Chapter 10 - Unemployment

Our textbook defines unemployment as those who were not employed, were available for work, and had tired to find employment during the previous four weeks. It also includes those waiting to be recalled to a job from which they had been laid off. Because the labor force will always have workers that are between jobs, laid-off from work, or unable to find adequate work, such as frictional unemployment, there will always be some unemployment in a healthy economy.

One such policy is Unemployment Insurance.  This policy allows for workers who have lost their jobs to receive a portion of what they had been earning. This increases the rate of unemployment for a short time because people who receive this benefit have less of an incentive to look for a new job.

I believe it is too early for me to fully understand the economics of this pandemic period and whether the governments response was appropriate. I believe the logic to the COVID-19 payments, was to keep money in the pockets of people who needed money to spend and limit the public's exposure to the virus. This amount of money was high enough for people to accept it and therefore remove themselves from the workforce. It this aspect the program may have worked. 

Many of the laid off workers who experienced long term job disturbance were disproportionately on lower wage workers. The $600/week has a substantial increase in income to this group of workers and amounted to a pay raise which decreased their desire to reenter the work force. This could have delayed the job recovery however as I earlier alluded to, the economics of this global pandemic will be studied for years to come as more data in analyzed and more studies are completed.

PreviousNext

 

Read More

Chapter 9 - The Basic Tools of Finance

As a non-traditional student in his forties, I have experience in saving, investing. I have purchased a home and later refinanced the loan and use investment accounts to save for retirement. Most of this saving has been in the last 15 years and nearly none during my first round of college right out of high school. 

I have been working in the construction industry for most of my career, designing and project managing working from an Architects office. I have been a part of many successful projects with the guidance of my boss and I hope that with the degree I am pursuing I will continue to design and coordinate successful construction projects on my own or with a larger company. I have seen the construction industry in Colorado continue to grow through the Great Recession and now a pandemic and the industry continues to thrive. Construction was listed as essential service during the recent economic shutdown period. This gives me great confidence in the industry and that the cost of my education will have a positive ROI in the near-term.

I am pursuing this degree in the most affordable manner taking classes online and off campus. I am taking classes here at CMC to complete credits for my degree at Colorado State University - Pueblo. This is saving money on the cost of classes. I have incurred some dept from my education and will graduate with roughly $25,000 in debt. I had been self paying for some classes but as the interest on student loans is zero, I have borrowed a little more to help finish.

I have seen my income increase over time and I want this trend to continue through my high earning years. This degree will give me the skills and experience to tackle projects of my own and will open up more possibility in the construction field which is booming in many markets.

Read More

Chapter 8 Saving, investment, and the financial system

This chapter is an important link in how we understand government policies today in the midst of the Covid-19 crisis.  The Federal government is running record deficits in an attempt to avert or minimize a recession/depression.  Look back at this chapter and discuss how this should affect the market for loanable funds.  Is that what we have seen happen (where is the equilibrium interest rate now - up or down?)  You should be left with a question - why have interest rates not increased?  

How does the loanable funds market help define/choose which investment projects are funded each year?

The interest rate is the price of a loan and this rate will determine the demand for the money. The quantity of loanable funds demanded falls as interest rates rise as because a high interest rate makes borrowing more expensive. Conversely, a high interest rate makes saving more attractive, and the quantity of loanable funds rises as the interest rates rise. 

In the US today, rates are historically low, 30 year fixed rate between 2-3% currently, this discourages savings as the rates are low. With savings low, the amount of money available should decrease, which would limit the availability and eventually, increase rates to equalize. This is not happening and the government is either selling bonds to foreign countries such as China or printing money and taking loans with increases our debt.

One reason the rates are not increasing is a move by regulators to artificially keep interest rates low to keep America spending. Saving is not lucrative, but buying is.

The loanable funds market can determine investment projects and policies by having the loanable funds market be funded by households and firms who wish to borrow and to make investments in particular projects.

Read More

Chapter 7 Production & Growth

This chapter focuses on the importance of productivity as a part of growth in GDP, the somewhat obvious idea that you can't consume something that was never produced, thus consumption is tied directly to productivity.  How does that concept support national subsidies in education and health?  How about infrastructure? 

Population growth tends to be a "hot topic".  What are the negatives associated with additional population growth? What are the positives?  (In terms of growth in GDP).  Where do you fall in the discussion? Why? 

