Monday, August 20, 2007

Article 3

The Japanese central bank injected US 8.8 Billion into its money markets Monday. The Japanese say that this is a direct result to the decision of the U.S Federal Reserve to cut its key discount rate by half a percent. In recent weeks, major central banks have injected money into its money markets amid continuing worries over the U.S. subprime mortgage crisis.

Article 2]

Abstract -
The recent appreciation of the Canadian dollar with regards to the American dollar has led to the opening of more businesses in North Country. In a way this relates to my extended essay topic as i am comparing the affect of the exchange rate on FDI. Just 5 years ago, the Canadian dollar was worth 62 cents. Now, it is worth about 93 cents in comparison with the USD.

Article 1

A small company was ordered by the NHTSA to recall 255,000 Chinese-made tires as it claimed that the tires were defective. This adds to the list of Chinese-made products that have been recalled in the past months. Hangzhou Zhongce, the tire producing company, claims that it has passed all safety regulation tests and that their tires are not defective. Following the many recalls of Chinese-made products, Beijing has claimed that this is no more than a front for protectionism.

Thursday, May 10, 2007

Homework Answers

Homework - Chapter 12 Key Questions #2, 3

#2) Assume that a hypothetical economy with an MPC of .8is experiencing severe recession. By how much would governmentspending have to increase to shift the aggregate demandcurve rightward by $25 billion? How large a tax cut would beneeded to achieve this same increase in aggregate demand?Why the difference? Determine one possible combination of government spending increases and tax decreases that would accomplishthis same goal.

To calculate the increase in government spending, the multiplier needs to be determined.

Multiplier = 1/ MPS (1-MPC)
= 1/.8
= 5 - and therefore the government spending = $5 billion

As the marginal propensity to consume is 0.8, only 80% of the tax will be spent and therefore

.8 x Tax Cut = 5 Billion
by solving for Tax Cut , Tax Cut = 6.25 Billion

The difference occurs because not all of the tax cut is spend, some is saved.

Possible Combination - $1 billion increase in gov. spending and $5 billion tax cut

#3) What are government’s fiscal policy options for endingsevere demand-pull inflation? Use the aggregate demand-aggregatesupply model to show the impact of these policies onthe price level. Which of these fiscal policy options do you thinka “conservative” economist might favor? A “liberal” economist?

Options are to : 1) reduce government spending 2) increase taxes

The person who wants to preserve the size of the government might opt for option 2 while the person who thinks the public sector is too large might opt for option 1.

Sunday, May 6, 2007


1) Weigh the two arguments regarding unemployment in Europe. Is unemployment high because of high because of high natural rates of unemployment or because of deficient aggregate demand?

The first argument claims that the unemployment in Europe is due to the natual rate of unemployment. Economists claim that these European nations have already reached full-employment, with only frictional and structural unemployment present. Thus, there is a high natural rate of unemployment due to the huge costs of hiring workers. The welfare benefits offered to the workers far exceed the benefits of working in some cases. The second argument claims that the unemployment in Europe is a result of a deficient aggregate demand. European governments , in fear of raising inflation rates, has not increased AD and thus the country is producing at an output less than the optimal point. The reason for unemployment in Europe is perhaps a combination between these two theories.

2) Explain the experience of the US between 1996 and 2000 when the economy was at greater than full employment with high GDP growth while maintaining low levels of inflation. What allowed this so-called "New Economy" to occur, and what brought it to an end in 2001?
This "New Economy" was perhaps brought to an end in 2001 because of 911.

Thursday, April 26, 2007

High Interest Rates Encourage Housing Speculation

Since 2005 in New Zealand, the housing market has seen more and more investments. "We must acknowledge that this is not a housing crisis. It's an investment phenomenon; a bubble in asset values, much like a sharemarket bubble." the irony here is as we've learned, high interest rates should slow down the housing market as consumers find it profitable to save their money in banks. So why have we seen this incredible boom in the housing industry?
- "if mortgage rates rise from 5% to 10%, but the expected rate of increase in housing prices rises from 2% to 9%, are people more or less likely to buy houses"?
From the example above we can see that mortgage rates have increased by 5% and increase in housing prices are projected at 7% and therefore it makes sense to invest in the housing market as it provides profit. This also has to do with New Zealand's overvalued currency as well as the amount of foreign currency in the federal banks.

