February 2007 Archives

It was certainly a rough day on Wall Street Tuesday. Here are a couple articles that offer some specifics for us to consider.
"Brutal day on Wall Street" - CNNMoney.com
"Technical glitches plague Wall Street" - CNNMoney.com

REMINDERS: Blog #9 is due. Blog #10 (last of the required blogs) is due Monday. We'll take the multiple choice/problems part of the Microeconomics and International Economics Exam on Friday. I'd certainly recommend finishing up Naked Economics Chapter 12 and the Epilogue before break as well...

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Welcome one and all to the "4th Annual MPA Globalization Forum." We gather to try and make sense of this force that is reshaping our world...

Today, we'll commence with the "opening statements" from those in attendance. In your ninety seconds of fame (read that as a minimum of one minute and a maximum of three...), you'll have a chance to share your story and your views. There may be a question or two from the floor, and then we'll move on.

So there's no rush to the "podium," I offer this quite random speaking order... (Really, it WAS random. I used the Microsoft Excel random number generator and everything.)

Asia "Sweatshop" laborer
Asia Indian service-industry worker
North America Consumer (middle class)
North America Worker whose job was "outsourced"
Africa Person existing on $1 a day
Latin America Illegal immigrant to the United States
Asia Rural youth recently emigrated to Shanghai
Latin America Manager of foreign-owned factory
Latin America Manual laborer
Africa Leader of nation dependent on coffee exports
Middle East Islamic fundamentalist
North America Environmental activist
Asia Peasant
North America Governmental official
Africa Citizen of resource-rich country
North America Political candidate for Senate
Middle East Young woman attending college
Europe Owner of multi-national corporation
Asia Chinese government official
Middle East Leader of oil-rich state
North America "Big Business" executive
Europe Employee at Volkswagen factory
Europe Owner of multi-national corporation
Asia High-tech manufacturer
Europe Worker "displaced" by immigrant labor

We'll see what time it is when we make it through these speeches. We'll save tomorrow for the "real" negotiating and problem-solving, but I've got a few questions I may ask you yet today...

As of now, you are supposed to have read Chapter 11, “Trade and Globalization.” 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.) This is due before Monday's class begins.

1. That “machine” that converts corn into things like stereos and cars has reappeared. (page 187) Is this just too simple an allegory for trade? Is it effective? Explain why or why not.

2. Did the discussion on economic sanctions of page 194 lead you to any new conclusions or positions on that topic? (If so, explain. If not, I’d recommend answering a different question…)

3. We’ve talked about sweatshops a number of times. It’s your turn. You’ve read the section about the “comparative advantage” of workers in poor countries. (page 201) As the quarter's end approaches, give us your answer. “Should we sweat about sweatshops?” Why or why not?

4. “Preferences change with income, particularly with regard to the environment.” (page 203) Discuss…

For those of you who missed yesterday, we'll need to get you a role for the "4th Annual MPA Globalization Forum." You can read about that on yesterday's blog and see me for a role.

REMINDERS: Chapter #11 of Naked Economics is due to have been read for today. The blog entry for that is now posted, and it is your tenth (and final) required blog entry. Let's make that due Monday. We can chat about the chapter a bit today.

Blog Entry #9 is due tomorrow. (There is no Blog Entry for Chapter #10 since we read that a while ago...)

We'll take the Micro-Economics and International Economics Exam on Friday.

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I thought this Almanac of American Wealth map was kind of interesting...

Much of what is below is simply reprinted from yesterday's entry, but we didn't cover it then. All the links and requirements for the "4th Annual MPA Globalization Seminar" can be found on Lesson #29. We'll do the basics of globalization today.

GLOBALIZATION: Many people argue that this force of integration will come to characterize this era as much as the Cold War had dominated the previous era. Author Thomas Friedman argues that the "Web" has replaced the "Wall" as the symbol of the era.

What is globalization? Simply put, this is the increasing integration of the world through the forces of global trade, business, and finance.

Thomas Friedman's book, The Lexus and the Olive Tree: Understanding Globalization, has become the most widely-cited book on the topic. (Yes, his recent work, The World is Flat is also being widely cited... You 21st Century folks will know what I'm talking about.) He has a number of very useful metaphors and explanations.

A couple of Friedman's ideas:

The Title: The "Lexus" represents the forces of modernity and technology. It is the "drive for sustenance, improvement, prosperity, and modernization." The "Olive Tree" represents "everything that roots us, anchors us, identifies us, and locates us in the world... a family, community, tribe, nation, religion, or home."

There are three balances in the global system:

* Balance between nation-states: The United States has clearly emerged as the sole superpower.

* Balance between nations-states and global markets: Friedman calls the global market of investors the "Electronic Herd". They trade in the global financial centers he calls "Supermarkets".

* Balance between individuals and nation-states: The emergence of people that he calls "Super-empowered Individuals" is a new factor to consider. Some are very angry, others are wonderful.

The "Walls" come down... Friedman argues that the Cold War era gave way to the era of globalization as a result of three fundamental changes.

* Democratization of Technology: caused by advances in miniturization, computerization, digitization, etc. (Computer power has doubled roughly every eighteen months over the past thirty years.)

* Democratization of Finance: caused by computerization, investment technologies, access to financial markets, etc.

* Democratization of Information: spread through things like the Internet, satellite dishes, and television

I'll pass out the initial chapter to "The Lexus and the Olive Tree" for you to read. You can use the remaining time to complete your preparation for tomorrow's "opening statements" for the forum...

Here's where you will sound-off (in character) on globalization for the whole world to read...

You'll learn more about what to do in class.

Exam #2 on Friday. Chapter 11 read for tomorrow, and Blog Entry #9 is due on Wednesday...

We'll set up the MPA Globalization Forum today, and it will take place tomorrow and Wednesday.

GLOBALIZATION: Our look at globalization begins today. Many people argue that this force of integration will come to characterize this era as much as the Cold War had dominated the previous era. Author Thomas Friedman argues that the "Web" has replaced the "Wall" as the symbol of the era.

What is globalization? Simply put, this is the increasing integration of the world through the forces of global trade, business, and finance.

