Journaling of Chapter 28:Unemployment

Chapter 28, titled ‘Unemployment’, introduces us to the labor market. We see how economists measure the performance of the labor market using unemployment statistics. It also addresses a number of sources of unemployment and some policies that the government might use to lower certain types of unemployment. The Bureau of Labor Statistics (BLS) uses the Current Population Survey to categorize all surveyed adults (age 16 and older) as employed, unemployed, or not in the labor force. BLS then computes labor force = number of employed + number of unemployed, unemployment rate = (number of unemployed/labor force) × 100, and labor-force participation rate = (labor force/adult pop.) × 100. Evidence suggests that most spells are short term, but most unemployment at any given time is long term. Job search is the process of matching workers and jobs. Minimum-wage laws are one source of structural unemployment. Recall that minimum-wage laws force the wage to remain above the equilibrium wage. If a wage is held above the equilibrium level, the result is unemployment. A union is a worker association that engages in collective bargaining with employers over wages, benefits, and working conditions. A union is a cartel because it is a group of sellers organized to exert market power. The theory of efficiency wages suggests that firms may intentionally hold wages above the competitive equilibrium because it is efficient for them to do so.

Overall, I would give this chapter a difficulty rating of 2 out of 3. The concepts aren’t particularly hard but there’s a lot of subject matter to cover. So as of right now, it’s a little difficult to fully comprehend everything. 

Journaling of Chapter 27: The Basic Tools of Finance

Chapter 27 covers the basic tools of finance. It teaches us about some of the tools people and firms use when choosing capital projects in which to invest. Specifically focusing on how people compare different sums of money at different points in time, how they manage risk, and how these concepts combine to help determine the value of a financial asset. The present value of any future value is the amount today that would be needed, at current interest rates, to produce that future sum. The future value is the amount of money in the future that an amount of money today will yield, given prevailing interest rates. Most people are risk averse, which means that they dislike bad things more than they like comparable good things. People can reduce risk by buying insurance, diversifying their risk, and accepting a lower return on their assets. According to the efficient markets hypothesis, asset prices reflect all publicly available information about the value of an asset. According to this theory, the stock market is informationally efficient, which means that prices in the stock market reflect all available information in a rational way.

Overall, I would give this chapter a difficulty rating of 1 out of 3 because it just builds off of what Chapter 26 said. Many things were simply reiterated or applied during this new chapter. Something I would like to go over is the controversy surrounding asset valuation and why stock prices may or may not be a rational estimate of a company’s true value. 

Article Review 6: Newsflash from the December ‘Jobs’ Report-The US Economy Is Dead in the Water

This week’s article is by David Stockman, titled “Newsflash from the December ‘Jobs’ Report-The US Economy Is Dead in the Water.” It explains how the Bureau of Labor Statistics is purposely giving out skewed information in order to make the economy seem like it’s in a better state than it really is. One way they are doing this is by overstating the number of jobs there are in the U.S. Their reason for the numbers they’ve made is seasonal adjustment. Basically the Bureau of Labor Statistics are making up their own numbers instead of using the actual statistics. Stockman predicts that all of these created lies will ultimately lead to a crash in the stock market.

From the very beginning of the article, I already recognize two terms that we’ve learned during class. We learned about the BLS and seasonal adjustments. BLS stands for the Bureau of Labor Statistics who calculates consumer price index. Seasonal adjustments are a statistical method to remove seasonal components in order to better analyze a trend. Thus, this article addressed things from the current and last chapter that we have learned. It included the tasks of the BLS as well as the stock market.

Journaling of Chapter 26: Saving, Investment, and the Financial System

Chapter 26, titled ‘Saving, Investment, and the Financial System’, focuses on the production of output in the long run. It specifically addresses the market for saving and investment in capital. Chapter 26 also shows how saving and investment are coordinated by the loanable-funds market. It teaches how to connect the lending of savers to the borrowing of investors. Financial institutions in the U.S economy include the bond market and the stock market. Financial intermediaries are financial institutions through which savers (lenders) can indirectly loan funds to borrowers. The two most important financial intermediaries are banks and mutual funds. The chapter also uses different national income identities to show the relationship between saving and investment. Long story short, saving is equal to investment. The last thing the chapter talks about is the market for loanable funds. The supply of loanable funds comes from national saving. The demand for loanable funds comes from households and firms.

Overall, I would give this chapter a difficulty rating of 1 out of 3. The ideas presented in this section were pretty easy to grasp because saving and investing is something seen in everyday life and is included in daily conversation so it seems more relatable than other concepts we have previously learned. Something I would like to further discuss in class is why consumption loans are not included in the supply of loanable funds. I would also like to delve more into the topic of financial intermediaries. For instance, what’s another example of a financial intermediary other than a bank?  

Journaling of Chapter 24: Measuring the Cost of Living

Chapter 24, Measuring the Cost of Living, details how economists measure the overall price level in the macroeconomy. It shows how to generate a price index and how to use a price index to compare dollar figures from different times. It also talks about how to adjust interest rates for inflation. There are also cons to using the consumer price index as a way to measure the cost of living. Both consumer price index and gross domestic product deflator is a measure of the overall price level. Consumer price index is a measure of the overall cost of the goods and services bought by a typical consumer. The cost of living is the amount by which incomes must rise in order to maintain a constant standard of living. In order to compare income from different years you must correct income for inflation. To do this, you use the formula: Value in year X dollars = Value in year Y dollars × (CPI in year X/CPI in year Y). It also discussed the differences between real interest rate, the nominal interest rate, and the inflation rate.

I would give this chapter a difficulty rating of 2 out of 3. This chapter was strongly related to the things mentioned in chapter 23 as both deal with how economists measure output and prices in the macroeconomy. However, I am still confused about indexation so it would be helpful if we went over that during class. 

Journaling of Chapter 23: Measuring a Nation's Income

Chapter 23, Measuring a Nation’s Income, marks the start of macroeconomics, the study of the entire economy as a whole. This section mostly deals with GDP, gross domestic product, a measure of the total income or total output into the economy. Thus, income equals expenditure. GDP is officially defined as the market value of all final goods and services produced within a country in a given period of time. The different components of GDP include consumption, investment, government purchases on goods and services by all levels of the government, and net exports. Readers also learn the difference between real GDP and nominal GDP. Nominal GDP is the value of output measured in the prices that existed during the year in which the output was produced. Real GDP is the value of output measured in the prices that were in a base year. GDP deflator is a measure of the price level. GDP deflator = (nominal GDP/real GDP) × 100. Real GDP is also a strong indicator of economic well-being of a society.

Overall, I would give this chapter a difficulty rating of 1 out of 3. Though the concepts are new, this chapter is relatively easy because they’re just trying to ease the readers into macroeconomics at this point. Since microeconomics and macroeconomics are closely linked, I believe that this transition between subjects will be smooth. However, I am excited to move on from microeconomics and start seeing the bigger picture. I’m sure that my knowledge on supply and demand will help me in future chapters as well.