicking on them. Don't resend. I'll try and get that preference changed.

REMINDER: In order to receive credit, these comments need to be posted by 11:10 AM on Monday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 2, “Incentives Matter.” You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. "What should be done to save the black rhino? (Your answer should show an understanding of the concept of incentives.)"

2. "On page 28 (in my edition, at least), Wheelan writes 'The pay of American teachers is not linked in any way to performance...'. My question is this: How should teachers be paid? (Your answer should show an understanding of how students and teachers (and others?) are affected by incentives.)"

3. "Do you agree with Wheelan's assessment of the process of 'creative destruction?' (page 36) (Use specific examples in support of your answer.)"

4. "Assume you were in charge. What would you do (if anything) to change America's system of taxation? (This question is more philosophical than specific in nature. React to what Wheelan has to say about taxes.)"

Remember to read post on the blog in response to Chapter 2 in Naked Economics before Monday's class. If anyone did not get to a Small Group #2 session, please check in with me. Let's get through Chapter 3, "Government and the Economy," for Wednesday's class.

Demand, demand, demand: We're starting to put the "big picture" together here in our look at the macroeconomy. Today, we'll look at flows in the economy, particularly as they originate on the demand side. We'll largely be looking at work pioneered by John Maynard Keynes. This is clearly the dominant theme of chapter 6 from Economics Explained. We'll make use of that in class.

We're going to try and work through this a couple different ways.

First, we'll literally try and walk through the explanations from the reading.

Second, we'll look at a visual representation of this. I have a handout for you.

SITE OF THE DAY: If you want the "real thing," here's the home page of The New York Stock Exchange. There's some interesting information here to browse through.