Thomas Friedman's book, The Lexus and the Olive Tree: Understanding Globalization, has become the most widely-cited book on the topic. (Yes, his recent work, The World is Flat is also being widely cited... You 21st Century folks will know what I'm talking about.) He has a number of very useful metaphors and explanations. You'll be asked to read one of the chapters for Tuesday.

A couple of Friedman's ideas:

The Title: The "Lexus" represents the forces of modernity and technology. It is the "drive for sustenance, improvement, prosperity, and modernization." The "Olive Tree" represents "everything that roots us, anchors us, identifies us, and locates us in the world... a family, community, tribe, nation, religion, or home."

There are three balances in the global system:

* Balance between nation-states: The United States has clearly emerged as the sole superpower.

* Balance between nations-states and global markets: Friedman calls the global market of investors the "Electronic Herd". They trade in the global financial centers he calls "Supermarkets".

* Balance between individuals and nation-states: The emergence of people that he calls "Super-empowered Individuals" is a new factor to consider. Some are very angry, others are wonderful.

The "Walls" come down... Friedman argues that the Cold War era gave way to the era of globalization as a result of three fundamental changes.

* Democratization of Technology: caused by advances in miniturization, computerization, digitization, etc. (Computer power has doubled roughly every eighteen months over the past thirty years.)

* Democratization of Finance: caused by computerization, investment technologies, access to financial markets, etc.

* Democratization of Information: spread through things like the Internet, satellite dishes, and television

Globalization Forum: Tomorrow, we will come together for the Fourth Annual Mounds Park Academy Globalization Forum. Each of you will represent a different interest.

* You are allowed (within limits) to select your role for this forum. I do need certain perspectives represented, but you can take creative liberties within those limits.

We will need:

7 American representatives: 1 from government, 1 from "big" business, 1 consumer, 1 environmental activist, 1 worker whose job has been "outsourced", political candidate, Thomas Friedman

3 Europeans: 1 owner of a multinational corporation, 1 worker "displaced" by foreign competition, 1 wealthy investor

3 Africans: 1 resident of a resource-rich country, 1 person existing on less than $1 a day, leader of poor nation that exports coffee

6 Asians: 1 "sweatshop" laborer, 1 high-tech manufacturer, 1 peasant, 1 Chinese governmental official, 1 Indian service-industry worker, 1 recent migrant to Shanghai from Chinese countryside

3 Latin Americans: 1 manager of a foreign-owned factory, 1 manual laborer, 1 illegal immigrant to United States

3 Middle Easterners: 1 leader of oil-rich nation, 1 young woman, 1 Islamic fundamentalist

REQUIREMENTS FOR TOMORROW:

Obviously, you will need to "create" much of your own detail. Think about how your life has changed over the past decade. What are the advantages/ drawbacks of globalization in your world? What will the future hold?

* You will be expected to provide an introductory statement of not less than ninety seconds. In this statement, you will tell other participants of your "situation," and you will offer your preliminary comments on events associated with globalization.

* You will post on the Globalization Forum Blog Entry. Here, you are limited to 150 words maximum. You should use the blog entry to advocate for any causes, aspects of globalization, etc. that would be of the most benefit to your character. This is your chance to rant against your enemies, blow your own horn, or do a combination of these. You, of course, are bound by the need to not be obscence and totally inappropriate, but think of this as your billboard, letter to the editor, protest sign, bragging sheet, or whatever it is. Be creative, be outspoken, but also be appropriate...

* Do whatever research in class that might help you create your "perspective" and better understand the issue of globalization.

Here are some resources that you might consult:

The Lexus and the Olive Tree There are some excerpts and reviews here that you might find interesting.

Globalization: Threat or Opportunity? This is an IMF report addresses many of the central issues in globalization.

The International Forum on Globalization This is the site of a group critical of many of the effects of globalization.

The World is Flat: A Brief History of the Twenty-First Century This is a talk by Thomas Friedman about his most recent book.

Globalization and Its Discontents - Joseph Stiglitz (He won a Nobel Prize for Economics...)

In Defense of Globalization - Professor Jagdish Bhagwati

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 class time 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 9, “Keeping Score.” 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. After you finishing reading the joke on page 149 you tell yourself, “I can be funnier than that.” Here’s your chance. Write an anecdote, story, joke that makes a commentary about our current economy. Keep it clean, and no stealing someone else’s material…

2. After reading about the Gross Domestic Product, assess its usefulness as a measure of economic progress. Is there another measure you think we should use?

3. During the Great Depression, FDR once said that we have “nothing to fear but fear itself.” (page 157) Is that good economic advice for today? Explain why or why not using a specific example or examples.

4. We’ve spent time talking about both monetary and fiscal policy. (pp. 159-160) Assume that an economic recession is on the horizon. Which of these tools, or what combination, would you want government to use?

No real lesson today. Several of you will be in making up tests, and others are hanging with Mr. Shapiro watching the bridges being broken.

We'll chat about Chapter 9 from Naked Economics Monday. Let's make that blog entry (posted above) due next Wednesday. I'm thinking Chapter 11 should be read for Tuesday, and that will be the final required blog from the text. I'll make Chapter 12 a "make-up" or bonus blog entry...

Have a good weekend.

Thanks for your contributions to the conversation yesterday. We'll pick up with a look at the UN Millennium Project goals that I asked you to consider at the end of class yesterday.

Professor Jeffrey Sachs chaired the UN Millennium Project that issued its report in 2005. We'll take a look at the eight Millenium Development Goals that are to be acheived by 2015 at the latest. The largest group of world leaders in history endorsed this project at a 2000 UN session.

You can find a wealth of interesting statistical information at Millennium Development Goals Indicators. The Gapminder chart under the Data menu section is really neat...

Some of you might enjoy playing with the Millennium Development Goals Indicators Dashboard. (The key is in the upper left.)

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Development Economics: This will be more discussion oriented than "lecture" based. You know a lot about inequality and the problems of poverty and related issues. For us, I'd like the bigger questions to be these:

What CAN be done to foster economic development?
What SHOULD be done to foster economic development?

There are a few terms and concepts that will be useful in this discussion:

World Bank: The World Bank is owned by 184 countries. In 2002, almost $20 billion in loans were provided to clients in more than 100 countries. The World Bank's focus is on development assistance.

