Chapter 32

Chapter 32 expands on how the market of loanable funds interacts with other variables in an open economy, such as with real interest rates and the amount of foreign currency available. When there's a change in one, the other variables will be noticeably affected by the change, along with net capital outflow and net exports. Three different graphs are used to explain key principles, being the market for loanable funds, net capital outflow, and the market for foreign-currency exchange. Deficits that happen in a government's budget causes the supply of funds to shift left, causing chain effects of a higher interest rate, less supply of foreign dollars, which causes real exchange rate to appreciate, which then causes imports to be more attractive to consumers than domestic goods, along with a lower net capital outflow due to the expensiveness of the exports compared to goods in other countries. There are multiple things that can happen to an economy, such as the budget deficit, to cause these chain reactions, and will have overall impacts in both the country's and world's economy. One important thing to take away from this is that no country is safe from capital flee, in which investors withdraw assets due to events or circumstances that may have happened.

Chapter 31

Chapter 31 focuses on the basic concepts in an open economy. Throughout the book we have just been focused on a closed economy to make situations easier. This chapter talks about how the country interacts with other economies around the world, introducing the vocabulary words export, import, and net export. The net export is determined by subtracting the value of the export by the value of the import. There is a trade surplus if that number is positive and if its negative then theirs a trade deficit. International trade has become so important in the us economy. The chapter shows a graph that shows that the US has imported more than it has exported, so that means it has a trade deficit. Then the chapter talks about net capital outflow and how it is the purchase of foreign assets by domestic residents subtracted by the purchase of domestic assets by foreigners. It then focuses on how the net capital outflow is equal to the net exports. Then it talks about how savings can be used either at home or to by assets abroad. So this means that savings equals domestic investment and net capital outflow. The rest of the chapter talks about the nominal exchange rate, which is the price between two currency's. If the dollar buys more foreign money when the rate changes then the dollar has appreciated. If the change is the opposite then the dollar has depreciated.The chapter also talks about the theory of purchasing power parity which states that different units of currency should be able to by the same quantity of goods.

Article Review 7

This article talks about Keynesian economics in general and his stance against it. Stockman has always had a huge dislike for Keynesian economics. He talks against Janet Yellen for taking an involved approach to the economy. Stockman says that the Keynesian trick of injecting the economy with money and credit will no longer work because the country has too much debt that it needs to pay off. He argues that low interest rates are super ineffective and that it really only helps wall street achieve their end goals. Zero percent interest does not help because the housing debt has gotten lower but it has caused the business debt to get higher. The article also talks about how negative interest rates are bad and that the central bank should stay way from them because the are a big detriment. An example is how negative interest rates have killed the European economy. Stockman talks about how Keynesain economists assume that Main Street (wall street) are dependent on government interference and that is really not the case. Overall he just continues to rant about this and keeps arguing against Janet Yellen.

Chapter 30

Chapter 30 focuses on talks about money growth and inflation. It discusses classical theory that was developed by early thinkers along with the quantity theory of money, which is a theory that states that the quantity of money available determines the price level and that the growth rate in that quantity of money determines the inflation rate. The chapter also shows the supply and demand for money and that the money supply is fixed because of the federal reserve, making it a vertical line on the graph. The demand is a downward decreasing curve, showing that when there is too much supply then the demand for money and the value of it goes down. Also the price level increases when this happens. Then the chapter talks about classical dichotomy which is the separation of nominal and real variables. A nominal variable is a variable measured in monetary units, while a real variable is a variable measured in physical units. Then it talks about how changes in money supply don't affect the real variables. The chapter also talks about the velocity of money and how it is the rate in which money changes hands. It can be calculated by multiplying the price level and the quantity of output, and then dividing by the quantity of money. The rest of the chapter talks about the inflation tax, the fisher effect, and the shoeleather and menu cost.Then it finishes of with a freesilver debate that includes the wizard of oz.

Chapter 29

The main focus of chapter 29 is the monetary system, in which the chapter explains how money is made and used by governments, while discussing the different types of systems that might be in place if a common medium was made, talking about the bartering system and its inefficiency based on what two people are looking for in particular times. It describes what money actually is, along with the different types of money that is available to use based on how the country's economy is, either being fiat money or commodity money. Money is the economy’s most liquid asset available. Commodity money is when money is when money takes the form of a commodity with intrinsic value. Intrinsic value means the item would have value even if it were not used as money, such as gold for example. Fiat money is money without intrinsic value that is used as money because of government decree. Paper dollars fall into this category because they are backed by the government. The money stock is the quantity of money circulating in the economy. Currency is the paper bills and coins in the hands of the public. Demand deposits are balances in the bank that depositors can access on demand by writing a check. The Fed is the central bank of the U.S and is designed to regulate the quantity of money in the economy and oversee banking.

Article review 7

This article talks about how the unemployment rate is larger than what it actually is being displayed. The reason is that there has been a decrease of Labor force participation rate over the last few years. Due to the difficulty of finding a job, it is much harder for people looking for one. It talks about how the creation numbers for March were very disappointing, with only about 126000 jobs having been created, being half of what was predicted.  The number might get revised but the participation rate will not. A reversal would only change if there were better economic opportunities and incentives. An example of the declining participation rate is that in 2006 it was around 66.2 percent but last year it was only 62.9 percent. This is around an 8.2 million difference. One story for this decline is that many bay boomers are retiring. But there is a higher percentage rate of workers over 65 years in the labor force last year. The biggest problem has to focus on people between the ages of 25 and 54 years. These people have finished school and are not retired yet, so they have a lot of use in the economy still. It has been shown that the men and women labor force participation rate has decreased. Staying at home has become more advantageous. A solution that is proposed  is to more welfare benefits back to the states. They would be able to better regulate the rules and adapt it for the geographic circumstances.