Tom+P

//The recent recession exacerbated this problem, making it harder for older Americans — or the youths they are supporting in school — to get good-paying jobs. And unlike other debts, student loans cannot be shed in bankruptcy. As a result, some older Americans have found that a college degree led not to a prosperous career but instead to a lifetime under the shadow of debt.// //“A student loan can be a debt that’s kind of like a ball and chain that you can drag to the grave,” said William E. Brewer, president of the National Association of Consumer Bankruptcy Attorneys. “You can unhook it when they lay you in the coffin.”// //Sandy Barnett, 58, of Illinois thought she was doing the right thing when she decided to pursue a master’s degree in clinical psychology in the late 1980s. She had worked her way through college but said she took out a loan of about $21,000 to pay for graduate school so she would have more time to focus on her studies.// //But even after earning her master’s, Barnett struggled to find a job that paid more than $25,000 a year and soon fell behind on her payments. She suffered through a layoff, a stretch of unemployment and the death of her husband — while her student loan ballooned to roughly $54,000.// []
 * Unit 5:**

The above excerpt is from the Washington Post and makes a startling point about student loans. We all know that college is expensive, and taking out loans is sometimes the only way to afford tuition. What we fail to realize is how long these loans affect us. Many people that have been out of school for several decades are faced with enormous debt that is only increasing. Because of the interest rate all it takes is a few missed payments for the debt to suddenly increase substantially.

I thought the quote from William Brewer was particularly interesting because it seems to describe the situation so well. The debt is something that effects every aspect of your life and is hard to get rid of. If ignored, the burden of the debt will only increase. The metaphor may not be comforting, but it is reality.

Perhaps one of the biggest causes of this problem is that people go into college without a full understanding of the implications of a student loan. It only seems logical to borrow money, and how else are you going to pay for college? Where the misconception comes in is most likely with the interest. People probably underestimate the effect of an interest rate over time and how quickly it generates money. A simple macroeconomics lesson would make it clear that prioritizing student debt is a necessity. That's an incredible chart above! Your point is well made here Tom. I hope you will manage your loans and interest rates wisely over your years. 10/10 -SW


 * Unit 4:**

During Ronald Reagan's time as President of the United States a new fiscal approach was taken to the economy. It was an approach quite different from the Keynsian economic philosophies of the past. Rather than focus on the aggregate demand side of the economy Reagan proposed that the government target the supply portion. His logic was simple. An outward shift of the Aggregate demand curve causes benefits with employment and GDP, but unfortunately it also drives inflation up. Shifting out the short run aggregate supply curve, on the other hand, proves beneficial in all three of these key economic areas. Thus, Reagan was hopeful that helping out businesses, by lowering taxes on the wealthy, would allow greater success in the industrial market and consequentially those benefits would "trickle down" upon all Americans.

However, as appealing as this economic theory may seem it unfortunately has its share of consequences as well. Perhaps the most prominent of these side effects is the impact on social classes. This theory allows for big businesses to take control of most aspects of how they conduct themselves, without government intervention. The last part of this statement is the most important. The government is basically putting themselves out of the equation, which can lead to greed and selfishness among corporate leaders. Many of these "leaders" will realize that they can hoard the benefits of the economy and substantially limit the "trickling down" effect. This will inevitably lead to a greater disparity between the rich and poor. Government intervention guarantees aid to the poor through various government programs. Leaving it up to businesses, well...leaves it up to businesses. The potential economic benefits of this approach are obvious, but is it worth the hatred and immorality that may ride with it? Great explanation Tom. See the housing crisis of 2008 for an example of your explanation! Without oversight, banks made a lot of bad loans which did hurt them but ultimately hurt borrowers and the economy more as some at the top made off like bandits. No trickle down. Ultimately, if tax cuts worked to stimulate the economy, we could just keep cutting them to an effective rate of 0%. But that hasn't helped recently with this recession. Good stuff here Tom. Thanks for doing some good thinking. 10/10


 * Unit 3, Concept 2:**

On demand shock
A positive demand shock increases demand and a negative demand shock decreases demand. [|Prices] of goods and services are affected in both cases. When demand for a good or service increases, its price typically increases because of a shift in the [|demand curve] to the right. When demand decreases, its price typically decreases because of a shift in the demand curve to the left. Demand shocks can originate from changes in things such as [|tax rates], [|money supply] , and [|government spending]. For example, taxpayers owe the government less [|money] after a tax cut, thereby freeing up more money available for personal spending. When the taxpayers use the money to purchase goods and services, their prices go up. [|[1]]

According to Wikipedia a demand shock can be either positive or negative. They are defined as something that shifts the aggregate demand curve. The shift itself will cause a change in not only the real GDP, but the price level as well. For example, if government decides to lower taxes on Americans there will be a positive demand shock. This is because lower taxes incentivize more consumer spending and thus increases GDP. As you can see on the graph below, a positive demand shock will also cause a higher price level (which will increase inflation), as well as a decrease in unemployment. This form of increased inflation is referred to as demand pull inflation.

An example of negative demand shock would be a decrease in government spending. This time the aggregate demand curve will shift to the left and cause a decrease in GDP, more unemployment, and a lower price level. While this seems bad, inflation is lowered as a result of this shock, so it's not all bad. Things really get ugly when there is a negative supply shock. Overall, demand shocks represent the expansion and the recession portion of the business cycle. An outward shift is what allows the economy to recover from a trough and an inward shift is what may cause the economy to drop from a peak. 10/10 Nice explanation Tom. It's good to analyze this and be aware of what could cause it.