Work your way through this overview of the World Bank's functions at "10 Things You Never Knew about the World Bank."

Here are the "Quick Reference Tables" from the World Bank. You can find a lot of information here.

International Monetary Fund: According to its own web page, the IMF "works for global prosperity by promoting the balanced expansion of world trade and stability of exchange rates..." Its functions complement those of the World Bank.

Structural Adjustment Programs (SAP): The IMF and World Bank at times require nations to "adjust" their economies in order to assure debt repayment. Many critics believe this only deepens the poverty of the people. Nations may be required to encourage foreign trade, shift to a cash crop focus, or otherwise be directed to act in a particular way. These are also referred to as "economic austerity" plans.

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If time permits, we'll chat about Chapter 9 from Naked Economics. Let's make that blog entry due next Wednesday, and I will get it posted ASAP. I'm thinking Chapter 11 should be read for Tuesday, and that will be the final required blog from the text. I'll make Chapter 12 a "make-up" or bonus blog entry...

FRIDAY: In addition to Friday being a "test make-up" deadline for the five of you still needing to take the first test, it's also "bridge-breaking" time in first hour Physics. My plan was to give you a day to prepare for our globalization activities, so you are also welcome to attend Mr. Shapiro's class that block if you'd like.

I asked you to have Chapter 9, "Keeping Score," read for Thursday's class. You'll find a lot of this to be familiar from some of our earliest lessons.

Poverty around the World: We've talked some about poverty within the United States, but we'll turn our focus to the world today. We'll make use of the Global Issues website maintained by Anup Shah, a computer scientist who maintains this site in his spare time. Given that he extensively sites his sources, I think it is both academically appropriate to use and a great example of someone working to make a difference.

First, we'll do a brief activity on some Poverty Facts and Stats. (Please don't go to the link before we do the activity.)

Next, I want to give you a few minutes to browse the site for ideas and materials related to global poverty. I'd recommend starting at Poverty around the World and proceeding from there. We'll share some of what you find.

Questions to try to answer together:
What are the causes of poverty?
What are the causes of global inequalities in growth and wealth?
Do wealthier nations have a moral obligation to help those poorest nations?
Do individuals have any responsibility to work to benefit those less fortunate?

The other resource that we'll make use of today is Jeffrey Sachs' book, The End of Poverty: Economic Possibilities for Our Time. (Bono wrote the forward, so it must be good...) We'll use a couple charts and brief sections from this work.

* Overview of poverty around the world
* An individual family - income growth and income reduction
* Why are some countries poor?

Professor Sachs chaired the UN Millennium Project that issued its report in 2005. We'll take a look at the eight Millenium Development Goals that are to be acheived by 2015 at the latest. The largest group of world leaders in history endorsed this project at a 2000 UN session.

You can find a wealth of interesting statistical information at Millennium Development Goals Indicators. The Gapminder chart under the Data menu section is really neat...

Some of you might enjoy playing with the Millennium Development Goals Indicators Dashboard. (The key is in the upper left.)

Here's a 2005 interview with Jeffrey Sachs from Mother Jones magazine.

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I'm not sure how much, if any, of this stuff that we will get to today... Most of it probably happens on Thursday.

Development Economics: This will be more discussion oriented than "lecture" based. You know a lot about inequality and the problems of poverty and related issues. For us, I'd like the bigger questions to be these:

What CAN be done to foster economic development?
What SHOULD be done to foster economic development?

First, I'd like to brainstorm a list of causes of global inequality and poverty.

There are a few terms and concepts that will be useful in this discussion:

World Bank: The World Bank is owned by 184 countries. In 2002, almost $20 billion in loans were provided to clients in more than 100 countries. The World Bank's focus is on development assistance.

Work your way through this overview of the World Bank's functions at "10 Things You Never Knew about the World Bank."

Here are the "Quick Reference Tables" from the World Bank. You can find a lot of information here.

International Monetary Fund: According to its own web page, the IMF "works for global prosperity by promoting the balanced expansion of world trade and stability of exchange rates..." Its functions complement those of the World Bank.

Structural Adjustment Programs (SAP): The IMF and World Bank at times require nations to "adjust" their economies in order to assure debt repayment. Many critics believe this only deepens the poverty of the people. Nations may be required to encourage foreign trade, shift to a cash crop focus, or otherwise be directed to act in a particular way. These are also referred to as "economic austerity" plans.

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 class time on Thursday. 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 8, “The Power of Organized Interests.” 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. "When it comes to interest group politics, it pays to be small." (page 140) Imagine that your world is limited to the MPA community. Give an example that you think supports this claim made by Wheelan. (You should avoid mentioning names if it might be controversial or hurtful in any way.)

2. What SHOULD we do when it comes to ethanol?

3. How do we keep interest groups from using/abusing the political process to "generate regulation that either helps them or hobbles their competition?" (page 142) Should we even try to control this? Why or why not?

4. Is giving a president "fast-track authority" desirable? (page 146) Why or why not?

5. "Creative destruction" is a term coined by Joseph Schumpeter. (page 144) Using examples from today's world, comment on the desirability and/or drawbacks of such a process from your perspective.

There should be grades updated through everything except the "take-home" portion of the exams. Ironically, I didn't "take home" that folder over the weekend...

We'll talk a bit about Chapter 8 in Naked Economics if there is anything you are interested in sharing...

Please have Chapter 9, "Keeping Score," from Naked Economics read for Thursday's class. We'll have Blog Entry #8 due at that time as well. It's posted.

Last time it was trade. This time it's money. More specifically, we'll look at international currencies and the role they play in the world's economy. Here are some definitions that you will need to understand:

Exchange Rates: The value of currencies worldwide is provided by exchange rates, which tell you what each currency is worth in relation to other currencies. In simple terms, a currency is worth what people will pay for it. Exchange rates are constantly adjusted to reflect markets.

* Fixed exchange rates: After the 1930s, most countries abandoned the gold standard. Instead, each country's government "fixed" the value of their currency, deciding what it would be worth. (For example, the British decided to exchange their pound into US dollars at a rate of $2.40 per pound.)

* Floating exchange rates: After 1973, international agreements on fixed rates expired, and currencies began to have their value decided in the market. A currency's value will "float" up or down. (An estimated $1.5 trillion dollars in currencies are traded every day in the world's foreign exchange markets.)

