Madison+S

UNIT FIVE **Here's part of an article from Forbes**: The Federal Reserve is doing almost everything in its power to entice investors to speculate in overpriced asset markets. Yet investors are generally refusing to embrace speculation. The real money thee days is going under the mattress In the first 11 months of 2011, investors poured a stunning $889 billion into checking and savings accounts. This inflow is more than eight times higher than the $109 billion that flowed into stock and bond mutual funds and exchange-traded funds. So if you apply the multiplier to $889 billion, assuming banks are required to reserve 10%, you get a $8,890,000,000,000 boost! This money is going into the bank (and is loaned out mulitple times) and is not directly counted into the C in C+I+G+NX. What if people went out and spent that $889 billion instead? If the MPC is //really// high, that might stimulate the economy even more. Then of course, they wouldn't be saving at all and the banks wouldn't be able to create that $8890 billion boost, but a low MPS with this money might result in an exploding GDP! If the MPS was really high, people would be putting more money in the bank. In that situation the government might //lower// the reserve rate to make more money for the economy, correct? Yes, the Fed has tried everything. But banks are being stingy after their drunken binge of credit in the early 2000's when they loaned $ to anything that moved. Now, they are taking the cheap money from the Fed and from the depositers and investing in markets, not loaning it out to people who really need it. Love the picture! 10/10 -SW

UNIT FOUR Here is some information about Obama's policy from the white house website:
 * Extends middle class tax cuts to prevent a typical working family from facing a tax increase of over $2,000 on January 1
 * Provides a 2% payroll tax cut to 159 million workers – providing the typical working family with an additional $1,000 tax cut
 * Allows businesses to expense 100% of key investments this year – estimated to spur $50 billion in new investment
 * Continues the American Opportunity Tax Credit, which provides up to $10,000 for four years of college and is helping over 9 million students and their families afford higher education
 * Extends expansions of the Child Tax Credit and the Earned Income Tax Credit that the President fought for, providing a tax cut for 15.7 million families with about 29.1 million children

So, it appears that Obama wants people to think that he's cutting taxes. That seems to be opposite of the public opinion of him... anyways, in the world of fiscal policy, a tax cut would put more money into people's pockets, thus giving them more disposable income and possibly encouraging an increase in consumer spending, resulting in an increase in GDP. However, low consumer confidence might lead to people saving that money instead of spending it! He also mentions that he encourages investement spending. In a perfect economic world, this would lead to an increase in short run aggregate supply and a SUPER-EXPANSION. Our GDP is technically improving, however inflation is still occuring, so we're probably looking at more of an aggregate demand shift here. Although, it wouldn't be bad to graduate from college during a super expansion! :D But wouldn't you have a better opportunity to get a job during a superexpansion? This phenomenon you mention above is called the Paradox of Thrift, a self fulfilling prophecy. Nice job. 10/10  Typo! I meant WOULDN'T be bad :D

