Slideshare:
Definitions: Macroeconomics
Evaluation: Group 3 Project Client Evaluations: Silver Cougars and Joe Brezinski
Collaboration: Work with fellow students on group 3 project and Work with fellow students on “Best Country” google doc presentation
Reflection 1: Australian Housing Prices
Reflection 2: Commanding Heights Reflection
Improvement: Response ——> Practice Commentary
Showcase:
And Reflection
This BBC article reports that the Chinese gov. has had some success in using tight monetary policy to control inflation. Inflation is defined. Monetary policy, government intervention using interest rates and money supply has worked to some extent, as the inflation has fallen from … to …%. This commentary will explain the causes and consequences of inflation and evaluate the likely success of the Chinese governmental intervention to achieve price stability.
Inflation is problem in China’s economic system. The purchasing value of money is decreases as prices rise and wages stay the same. China is under the type of inflation that is of the worst possible scenario, stagflation, the U.S had felt stagflation during the great depression. As a result, the total aggregate supply of China’s economy is under negative growth.
The diagram explains the aggregate supply of China pushed back by the cost-push of inflation. Notice, at the same time, real GDP also decreases, causing two ultimate negative effects. The Chinese Government needed to fix the Yuan prices rising, and GDP dropping. They had administered monetary policy consisting of money supply and interest rates.
The money supply is the money available to stimulate an economy, such as money to spend and borrow. This largely affects the reserve ratio, which is the central banks hold of money in the bank from the companies and the borrowers. When the Chinese government decided to use monetary policy, they tightened the reserve ratio “[raising] the cost of borrowing”, attempts to decrease money flow in the economy.
Additionally, as another implementation to achieve price stability, the Chinese government increased interest rates. The government raised interest rates in order to decrease consumer spending, in order to reach a new equilibrium and price stability. To an extent, they were able to bring down the effects of inflation as “increasing at an annual rate of 11.2%… [have] fallen back from last month’s high of 11.7%.”
The stakeholders of using monetary policy are the companies and industries. Because the reserve ratio increased, companies cannot borrow money, and since the prices are rising, the industries have no choice but to also increase prices. Thus, as a counter effect of China using monetary policy to decrease inflation, the stakeholders who are the companies of China, must adversely increase prices which increases inflation.
Chinese efforts are futile, as investments and consumption have still increased by “25.4% in April, slightly higher than expectations”. The government’s monetary policy is not working. From an economic stand point, the government may have used another policy entitled, fiscal policy. This policy encompasses the utilization of taxation and government spending. The Chinese government may decrease taxation and increase government spending, in attempts to increase aggregate demand and consumer spending to equalize with the current aggregate supply.
Figure B
China, in the long run, can reduce inflation, perhaps not the rising prices, but the real GDP would equalize. As a result, depending on the government, in order to fix unemployment in the long run, fiscal policy can be implemented as a way for proper government intervention. If not, the Chinese economy may be stuck at NAIRU (non- accelerating inflationary rate of unemployment, which is the rate of unemployment that exists when inflation is constant (non-accelerating). Currently, the pros and cons of their policy is currently favored towards cons. With fiscal, the pros will be favored, as long as viewed in Monetarist perspective. Thus, in the long run, constantly increasing aggregate demand will drive the aggregate demand to new equilibrium point in which the economy has reached stability.
Aggregate Demand: The total demand for an economy’s goods and services
Aggregate Supply: The total value of goods and services that an economy can produce in a given time period
Equilibrium: Where aggregate supply equals aggregate demand, stability in an economy
Fiscal Policy: Governments intervention on a market using government spending and taxation
Taxation: A compulsory contribution to the state revenue
Monetary Policy: Banks intervention controlling interest rates and money supply
Unemployed: people who are registered as willing, able and available for work at the market clearing wage, but who are unable to find work
Inflation: A constant rise in prices over a given period of time. (1 fiscal year)
Multiplier effect: the proportion by which an initial increase in injections causes a greater final increase in the level of national income.
Accelerator effect: the relationship between a change in the level of national income and the level of investment that induces.
Stagflation: persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.
I find that the presentation went better than I thought. In fact, I would like to point out how increasingly nervous we got when it came time to present. I thought the questions were going to be harder and more direct, however I found them to be less challenging and more easy to answer in a non-economical standpoint.