Purchasing Power refers to what money can actually buy in each country- calculating its purchasing "power". Purchasing Power Parity (PPP) would be when a currency can buy the same basket of whatever in any country.

"Burgernomics" is based on the theory of purchasing-power parity, the notion that a dollar should buy the same amount in all countries. Thus in the long run, the exchange rate between two countries should move towards the rate that equalises the prices of an identical basket of goods and services in each country." (The Economist) In this case, the "basket" is simply a BigMac.

Playing with "Purchasing Power Parity (PPP): I think you'll like this stuff...

To do the following, you need a copy of "cross currency" rates. You can get one from the Benchmark Currency Rates page at Bloomberg.com. (Yes, that's the same Bloomberg as in the Mayor of New York City.)

Economists refer to purchasing power parity to describe why, over time, the dollar price of a good in one country should equal its dollar price in all other countries. The notion that a particular type of cordless telephone should sell for the same dollar price in the United States as it does in, say, Japan and Great Britain, makes sense if you think about supply and demand in world markets. Suppose that the telephone sells for $29.99 in the United States, 2500 yen in Japan, and 25 pounds in Great Britain.

Let's figure out in which country the dollar price of the cordless phone is lowest?

1. What is the exchange rate between the Japanese yen and the United States dollar?

2. What is the exchange rate between the British pound and the United States dollar?

3. Calculate the dollar price of the cordless phone in Great Britain.

4. Calculate the dollar price of the cordless phone in Japan.

5. In which country is the dollar price of the cordless phone the lowest?

6. In which country is the dollar price of the cordless phone the highest?

So, what does "purchasing power parity" suggest that an entrepreneur could do to earn profits?

Of course, purchasing power parity theory suggests that price adjustment will continue until the dollar price of cordless phones is the same in each country. This price equalization is an example of purchasing power parity. Note that it works best for close substitutes that can be traded among countries over long periods of time.

The "BigMac" Index: I did this exact same activity nineteen years ago in high school economics, but I didn't have a fancy laptop to make it easier... The Economist attempts to compare various currencies by using the "Big Mac" as the basis for consideration. The easiest way to make sense of this is to actually read their article and try the activity.

"Food for Thought": The Economist, May 27, 2004 - OK, this doesn't seem to be free anymore. I have a subscription to the online service, so I'll copy the article, or we'll look at it together with the projector.

This is, I believe, still their most recent full version of "Burgernomics". (Here is a snapshot of December 2004 data.) You need to read through the article to get a feel for how the concept works. After that, we can try a couple things. (I am bummed. They've removed data, so we can't do the computations ourselves. Ahh, progress.)

Here's another recent effort: The Starbucks index -Burgers or beans? The Economist, January 15, 2004

Coca-Cola map: If you liked the BigMac stuff, here is another one. Read the short article and examine the charts. What conclusions can you draw?

Foreign Exchange map: This is another service from The Economist. Once you get to the page, you have to "Launch the Map". Give it a minute or so to load itself. After that, follow the directions from the first page. Try several comparisons between countries and over time periods.

How about this? You read Chapter 8 for Tuesday, and I'll do a grade updating over the weekend... Oh yeah, get that Blog Entry #7 done as well. I said "Friday," but I won't count it late as long as it is in by Sunday noon.

Back to trade...

By the way, I made several references to the dreaded "Banana Wars" back at the turn of the century. Here's a BBC story from 1999 that kind of explains what that was all about. It's an interesting example of economics and politics mixing.

There are a couple more definitions we need to make sense of this information we will consider today.

Balance of trade: Balance of trade data describe the exports of goods and services produced in the U.S. and sold abroad and the imports of goods and services produced abroad and sold to individuals, businesses, and governments in the U.S. To obtain the balance, imports are subtracted from exports and the result is described as a surplus if exports are greater than imports and a deficit if imports are greater than exports.

More commonly, you will hear of the trade deficit. This is exports minus imports.

bilateral trade negotiations: These are trade negotiations between two coutries only

most-favored-nation clauses: These extend the benefits of lower trade barriers granted to one country to all nations what have most-favored-nation status. This term is being phased out in favor of the terms, normal trade relations or permanent normal trade relations.

The Status of US Trade: Charts and graphs...

You can download this Powerpoint of September 2003 trade report graphs and charts. (I realize that's a little old, but I haven't found a newer set, and they make the points I want to highlight...)

Here's more current information from the US Government on our trade balance and situation.

Specific issues in US trade policy: We'll access resources from the "Public Citizen" web page. They call themselves a national, non-profit public interest organization. Ralph Nader helped found this organization 30 years ago, so there is a definite liberal perspective here.

We'll have you pick one of these issues. I want you to figure out the basics and report back to us. In addition, please consider what you think the "conservative" response might be...

World Trade Organization (WTO)
North American Free Trade Agreement (NAFTA)
Free Trade Area of the Americas (FTAA)
Central American Free Trade Agreement (CAFTA)
Offshoring

We'll do the rest of my "introduction to trade" stuff today... Sorry for the absence.

NAKED ECONOMICS: Let's share anything from Chapter 7 that you find worth discussing. (That Blog Entry #7 is due Friday, and I'll ask you to have Chapter 8 read for next Tuesday.)

I've got an article from the Wednesday StarTribune to use to get us started today. Pretty timely.

Let's revisit some of what you did yesterday...

Thing #2 - An introductory discussion of trade
Very often, discussions of trade center on "winners" and "losers". Let's consider the case of NAFTA, the North American Free Trade Agreement. NAFTA went into effect on January 1, 1994. Its goal was to limit trade barriers among Canada, the United States, and Mexico. (We'll forget about Canada, since we have long had very free trade with them.)

Who do you believe have been/ are/ will be the "winners" and "losers" under NAFTA?

Key concepts in trade

absolute advantage: When two countries can each produce a different good (or service) more efficiently than the other country, each of the countries has an absolute advantage in the good or service they produce more efficiently.

comparative advantage: When Country A can produce two different products more efficiently, but has a greater advantage in one product than the other, they have a comparative advantage in the product with the greater relative efficiency. Country B has a comparative advantage in the product in which the disadvantage is less large.