UNIT THREE - PAGE TWO Since all of us senior folk have college on the brain, I thought I'd look at college tuition this unit! Here's a table I found that compares the inflation in our economy to the increase in college tuition from finaid.org: **Bureau of Labor Statistics Figures**
 * **Year** || **Tuition Inflation (CPI)** || **General Inflation (CPI)** || **Rate Ratio** ||
 * 2006 || 6.71% || 3.23% || 2.08 ||
 * 2005 || 7.46% || 3.39% || 2.20 ||
 * 2004 || 9.46% || 2.66% || 3.55 ||
 * <span style="font-family: ARIAL,HELVETICA;">2003 || <span style="font-family: ARIAL,HELVETICA;">8.40% || <span style="font-family: ARIAL,HELVETICA;">2.28% || <span style="font-family: ARIAL,HELVETICA;">3.69 ||
 * <span style="font-family: ARIAL,HELVETICA;">2002 || <span style="font-family: ARIAL,HELVETICA;">6.82% || <span style="font-family: ARIAL,HELVETICA;">1.58% || <span style="font-family: ARIAL,HELVETICA;">4.32 ||
 * <span style="font-family: ARIAL,HELVETICA;">2001 || <span style="font-family: ARIAL,HELVETICA;">5.09% || <span style="font-family: ARIAL,HELVETICA;">2.85% || <span style="font-family: ARIAL,HELVETICA;">1.79 ||
 * <span style="font-family: ARIAL,HELVETICA;">2000 || <span style="font-family: ARIAL,HELVETICA;">4.14% || <span style="font-family: ARIAL,HELVETICA;">3.36% || <span style="font-family: ARIAL,HELVETICA;">1.23 ||
 * <span style="font-family: ARIAL,HELVETICA;">1999 || <span style="font-family: ARIAL,HELVETICA;">3.98% || <span style="font-family: ARIAL,HELVETICA;">2.21% || <span style="font-family: ARIAL,HELVETICA;">1.80 ||
 * <span style="font-family: ARIAL,HELVETICA;">1998 || <span style="font-family: ARIAL,HELVETICA;">4.22% || <span style="font-family: ARIAL,HELVETICA;">1.56% || <span style="font-family: ARIAL,HELVETICA;">2.71 ||
 * <span style="font-family: ARIAL,HELVETICA;">1997 || <span style="font-family: ARIAL,HELVETICA;">5.11% || <span style="font-family: ARIAL,HELVETICA;">2.29% || <span style="font-family: ARIAL,HELVETICA;">2.23 ||
 * <span style="font-family: ARIAL,HELVETICA;">1996 || <span style="font-family: ARIAL,HELVETICA;">5.66% || <span style="font-family: ARIAL,HELVETICA;">2.95% || <span style="font-family: ARIAL,HELVETICA;">1.92 ||
 * <span style="font-family: ARIAL,HELVETICA;">1995 || <span style="font-family: ARIAL,HELVETICA;">6.00% || <span style="font-family: ARIAL,HELVETICA;">2.76% || <span style="font-family: ARIAL,HELVETICA;">2.12 ||
 * <span style="font-family: ARIAL,HELVETICA;">1994 || <span style="font-family: ARIAL,HELVETICA;">6.98% || <span style="font-family: ARIAL,HELVETICA;">2.77% || <span style="font-family: ARIAL,HELVETICA;">2.73 ||

This table is //bad// news for those hoping to increase their human capital in the coming years. Since the inflation of college tuition is increasing at a much faster rate than general inflation, the //real// cost of going to college is increasing rapidly. In fact, if the tuition inflation rate keeps increasing at the average rate of 8% per year, college tuition will double every nine years! DOUBLE! Idaho is facing structural unemployment issues, so education is important. People have to be educated in order to fill job requirements and if college tuition inflation keeps rising, less people could be motivated to go to college which could lead to even worse structural unemployment. Of course, the government could chip - wouldn't it be nice if they raised that "G" in C+I+G+NX by funding college tuition! 10/10 Yikes! I didn't know it was that bad. You are right in that this could be a self fulfilling prophecy as far as the macro econ goes.

UNIT THREE

An article from 2008 describes South Africa's unemployment and the xenophobia that resulted from it. The article blames low wages and a lack of jobs on the mass number of immigrants coming in and working for low wages. //**"**//Instead of hailing from KwaZulu or Venda or Bophuthatswana or Transkei, the most desperate migrant workers in SA's major cities are from Zimbabwe, Malawi, Mozambique and Zambia – countries partially deindustrialised by Johannesburg capital's expansion up-continent. In a brutally frank admission of self-interest regarding these workers, First National Bank chief economist Cees Bruggemann intoned to //Business Report// last week: ``They keep the cost of labour down... Their income gets spent here because they do not send the money back to their countries.'' So notwithstanding South Africa's national unemployment rate of 40%, a xenophobia-generated bottleneck in the supply of migrant labour could become a problem for capital, such as occurred at Primrose Gold Mine near Johannesburg. The mine's workforce consists nearly entirely of Mozambicans, who much of last week stayed away due to fear, thus shutting the shafts.//**"**//
 * (**http://links.org.au/node/438)

We certainly hear about xenophobia in America. Somebody (including presidential candidates) is always complaining about all of the jobs we outsource to China and about how we need to return jobs to Americans. This seems to be a way to take out unemployment anger. After all it's not like we're at 40% unemployment like South Africa was! However, in an environment where there are no artificially high wages (other countries) producers can set wages low enough to meet a high demand for jobs and hire enough people to fill the number of positions they need at that wage. Sounds like equilibrium and capitalism to me.... and what's more American than capitalism? 10/10 Great application and fun pic! Nice job here.