Sunday, April 8, 2007

Econ Homework - Apr. 8

Economics Homework- Why Do We Neglect Leisure and Cheer For Divorce?
1. The CIA uses GDP as an indicator of economic activity in countries around the world. How would you explain to a noneconomist CIA director what GDP can and cannot tell the CIA about those countries?
GDP (gross domestic product) is a measure of the total market value of all final goods and services produced in a given year. Economists use GDP as a device to measure the economic growth. GDP does not measure various goods and services and thus it is not a good measurement of the well-being of society. Nonmarket transactions are not accounted for in GDP measurements, for example, the services of homemakers. Since the transactions don’t show up in the GDP, the measured GDP is undervalued. Leisure is also not measured in GDP. If a country enforces a 90 hour work week, the GDP will surely increase exponentially, but the happiness of the workers, which is not account for in GDP, will decline. Vice versa, if a country regulates to a 30 hour work week, the GDP will decline, but the workers will be happier. Thus this is not a good indication of the well-being of society. Improved product quality is also not accounted for in the measurement of GDP. A computer 10 years ago would have cost on average $3000 where as now a computer for $3000 would get you close to the best one in the market, yet the GDP would be the same. GDP is thus only a quantitative measurement and not qualitative. GDP also fails to measure the transactions in the underground economy. Transactions in the underground economy include that of gamblers, smugglers, prostitutes, stolen goods, drug growers, drug dealers, etc. These people do not report their incomes to the government.

2. Prostitution, gambling, and some types of drugs use are legal in some countries and illegal in others. What implication does this have for international GDP comparisons? What other issues might cloud such comparisons?
Comparing the GDP of countries with different laws in prostitution, gambling, and some other types of drug use would be inaccurate. The underground economy is a portion of the entire economy and thus in a country where such acts are illegal, the GDP is lower than a country in which the acts are legal.

3. In 1996, champion bicycle racer Lance Armstrong was diagnosed with cancer and spent, perhaps, $60,000 on surgery and chemotherapy. Each year from 1999 to 2005, Armstrong shared a $400,000 prize in the Tour de France bike race. For the purpose of this exercise, let’s ignore the money that Armstrong made from endorsements and other sources and assume that the prize money was divided evenly among Armstrong and his nine team-mates. In which year did Armstrong make the largest contribution to GDP? In which year do you think he had the lowest level of individual welfare? In which year do you think he had the highest level of individual welfare? Discuss the relationships among income, output and your own happiness.
In 1996, Lance Armstrong made the largest contributor to GDP as he spent $60,000 on surgery and chemotherapy whereas in other years he receives $40,000 for winning the Tour de France. 1996 was also the year where Armstrong had his lowest level of individual welfare, due to his cancer treatment. The highest level of individual welfare probably came either during his first or last year of winning the Tour de France. Income is somewhat an indication of happiness as usually higher income leads to more happiness. Higher GDP does not indicate that society is doing better.

4. Categorize each of the following items as being in or out of US GDP in the relevant year:
a. Lance Armstrong’s winning in the Tour de France - in
b. The used toboggan you bought on eBay - out
c. The Whopper you bought for lunch - in
d. The massage you bought your dad for Father’s Day - in
e. The Money painting you bought your mother for Mother’s Day - in
f. The coffee beans that Starbucks roasted in December but didn’t sell until the following year -out
5. How could leisure time be included in a measure of social welfare? Can you think of measureable values that coincide with leisure?
When people have leisure time, they tend to use the computer and/or watch television. This can be measured by counting the amount of television viewers at certain times. For example, if the average hour work week decreases, on average people might be home at 5 pm instead of 7 pm. Thus, if the amount of television viewers increases at 5 pm dramatically, it can be a sign of social welfare. This is not an accurate measurement, but can provide an idea of account leisure in measurable values.