Here's that example of a simple economy. Any questions from this Comparative Advantage handout?

Now on to some new stuff...

I have a short (2 page) reading that I want us to do. It may be the single most effectively worded defense of trade that I have ever read. Let me hand it out... This is from The Armchair Economist. Let's read it and talk about it.

Next, let's think about the limits that are put on international trade. These barriers can take a number of forms.

* tariffs - taxes on imports (either for generating revenue or sheltering firms from competition)

* quotas - restrictions on the quantity of a good that may be imported or exported

* non-tariff barriers - regulations on labeling, packaging, and testing; customs restrictions

* embargo - This, of course, is a cutting off of trade with another country.

A couple questions with which to close:

What are the arguments in favor of restricting trade?
What are the arguments against restricting trade?
In your opinion, when are restrictions on trade justified?

At this time, you are supposed to have read Chapter 7, “Financial Markets.” 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.) To receive full credit, your response should be posted before class time on Friday.

1. Wheelan explains that there are four functions for all “financial instruments”: raising capital; storing, protecting, and making profitable use of excess capital; insuring against risk, and speculation. Project yourself two decades into the future, and assume that you are in a good, but not great, financial situation, maybe with a family. Prioritize these functions in terms of how you would anticipate using “financial instruments” at that point in your life. Explain why you ordered them that way.

2. Are you more “risk adverse” or “risk tolerant” when it comes to financial issues? React to one or more of the insurance anecdotes (or another with which you are familiar) in this chapter.

3. Later in the chapter, Wheelan shares some “lessons” about the markets. Comment on anything you “learned” in the anecdote about the “brownstone” or anything else.

4. On pages 130 and 131, Wheelan talks of a monkey picking stocks. (OK, a fictional monkey – maybe Curious George?) What do you make of this story? Does it change your level of “confidence” in financial markets?

5. In the section entitled “Diversify” (page 134), Wheelan urges his students to flip coins. Do you think this is a valuable activity here? Can you think of another that you would recommend for students learning about financial markets?

Happy Valentine's Day!!!

It's midnight Tuesday/Wednesday, and it's become obvious to the Vergin family that baby Molly isn't going to Kinderberry Hill (shout out to the KBH grads in the class...) Wednesday morning. Being rational economic actors, my wife and I have determined that the "opportunity cost" of her missing work to stay home on this particular day was just too high given some presentations and meetings she has scheduled. I figure I can give you a couple things that you can do without me there, so I'm the one staying home with the kid...

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You were asked to have chapter 7 in Naked Economics read for today. I've posted the blog entry, and I'll ask that you have that done by class time on Friday. Read chapter 8 for Tuesday, please.

We'll ask you to do three things today... I'm working under the assumption that you'll sort yourselves into smaller groups of 4-5 to get this stuff done. I'm not sure whether you'll have a sub or there was a note on the door telling you to read the blog, but I figure you are all mature enough to take care of what needs to be done...

Thing #1 - Talking about the different market structures
This is the last part of the material we introduced yesterday. Please chat about the questions listed below for a minimum of 10 minutes in your smaller groups. We'll revisit them as a class Thursday. Have someone jot down some notes.

Why would a firm enter a market based on perfect competition? What are the system's advantages for the consumer?

How much monopoly is too much? (In what ways are monopolies beneficial?)

Should the government work harder to regulate potential monoplies?

If you were trying to gain a monopoly, how would you work to limit competition?

Are oligopolies necessarily bad for an economy? Why or why not?

How is product differentiation achieved? What methods do you believe are most effective?

Which market structure do you believe is best for consumers?

Thing #2 - An introductory discussion of trade
Very often, discussions of trade center on "winners" and "losers". Let's consider the case of NAFTA, the North American Free Trade Agreement. NAFTA went into effect on January 1, 1994. Its goal was to limit trade barriers among Canada, the United States, and Mexico. (We'll forget about Canada, since we have long had very free trade with them.)

Who do you believe have been/ are/ will be the "winners" and "losers" under NAFTA?

Brainstorm two lists, and have them ready to share on Thursday. (I'm thinking of "classes" of people here - things like "American unions" or "Mexican entrepreneurs" or "consumers" or things like that...)

Thing #3 - Introducing two key concepts in trade
We need to learn a bit of vocabulary that goes along with international trade. There are two fundamental terms that often cause confusion.

absolute advantage: When two countries can each produce a different good (or service) more efficiently than the other country, each of the countries has an absolute advantage in the good or service they produce more efficiently.

comparative advantage: When Country A can produce two different products more efficiently, but has a greater advantage in one product than the other, they have a comparative advantage in the product with the greater relative efficiency. Country B has a comparative advantage in the product in which the disadvantage is less large.

That seems like a mouthful, but let's try to make sense of it. Clearly, it is in both counties' best interest to trade in a situation of absolute advantage. What if we are talking comparative advantage?

Let's work through an example of a simple economy. Download this Comparative Advantage handout, and work through the scenario with a partner.

Thing #4 and beyond... Get caught up with your reading. Do blog entry #7. Make yourself useful...

READING: Please have Chapter 7 in Naked Economics read for class on Wednesday.

INTERESTING SITES: "The top paying jobs in America" - careerbuilder.com

"They got older too..." might mean more to your parents, but some of the "baby boomer" celebrities chime in with their money advice.

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I asked you to think about... a business that you believe is either a "success" story or a "failure". Tell us why you think that business is either succeeding or failing...

Competition and Business: Let's look at the different market structures that exist for the goods. Most economists hold that there are four basic types of market competition: perfect competition, monopoly, monopolistic competition, and oligopoly. (The last three are summed up as forms of "imperfect competition".)

These characteristics help determine the market structure for a given good:

* number of firms in the industry
* the presence (or absence) of product differentiation
* ability (or lack of ability) of any or all firms to influence the market price

Perfect competition: This is a theoretical market structure, but it is very closely approximated in an industry like agriculture. Here are the characteristics of perfect (or "pure" competition):

* There are numerous sellers in the market, all selling identical products. This means their are no quality differences, no brand names, no need for advertising, etc.

* There is free entry into and exit from the market. Anyone who desires to produce and sell goods in a given market can do so.