Also, I found the presenters did a good job in outlining the problem, and indicating directly to whom they are fixing the problem for. I think this method of concerning the constituencies as a whole was more effective than simply stating the problem within one party and fixing it. Like the panel said, our balance was better and the constituencies agreed that focusing on the general rather than the individual was great.
In fact, touching upon both the long-term and short-term, they said, was good. I acknowledge my other members of my group of their readiness and their responsibility in answering and presenting and applaud them in the moments of being “on the spot” and thinking quickly. Good job team!
The main issue in this economic debate is that, Joe, from the previous letter, wants to interest to increase because of unemployment, however this new guy, Mr. Jorgenson dislikes how, because automobile prices had to increase, the falling business. As one of the council members, I would suggest using fiscal and/or monetary policy to alleviate both Joe and Jorgensons financial struggle. Instituting fiscal policy to decrease taxation on interest tax and on business tax, such a cut will ease Joe’s financial struggle because it will raise his savings, while business tax cuts will allow corporations such as Jorgensons company to ease their financial struggle when there is less consumer confidence. Moreover, the unemployed will be able to increase in confidence, as it eases their struggle, raising confidence for job searching. Thus, subsequently, increasing the employment confidence will eventually increase the supply side as people search for jobs.
Perhaps, if decreasing tax will not work, then increasing tax on sin tax will. For example, increasing sin tax on negative externality goods, such as cigarettes, will allow for subsidization of companies in struggle. This will not decrease the consumption of cigarettes as they are inelastic type of goods. Thus, will allow the government for spendable allocation of money.
Another fictional situation given to me involves monetary policy and the sacrifices that must be made for the better. The problem was a possible inflation that may affect the value of assets for the elderly. Angela Soracco, a fictional figure head, complains that an inflation will affect their “nest egg” that they have been building up for years to enjoy in their elder age. However, as Obama has said, “sacrifice must be shared”. Using the monetary policy, in a Keynesian perspective, will not be able to stop increasing prices, but it will be able to stop inflation. Raising interest rates will allow the aggregate demand of the economy to decrease while their is a subsequent increase. If the interest rates are set in correlation to the rising price levels, then the economy may perhaps stop the inflation from being experienced because the interest rates will be in balance with the rising price levels. This means sacrificing the younger generations with smaller “nest eggs” as their savings will not be able to accommodate the rising price.
Sacrifices must be made.
Joe Brezinski, a fictional man who is affected by a fictional economic crisis, has lost his job and is worried about losing his home. In terms of fiscal policy, and without increasing overall national debt, tax cuts in interesting of savings will allow a boost in disposable income which subsequently will increase consumer confidence and demand. Since the fictional government is tight with money, the only thing possible is to decrease tax on interest, which means, less money is demanded by the government on the interest in savings. As a result, Joe Brezinski will have more money to spend which would not decrease his overall aggregate money supply and buying power.
Another method is to look at another version of taxation, however instead of attempting to increase consumer confidence, looking towards the aggregate supply can be another form of increasing buying power. For example, if the fictional government were to decrease corporate tax, business’s would be able to decrease overall prices thus subsequently increasing the buying power of consumers. Therefore, if governments were to decrease construction corporation business tax, the landlords would decrease their overall rent prices (assuming Joe rents his home), and easier for Joe to survive under this fictional economic crisis.
Governments greatest power to maintain the national debt is to manipulate taxation.
My team, consisting of four people including me, were assigned as a council of economic advisors to assess an economic situation involving a supply side shock in the rising price of oil. Our given situation proceeds as, how can we as economic policy advisors ease the economic crisis involving unemployment, inflation, and the slowing of economic growth so that we can fix the supply shock crisis without increasing national debt. Therefore, our team needs to outline the problem from different angles. Firstly in terms of context of the president, we need to find out if he is a republican or a dominican, as it influences there choice of economic perspectives of the keynesian or neo-classical view. Next, we need to figure out what type of inflation this is, GDP decrease, increase in price, and an unemployment gap suggests stagflation. The last stagflation in America that occurred was during the Great Depression after following the Keynesian economic perspective. The reason to this is because the economy of this economic situation is similar to that of the Great Depression. The president therefore has all the right to “freak-out” if you may, as the economy may lead into another depression.
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