Subsidies allow for growth in areas which may not able to create the demand without supplemental support. By creating safe and useful infrastructure, governments can create avenues for growth by increasing productivity. More roads of higher quality mean more distribution of goods and services.

I believe education and healthcare are also areas where when basic needs are taken care of, workers are more productive and can plan ahead. An education system produces the future ideas and workers while a healthy work force will also be more productive.

The US is a consumer based economy and if we are on producing, we are not consuming. There subsidies are used to encourage growth in these areas which allows for the consumption of more goods and services.

Population growth can be seen as a positive aspect of a healthy economy. It can lead to more production of goods and services, however population growth can also strain a system by limiting the availability of tools and skills needed for high production. "Countries with high population growth have large numbers of school-age children. This places a larger burden on the educational system." explains Mankiw.

My thoughts on population growth are a country needs a steady supply of workers to keep production up. Incentives can be made to either hinder or facilitate a rise in population. With many variables affecting the growth rate, a system with adequate controls to manipulate growth rates is something we need to do to handle growth.

Read More

Chapter 6 Measuring the Cost of Living

Many programs and benefits are tied to the Consumer Price Index, CPI, such as Social Security, school lunch programs and even our federal tax rate. The CPI is related to millions of workers benefits in many sectors and if this data is incorrect or miscalculated it would effect millions of families.

With so much being directly tied to the CPI, any problem in the data could have negative effects on the recipients of the benefits linked to the CPI data. These problems in the data would need to be accounted for in future adjustments. According to the textbook the problems which arise in the CPI are substitution bias, the introduction of new goods, and unmeasured quality change.

I live in Salida and the cost of living here is high when compared to some areas with real estate contributing the most. Home prices have steadily increased the past decade and increasingly is becoming more difficult for local workers to afford. Gas is higher here then in the metro areas and groceries are especially expensive now during this pandemic.

Social Security is vital to millions of retirees and many people are on fixed incomes. If the amount of money they receive doesn't match with the cost they are experiencing then inflation is negatively affecting their ability to pay for necessities. With school lunch programs being tied to the CPI, poorer and lower middle class people will be affected by the CPI more than people not reliant on government programs. Veterans and public sector workers are also affected by the CPI and the changes to it and the rate of inflation. Upper middle class and upper class workers less reliant on government programs and privately employed would feel the effects of changes to the CPI the least.

Read More

Chapter 5 Measuring a Nation's Income

What is Real GDP and Nominal GDP and how do they compare. What are each used for?

In the US, historically, the real GDP has increased over time, while suffering recessions at varying times and lengths, yet has grown at about 3% per year. This type of comparison over many years is made possible by using the real GDP which removes the effects of price changes to the production of goods and services over time. Nominal GDP measures the total spending on goods and services in all markets of the economy. As GDP rises from year to year, this increase is from either a larger production of goods or the goods are being sold at higher prices. In order for economists to measure the production rate of goods and services independent of the prices of the goods the real GDP is figured and used to accurately compare one year to another.

To apply this method to a current event example could be if economists wanted to compare the spending of consumers on groceries during the economic downturn of 2008 with the housing bubble crash or during the recession caused by the shutting down of the economy due to COVID-19. As the cost of groceries has changed over the years, using a real GDP number will compare the spending on groceries but with current grocery prices for both time periods.

Real gross domestic product (GDP) decreased at an annual rate of 31.4 percent in the second quarter of 2020 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

Current‑dollar GDP decreased 34.3 percent, or $2.15 trillion, in the second quarter to a level of $19.41 trillion. In the first quarter, GDP decreased 3.4 percent, or $186.3 billion.

This information provided by the BEA.gov website.

COVID-19 is affecting all aspects of American lifestyles and those of citizens all over the globe. Balancing the countries GDP with its health is fraught with implications both known and unknown. One will affect the other and vice-versa.

One aspect of our economy which is proving to be troublesome is our reliance on consumer spending in the US. Our economy is driven by our spending and when we are not spending we are harming our economy. This is a detriment in a situation that we find our selves in now. We are unable to spend, because we have no work, without work, we do not spend which exacerbates the situation further. This is a over simplified example but I do feel that if we could remove our economy some from our spending on goods we could perhaps cushion some of the free falling economy. Of course, if we were more heavily into manufacturing, we could still be suffering as the world consumption is a fraction of pre-COVID-19

Read More