* No individual seller or buyer can influence market price. It is instead determined by market supply and demand. Firms in perfect competition are "price takers".

* All sellers and buyers are informed about markets and prices. Cost advantages will not remain secret for long...

In perfect competition, economic profits tend to be low because of the ease with which firms can enter the industry. Short term profits will attract more firms.

Monopoly: This is the market structure in which only one producer or seller exists for a product that has no close substitutes. The only true monopolies that exist in our country today are probably some government-regulated public utilities.

* The seller holds a large degree of control over price. The monopolist is a "price maker".

* The key to obtaining and maintaining a monopoly lies in erecting barriers to the entry of other firms into the industry.

* Sources of monopoly:
- Economies of scale
- There are some "natural monopolies" like bus companies and public utilities.
- Control of raw materials can lead to a monopoly. (For example, ALCOA controlled almost all the world's bauxite.)
- Patents- These give the exclusive rights to use, keep, or sell an invention for a period of years.
- Competitive tactics- These would include pirating, pressuring, and predatory pricing.

Anti-trust legislation: As you probably learned in history, the federal government has passed a series of laws designed to maintain competition and prevent restraint of trade.

* Sherman Antitrust Act of 1890 - outlawed restraint of trade and attempts to monopolize

* Clayton Act of 1914 - outlawed certain business activities including price discrimination, tying contracts, exclusive dealings, interlocking directorates

* Federal Trade Commission Act of 1914 - created an organization to police unfair business practices

Oligopoly: This is a market structure in which relatively few firms produce indentical or similar products.

* The actions of any one firm in terms of price and output will be noticeable by others.

* There is interdependence among firms in setting their pricing policies.

* Firms may be reluctant to engage in price competition because of the possible reaction of competitors. Product differentiation is more often used. Firms may also rely on collusion or practice "price leadership".

Cartels are organizations of independent firms that agree to operate as a shared monopoly by limiting production and charging the monopoly price.

Monopolistic Competition: This is a market structure in which relatively many firms supply similar but differentiated products, with each firm having a limited degree of control over price.

* Product differentiation is the major characteristic. This is the practice of establishing real or imagined characteristics that identify a firm's produst as unique.

* Profits tend to be minimized as a lot of money is spent on packaging, advertising, etc. It is also relatively easy for firms to enter the market.

Questions to Discuss:

Why would a firm enter a market based on perfect competition? What are the system's advantages for the consumer?

How much monopoly is too much? (In what ways are monopolies beneficial?)

Should the government work harder to regulate potential monoplies?

If you were trying to gain a monopoly, how would you work to limit competition?

Are oligopolies necessarily bad for an economy? Why or why not?

How is product differentiation achieved? What methods do you believe are most effective?

Which market structure do you believe is best for consumers?

We'll look at the "market" a bit today (not "stock" or "grocery," but rather the "place" where supply and demand do their thing...)

I do want to take some time and talk about chapter 6 in Naked Economics first today. There's good stuff in there. We'll shoot for having chapter 7 read for class Wednesday.

When Markets Fail: Heilbronner and Thurow identify a number of reasons why markets don't always operate according to the prinicples of Adam Smith and his "Invisible Hand." Since we're not reading their book, "Economics Explained," this year in class, we should talk about their arguments on this topic a bit.

Here are some examples of "failures" in the market:

* "Marketers" may lack information. Their decisions may reflect luck, accident, or ignorance. (Consider the role of advertising here as well.)

* Pure public goods", such as defense, national security, or lighthouses, cannot be effectively allocated. (The "free rider" problem is a version of this...)

* Externalities, such as pollution, are the effects that goods and services have on third parties.

* The public wants some goods and services, such as health care, to be distributed more equally than the market would.

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Types of Business: We'll start by looking at the various classifications of businesses that you find in the economy. This matrix will help you fill in the necessary information.

What determines a firm's profits? To figure this out, we need to look at both costs and revenues.

costs: There are two types of costs - fixed and variable

fixed costs: These are the production costs that do not change with changes in the quantity of output. The largest of the fixed costs are usually those associated with depreciation. (Depreciation is the costs of buildings, machinery, tools, and equipment that are allocated to output over a given production period.)

variable costs: These are the costs that change with changes in the quantity of output. They would include the labor, raw materials, and other costs that change with the quantity of goods produced.

If you like to do math, you can get two more terms. Total costs are simply the sum of fixed costs and variable costs for a particular level of output. Average cost would be total cost divided by the number of units produced.

Marginal cost is the addition to total cost from increasing output by one unit.

SEE IT HERE: This is a useful webpage illustrating these ideas: Costs: Fixed, Variable, and Sunk. Let's look here for a minute.

revenue: This is simply the money that a firm receives from the sale of its products and services.

total revenues: This is the price of the product times the number of units sold.

Marginal revenue is the addition to total revenue from increasing output by one unit.

Profits are determined by subtracting total costs from total revenue.

Want to know if your business is doing well? It would help to know the normal rate of return. That's the rate of earnings on investment that is normal for a given degree of risk. Earnings in excess of that would be termed economic profits.

Next time, we'll look at competition (or lack of) and how it affects business decisions.

For now, think about these questions:

When should a business produce? When should it decide to increase production? Decrease production?

How much profit does a business need to remain viable? How certain does profit need to be for a business to be viable?

DO THIS: Think of a business that you believe is either a "success" story or a "failure". Be prepared next time to discuss the business and what you believe makes it work or not work.

REMINDER: This Blog Entry #6 is due before the start of class time on Tuesday.

By Monday, you are supposed to have read Chapter 6, “Productivity and Human Capital.” 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. (pp. 98-99) "Meanwhile, one in five American children - and a staggering 40 percent of black children - live in poverty." Should our federal government be doing more to change these numbers? If so, what? If not, why not?

2. "Human capital is an economic passport." (p. 100) Provide an additional example/examples of where this is/has been the case. It can be someone specific or a more general case that illustrates what you believe Wheelan means by this.

3. Given the recent controversy over outsourcing and the on-going process of globalization, what do you make of the "lump of labor fallacy" that Wheelan introduces? (p. 103) Do we need to rethink this? Why or why not?

4. "There is a striking correlation between a country's level of human capital and its economic well-being." (p. 106) Assuming this is true, give at least three specific nations around the world where you think this will prove very postive or very harmful in the near future. Give a reason why for each nation.