** They represent some of the most serious structural problems in the economy — and one of the greatest obstacles to a healthy recovery. ** Unemployment does not hurt everyone equally. Some lose their jobs when the economy turns down, but are hired back for similar work once things pick up again. Then there are those whose lives are permanently altered. Either they are out of work so long that they become unemployable, or they miss a window of opportunity and never really get started again. Last week’s employment report shows that nearly 43% of the unemployed have been out of work for more than 27 weeks. In every business cycle, the strength and length of the rebound following a recession depends on how much underused capacity can be put back to work. Stimulus may gin up growth among the easily re-employed. But it won’t do much for those who have become unemployable or who lack the skills needed for high-paying jobs. Cranking up the economic stimulus beyond a certain point will only push up wages for those already working and cause inflation that will make the economy stall. To enable the economy to grow for a long time, it is necessary to find ways of including people who otherwise might be condemned to permanent joblessness or employment at a very low level. The above excerpt is taken directly from Time magazine. In this article Michael Sivy discusses unemployment, but more specifically the problem of "discouraged workers." This euphemism refers to individuals that are no longer actively searching for a job. It's not that they necessarily don't want one, but often that they are in a situation that prevents them from getting one.Often these are people that are older and lack certain skills. They are people that are forced to go back to school and don't have time to take a job simultaneously. They are people that are suffering financially for reasons other than laziness and stupidity. The problem is that these individuals are not included in the unmployment rate, and are thus impossible to track. However, these individuals still have an impact on the economy, even if it is not measurable.
 * Unit 3, Concept 1:**

The article discusses the role of these discouraged workers in the business cycle. Principles of Macro-economics have enabled many economists to predict, or at least try to, this cycle and perform the necessary measures to put a recession back on track. Discouraged workers, though, present a problem because it makes it difficult to know how many people are actually willing to go back to work. Some of these workers may be interested in work if opportunity presents itself, but some may have no inclination at all. So why not just ignore them? According to this article including discouraged workers can lead to long run economic gain. This makes sense because productivity is the key to long run economic success. By maximizing productivity in the labor market, through the inclusion of willing discouraged workers, America could strengthen the labor pool and make the current economic rebound a more permanent and effective phenomenon. However, this problem, like many other economic problems, has no practical solutions currently available and a nobel prize may be required to find one. Read more: [|http://business.time.com/2012/02/08/the-future-depends-on-todays-discouraged-workers/#ixzz1ne3NLnjf] 10/10 Good points Tom. I hope it doesn't take a Nobel to solve it because not many economists (or politicians) have one of those!


 * Unit 2:**

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This video illustrates the strategy behind what the government chooses to tax. The first thing the government must consider, in order to maximize revenue and social benefits, is the elasticity of the good that's being taxed. Taxing an elastic product will not accumulate much revenue. This is the result of a demand curve that is extremely responsive to price. Thus, even a small rise in the price of an elastic good will cause an overwhelming drop in the quantity demanded. With inelastic goods, however, the results from a price change are completely opposite. Raising the price will drive some demand out, but because of a dependency on the good that loss will be minimal and revenues will shoot up. The government must also consider taxing goods that are not considered socially acceptable. Cigarettes have been proven to cause great costs upon its users, which range from yellow teeth to lung cancer. By taxing this item the government not only experiences greater revenues, but the satisfaction of slowing and eliminating the use of "cancer sticks." Good discussion Tom. Something to think about since a tax that doesn't raise revenue is simply a behavior modification and won't help the govt coffers. 10/10 -SW


 * Unit 1:**

The United States has a plethora of trading partners from a variety of places. The majority of the pie graph are countries that account for less than 3% of the total imports. So why trade with so many of these less powerful nations rather than just a few powerful ones?

The theory of comparative advantage supports the economic principal that trade makes everyone better off. This is especially interesting when looking at a powerful country like America in comparison to an undeveloped country like Zambia. The production possibilities frontier for these two countries would look vastly different for most all products (except copper). Zambia's curve may not even be visible when looking at both PPFs from the same scale. In other words, America has an absolute advantage in the production of almost all goods. This may lead an irrational thinker to the conclusion that America doesn't need Zambia, or any other developing country, as trading partners. However, when looking at this situation through the eyes of an economist it becomes evident that trading with these countries can make both nations better off.

Let's suppose the United States' PPF allows them to produce a maximum of 1 billion potatoes or 2 billion guns. Zambia's economy, however, can only produce a maximum of 50,000 potatoes or 5,000 guns. The United States has the absolute advantage in both of these products and because of their lower opportunity cost, 1/2 to 10, they hold a comparative advantage in guns. While Zambia can't produce remotely close to the amount of the United States in either of these products, they have a lower opportunity cost, 1/10 to 2, in potatoes, which means they have a comparative advantage in the production of this product. Thus, in this hypothetical trading scenario America would specialize in and export guns while Zambia would specialize and export potatoes. Ah, the guns and potatoes example!?

The production possibilities frontier ignores many factors, but it does prove that nations like the U.S and China can still benefit from trade with undeveloped countries. While free trade definitely has pros and cons, when looking at it through a more hypothetical lens of comparative advantage, it appears much more beneficial. Nice job Tom. You have this down. 10/10