Post lesson 33/Pre Lesson 34

Takeaways:

1. Productivity and Growth, these are the goals...the best use of our scarce resources which are normally acheived via prices. As a result we focus on Unemployment and Inflation which INDICATE whethere we are truly becoming more productive. We use fiscal and monetary policy to respond to changes in either.
2. THE fundamental purpose of government is to establish laws and rights that encourage free trade so that individuals become more productive. The government can, for example, improve on current uses of resources when externalities are present or when lack of ownership results in poor outcomes (ie overfishing). In either case the intervention occurs because prices dont actually convey the aggregate (macroeconmic) price of an action.

No reading. Next time we'll watch a video and I'll have updated grades.

Final Paper

Assignment: You will use no more than 2000 (~4 pages) words to reflect on the topic below. Your writing should reflect an economic thought process and utilize economic principle(s) to support your explanation. Emphasis is especially on developing a sound premise and logic and in logical evaluation of the costs and benefits of potential solutions or conclusions.

Topic
Choose one of the following:

1. Uncover the arguments behind the main competing views about the role of monetary and fiscal policy in the business cycle. I do not want you to pick a side and hail it as the answer; rather, I want you to evaluate the basis for each set of views by using the basic principles where applicable. Note how the priniciples inform each view and where you see contradiction or questions that remain in your mind. I especially hope that you address both pros AND cons of either position in your paper with a mind to the principles. To frame your discussion watch the videos here: http://econstories.tv/category/videos/ starting with "Fear the Boom and Bust" and then use other sources.

2. Discuss how and when income inequality becomes a problem with a focus on the relationship between inequality and the basic principles. It would be useful to think about the relationship between inequality and the economic principles, the different causes of inequality, and the role that government may play in either minimizing or furthering inequality. For example, when is inequality "good" or "bad" and how might the government’s role differ in either case? Or, what role are the economic principles playing or what role are they failing to play when inequality is "bad"? Use these two articles to frame your response: http://businessjournal.gallup.com/content/165716/bad-income-inequality.aspx and http://www.forbes.com/sites/hbsworkingknowledge/2013/08/19/how-income-inequality-affects-individual-behavior/.
Academic Resources: You may discuss the topic with each other but once writing begins in earnest the work should be solely your own. A documentation statement, as always, is required.

Post Lesson 32/Pre Lesson 33

Folks,

Today we talked about three things: banks, money, and the FED. The FED has the role of setting monetary policy. Like fiscal policy, it is one tool to try to "smooth" the cycles we often experience. In particular the FED tries to keep unemployment and inflation stable. This is a constant trade off between the two and sometimes fails to work. It can work in the short run but expanding the money supply leads to inflation in the long run. In other words, decreasing unemployment today will mean higher prices tomorrow.

Remember the purpose of banks and the roles of money as well as how the FED changes the money supply.

For next time please read the pdf file that I am emailing along with your final paper assignment and answer this question:

Why is national defense often the responsibility of the government? Is there a better arrangement?

We'll talk about this and about the major unifying concepts of this whole block.

Post Lesson 31/Pre Lesson 32

Folks,

Today we specifically discussed the ways that government's raise and spend money. In particular we spent the bulk of the class discussing WHY the government might use fiscal policy. Much like an individual who tries to "smooth out" their standard of living, the government could potentially use fiscal policy in order to "smooth out" national business cycles. The problem is that increased spending during recessions is hardly ever met with the same level of decreased spending during expansions. This is due to the political realities faced by those in charge of spending. If you are still struggling with this please see the primer here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block C-National Economy

Second, we talked about taxes. How taxes can change incentives, who pays taxes, and whether companies can merely "pass taxes onto" consumers. How do taxes change your choices or others choice? Some questions you should be able to answer after today:

1. Comment: "To reduce the government's budget deficit, the government should raise taxes on the rich."
2. Comment: "It's better to levy taxes on businesses because they can more easily afford to pay the taxes than consumers."
3. What happens when a city tries to keep bus fares lower for low income workers?

Next time we will focus on the other tool of the government: Monetary Policy. You can read BE 386-408 or the supplement here: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser\Block C-National Economy but you must read one or the other and tell me:

1. How does our banking system "create money?"
2. How does the FED control the amount of money in currency? (what are the three policy tools)
3. During the Great Depression, both Hoover and FDR tried to keep the prices of goods and labor high. What was the rationale and what are the social and economic ramifications of such decisions?

Post Lesson 30/Pre Lesson 31

Today's lesson focused on the foundational importance of the government and the rule of law. Government, properly ordered, gives rise to a functional economy by providing for property rights so that individuals are incentivized to use resources in the most efficient manner. Doing so means that the costs of one's action or inaction will fall upon them and not be reappropriated. Of course a government that is powerful enough to protect you is also powerful enough to take from you. Creating structures such that governments neither find it in their best interest to protect others at your expense or to protect themselves at your expense is the difficult part. Remember also that trust among individuals and with the government results in a willingness to spend my time at what costs me the least. In order to do so, I must become vulnerable and depend on the fact that others will trade with me.

As an aside, government can play an important role when someone else's actions have an effect on society at large. In cases of externalities having government involvement can produce better outcomes but this depends 1) on the structure that is put forward to solve the issue and 2) whether the government might give undue influence to parties which have a specific interest in the issue at hand (ie tobacco companies' lobbies being involved in tobacco legislation).

Next time we'll further discuss just how the government can change behavior via taxes, how they generate revenue, and how and when fiscal policy could be used by using the analogy of personal finances.

Read BE 433-436, 444-451, 458-465, and 468-470. Respond to this question: When do you personally take a loan? why? Now, use the same idea and tell me, when might it be smart to spend more money than you take in as a government (whether you take a loan, sell bonds, or dip into savings)?

Finally, the paper is located at: K:\DF\DFEG\Economics\Econ201\Fall 2013\Balser

Post Lesson 29/Pre Lesson 30

Folks,

You should be able to define all of the terms from my last post. You should also have a basic understanding of how we calculate GDP and what things might change our evaluation of GDP or of economic growth. For example, what happened to inflation, how many people are in a country, or what new goods and services we now have that we didn't 5, 10, or 15 years ago. Generally, it is harder to compare GDP's the further they are apart (time-wise).

Another major topic is how we track inflation by using the CPI, consumer price index. Like GDP it has flaws and is certainly prone to flaws as we change the goods in the index (having an iphone now vs a razor 5 years ago).

For next time I want to move into the Functions of Government. Please read BE 414-426 and respond to this question in your journal: what do you think of as the most basic function of government and why is it important to economics?

RP IV/Post Lesson 28/Pre Lesson 29

Everyone watch this: http://www.npr.org/blogs/money/2011/10/26/141741360/video-what-is-gdp

And be able to define these terms (many should be familiar): Aggregate Supply,Aggregate Demand,National Output,National Income,GDP,Flow,Stock, National Wealth,Economic Growth, Recession, Inflation,Cost of Living,and Deflation

Reflection Paper IV is due next Thursday. The question was:

Reflection paper IV: It is unfair that people can make money merely because they have money. I mean shouldn’t everyone, rich or poor, have to work for their income?

Finally you need to read BE 369-383. Yes it is a bit dry but you NEED to know this stuff. For your journal, what is the greatest miscalculation or misinformation that you had about GDP and what it means before this reading? Additionally, why is it that an increase in only your wage actually makes you better off but an increase in everyones wage changes nothing (hint: focus on what happens to scarcity in each case)?

I hope to have your final paper/project assignment when you turn in your RP IV on Thursday.