5. Is rising inequality a price worth paying if it is accompanied by rising productivity? You can answer as an economist, a moralist, a patriot, or whatever... (This is most directly addressed beginning on page 111.)

6. "Take" Cornell economist Robert Frank's survey on page 114. What would you select? What do you think that says about you? Ask three people not in the class and report on which they picked.

READING: You should have Chapter 6 in Naked Economics read for Monday. Blog entry #6 won't be due until Tuesday, but it is already posted.

ON-LINE SIMULATION ON DEMAND AND SUPPLY: The University of Omaha has done a neat on-line "tutorial" on using supply and demand. We'll spend some time trying to work thorugh that. I'd suggest doing it with a partner. Our goal will be to get through the 6 questions on the "quiz" at the end together. I know some of you took the quiz already, but we'll make sure we are all on the same page.

Exploring Supply and Demand: Here's the quiz. Work through the problems and see how you do. Notice that the curves will actually move to help you better understand.

Supply and Demand "Prompts" and "Going bananas" - I've got another couple of review activities here for us to try together. We'll take "volunteers" at the board...

Review Problems: It's your turn. You and a partner have five minutes to come up with one or more situations for your classmates to work through. The more terms and concepts you can incorporate, the better. Remember to be informative, entertaining, and appropriate...

REMINDERS: The "take-home" portion of the Macroeconomics unit is due Monday. Exams that don't come in that day will lose 3 points (10%) per class period that they are late. (Think of it as the opportunity cost...)

Your Blog entry #5 is due before class tomorrow... Please read chapter 6, "Productivity and Human Capital", for Monday's class.

Getting started on a Thursday morning... We'll talk some about Chapter 5, and we can hear a couple more "Everyday Economics" stories if you'd like.

More on Demand and Supply: Link back to yesterday's definitions if you need a refresher. Today, we'll add a few more concepts, and then give you time to "practice" what you've learned with the on-line simulation below.

elasticity: responsiveness of demand or supply for a good given changes in price (Formulas are reprinted from biz.ed, a British website)

* price elasticity of demand: measures the responsiveness of demand to a given change in price and is found using the equation: (PED) = Percentage change in quantity demanded/Percentage change in price

Let's figure out how to tell if a good is elastic or inelastic...

A good or service is "unit elastic" if a one percent change in the price leads to a one percent change in the quantity demanded/ supplied.

* income elasticity of demand (YED): measures the responsiveness of demand to a given change in income

YED = Percentage change in quantity demanded/Percentage change in income

If YED is negative, then the good is "inferior." People use an increase in income to buy less of this good and more of a superior substitute.

If YED is positive then the good is "normal". Consumers use an increase in income to buy more of the good.

* cross elasticity of demand (XED): measures the responsiveness of demand for one good (z) to a given change in the price of a second good (w)

XED = Percentage change in quantity demanded of good z/Percentage change in the price of good w

If XED is positive then the two goods are substitutes.

If XED is negative then the two goods are complements.

Economic theory sideline - Giffen goods: There is some debate among economists as to whether or not these truly exist. A Giffen good is a commodity for which demand increases at higher prices and falls at lower prices. (They exclude what some call the "snob" effect of an item being trendy, etc.) Can you think of any possibilities?

OBVIOUSLY, YOU CAN RUN ALL THE SAME CALCULATIONS FOR THE SUPPLY PERSPECTIVE BY SIMPLY SUBSTITUTING TERMS. For example...

price elasticity of supply: measures the responsiveness of supply to a given change in price.

PES = Percentage change in quantity supplied/Percentage change in price

You get the idea...

ON-LINE SIMULATION ON DEMAND AND SUPPLY: The University of Omaha has done a neat on-line "tutorial" on using supply and demand. We'll spend some time trying to work thorugh that. I'd suggest doing it with a partner. Our goal will be to get through the 6 questions on the "quiz" at the end. Here are some things to look at on each part of the tutorial. The tutorial has six "pages" to work through and a self-quiz at the end.

Explorations in Economic Demand, Part I - The words in bold can be considered to be the "determinants" referred to in the discussion questions at the bottom. Consider how changes in each of those would affect his demand for blue jeans.

Explorations in Economic Demand, Part II - Be sure you understand the role of these terms and concepts: demand curve, income effect, substitution effect, diminishing marginal utility

Explorations in Economic Demand, Part III - Watch for the difference between shifts in the curves and movement along the curves.

Explorations in Economic Supply, Part I - Do the same as we did with the demand page, but you are on the "other side" this time.

Explorations in Economic Supply, Part II - Be sure you understand the role of these terms and concepts: supply curve, short run, long run, fixed costs, variable costs, law of diminishing marginal returns

Explorations in Economic Supply, Part III - Watch for the difference between shifts in the curves and movement along the curves.

Exploring Supply and Demand: Here's the quiz. Work through the problems and see how you do. Notice that the curves will actually move to help you better understand.

REMINDER: In order to receive full credit, these comments need to be posted by class time on Friday. 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 5, “Economics of Information.” 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. Can you propose a way to "save" the Hope Scholarship program proposed by the Clinton Adminstration from the problem of "adverse selection?" (pp. 80-81)

2. "More important, they [professional women taking maternity leave and/or quitting] impose a cost on other women." (page 83) I'm simply asking you to react to this analysis. You can do this at an economic level, an equality level, a moral level, or whatever combination of levels that work for you.

3. What would you do to clean up the problems of information in the used-car market? (pp. 84-85) Does technology like "Car Soup" and the like help or hurt with this effort?

4. On page 90, a quote from The Economist magazine explains the "looming quandary" genetic testing may pose for the health care industry. What should we do?

5. Most of you are headed off to college next year. Take a crack at the "chicken/egg" question about the value of a "Harvard-like" education that is introduced on pp. 93-94. (You can also react to the results of the Krueger study.)

6. Jump into the racial profiling debate started on pages 95 and 96. "Does race or ethnicity... convey meaningful information? If so, what do we do about it?"

MICRO-ECONOMICS: Today, we'll (re)introduce the two basic concepts of microeconomics: supply and demand.

READING: You were asked to have Chapter 5, "The Economics of Information," read for today. We can chat about that for a bit. You'll have your Blog Entry #5 due on Friday.

REMINDER: I moved the due date for the "take-home" portion of the exam back until Monday's start of class. I stupidly forgot to take home the blue folder with your tests in it, so we'll get you those back tomorrow. Sorry.

SITE OF THE DAY: "Everyday Economics"- This is the on-line column that Steven Landsburg writes for Slate magazine. Please read one column of your choice NOW (OK, when I tell you to...), and we'll share those in 10 minutes.

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Demand and Supply: These are the two basic concepts of microeconomics. We'll take a look at them today. Get out a piece of paper. You'll be doing some drawing... (Plus, I have a useful handout.) By the way, certeris paribus is Latin for something like "other things being equal".

DEMAND: the relationship between the quantities of a good or service that consumers desire to purchase at any particular time and the various prices that can exist for the good or service

quantity demanded: the amount of a good or service that consumers would purchase at a particular price

demand curve: a graphic representation of the relationship between price and quantity demanded

law of demand: a rise in prices causes a fall in the quantity demanded, whereas a decline in price causes an increase in the quantity demanded. This affects people in two ways...

* income effect: the effect of a change in the price on the amount purchased that results from a change in purchasing power of a consumer's income due to the price change
* substitution effect: the effect of a change in the price on the amount purchased that results from the consumer substituting a relatively less expensive alternative

What determines demand?
* consumer tastes and preferences
* income
* substitutes and complements
* population
* perception of future prices

SUPPLY: the relationship between the quantities of a good or service that sellers wish to market at any particular time and the various prices that can exist for the good or service

supply curve: a graphic representation of the relationship between price and quantity supplied

law of supply: the quantity supplied of a good or service varies directly with its price; the lower the price, the smaller the quantity suppled, and the higher the price the larger the quantity supplied

What determines supply?
* capacity and technology
* costs of production
* (short run)- a period of time so short that the amount of some inputs cannot be varied
* (long run)- a period of time long enough that the amount of all inputs can be varied
* prices of substitutes and complements
* perception of future prices

equilibrium price: the price at which the market "clears"; the price at which the quantity of a good or service offered by suppliers is exactly equal to the quantity that is demanded by purchasers in a particular period of time

We'll take some time to review, and then we'll take the macroeconomics exam. The in-class portion has 30 multiple choice questions and 10 points of "problems."

READING: Please try to get through Chapter 5, "The Economics of Information," in Naked Economics for class tomorrow. I'll get a blog entry posted for that one, and it will be due on Friday.

TAKE-HOME PORTION OF THE MACRO-ECONOMICS EXAM

The take-home portion is worth 30 points, and it will be due by 3:10 on Friday, February 9th.

Short essay/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.

REMINDERS: We'll take our first test tomorrow. 25 multiple choice (or so...) and a couple of simple problems in class. You'll also get a copy of the "take-home" portion of the test that will be do by Friday. (You'll choose several "short essay" questions from a list.)

READING: Please try to have Chapter 5 from Naked Economics, "The Economics of Information," read for Wednesday's class. We'll have the blog entry due on Friday.

Federal Reserve Board simulation: We'll conduct the final portion of our Federal Open Market Committee (FOMC) meeting.

Here is the official "Press Release" issued on January 31st. The federal funds rate (the one you will consider changing) is currently targeted at 5.25%. (When I did this last year, the rate was 4.5%. Two years ago, it was at 2.75%.) Those of you wanting more historical data should look at changes in the federal funds rate over time.

Agenda for the Simulation:

* Chairman Bernanke calls the meeting to order.

* Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your three 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.

1st District - Based in Boston
2nd District - Based in New York
3rd District - Based in Philadelphia
4th District - Based in Cleveland
5th District - Based in Richmond
6th District - Based in Atlanta
7th District - Based in Chicago
8th District - Based in St. Louis
9th District - Based in Minneapolis
10th District - Based in Kansas City
11th District - Based in Dallas
12th District - Based in San Francisco

THIS IS ALL THE FURTHER WE WILL GOT ON FRIDAY. WE'LL START BACK UP HERE...

* Recap of economic conditions around the country

* Identification of major trends and themes

* 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...)

HERE ARE SOME RESOURCES TO HELP IN YOUR PREPARATION...

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 17th data. 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.

Federal Reserve Board simulation: We'll conduct the first portion of our Federal Open Market Committee (FOMC) 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. Today, we'll hear from the 12 member banks so we have full information for our deliberations on Monday.

Here is the official "Press Release" issued on January 31st. The federal funds rate (the one you will consider changing) is currently targeted at 5.25%. (When I did this last year, the rate was 4.5%. Two years ago, it was at 2.75%.) Those of you wanting more historical data should look at changes in the federal funds rate over time.

Agenda for the Simulation:

* Chairman Bernanke calls the meeting to order.

* Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your three 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.

1st District - Based in Boston
2nd District - Based in New York
3rd District - Based in Philadelphia
4th District - Based in Cleveland
5th District - Based in Richmond
6th District - Based in Atlanta
7th District - Based in Chicago
8th District - Based in St. Louis
9th District - Based in Minneapolis
10th District - Based in Kansas City
11th District - Based in Dallas
12th District - Based in San Francisco

THIS IS ALL THE FURTHER WE WILL GO TODAY.

Our "economists" will now leave their districts to become Chairman Bernanke and/or members of the Board of Governors for Monday.

* 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...)

HERE ARE SOME RESOURCES TO HELP IN YOUR PREPARATION...

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 17th data. 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.

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.

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 "deliberate" on Monday after hearing the statements from the member banks on Friday.

Here is the official "Press Release" issued on January 31st. The federal funds rate (the one you will consider changing) is currently targeted at 5.25%. (When I did this last year, the rate was 4.5%. Two years ago, it was at 2.75%.) Those of you wanting more historical data should look at changes in the federal funds rate over time.

Agenda for the Simulation:

* Chairman Bernanke calls the meeting to order.

* Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your three 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.

THIS IS ALL THE FURTHER WE WILL GO ON FRIDAY.

* 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...)

HERE ARE SOME RESOURCES TO HELP IN YOUR PREPARATION...

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. 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 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 17th data. 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.