UNIT TWO

Here is a list of countries with universal healthcare from truecostblog.com: "Thirty-two of the thirty-three developed nations have [|universal health care], with the United States being the lone exception" Norway, New Zealand, Japan, Germany, Belgium, United Kingdom, Kuwait, Sweden, Bahrain, Brunei, Canada, Netherlands, Austria, United Arab Emirates, Finland, Slovenia, Denmark, Luxembourg, France, Australia, Ireland, Italy, Portugal, Cyprus, Greece, Spain, South Korea, Iceland, Hong Kong, Singapore, Switzerland and Israel.

Healthcare is currently a private good (you must seek it yourself and the government doesn't automatically provide it to everyone) and one person's access to healthcare does not necessarily prevent another person's access to healthcare (however I've spent my share of of time in the waiting room to get seen for a sinus infection or strep or even a flu shot). President Obama's healthcare plan, (affectionately nicknamed "Obama-care") would require all Americans to have healthcare. People who are opposed to healthcare say that people shouldn't be required to have healthcare because they'd have to pay for it, which would make them worse off financially and have a negative effect on the economy. However, healthcare supporters argue that healthcare would, in fact improve the economy because people will live longer and contribute the economy longer and we wouldn't have to deal with the costs of unhealthy and uninsured Americans.

I disagree with healthcare being private. What about Medicare/Medicaid? Or the folks that can't afford it and the state pays for their hospital visit at county hospitals? What about how one person's diabetes treatment makes another person's premiums go up over time? The list of countries above is ridiculous. Something better needs to be done. Madison, perhaps your generation will fix it! 10/10 -SW

"The answer came from David Ricardo in 1817. And here is a Stone Age version of his story, although he told it in terms of trade between countries. Adam takes four hours to make a spear and three hours to make an axe. Oz takes one hour to make a spear and two hours to make an axe. So Oz is better at both spears and axes than Adam. He doesn't need Adam. He can make his own spears and axes. Well no, because if you think about it, if Oz makes two spears and Adam make two axes, and then they trade, then they will each have saved an hour of work. And the more they do this, the more true it's going to be, because the more they do this, the better Adam is going to get at making axes and the better Oz is going to get at making spears. So the gains from trade are only going to grow. And this is one of the beauties of exchange, is it actually creates the momentum for more specialization, which creates the momentum for more exchange and so on. Adam and Oz both saved an hour of time. That is prosperity, the saving of time in satisfying your needs."

"Ask yourself how long you would have to work to provide for yourself an hour of reading light this evening to read a book by. If you had to start from scratch, let's say you go out into the countryside. You find a sheep. You kill it. You get the fat out of it. You render it down. You make a candle, etc. etc. How long is it going to take you? Quite a long time. How long do you actually have to work to earn an hour of reading light if you're on the average wage in Britain today? And the answer is about half a second. Back in 1950, you would have had to work for eight seconds on the average wage to acquire that much light. And that's seven and a half seconds of prosperity that you've gained since 1950, as it were, because that's seven and a half seconds in which you can do something else, or you can acquire another good or service. And back in 1880, it would have been 15 minutes to earn that amount of light on the average wage. Back in 1800, you'd have had to work six hours to earn a candle that could burn for an hour. In other words, the average person on the average wage could not afford a candle in 1800." (An excerpt from a TEDGlobal talk by Matt Ridley in 2010. In the speech, he argues that it doesn't matter how good one particular idea is, but how well the collective mind works )

Here Ridley explains Ricardo's theory of comparative advantage in terms of cavemen! One of the caveman, Oz, has an //absolute// advantage in both spear and ax-making, however, he does not have a //comparative// advantage at ax-making, so he should focus on producing spears and trade with the other caveman for the axes. His opportunity cost for one spear is half an ax. Adam's opportunity cost is 3/4 of a spear per ax. Both will save time and end up with more goods. Ridley also explains that the opportunity cost of an hour of reading light has significantly decreased since the 1800s - going from 6 hours of work to half a second of work - Shazam!

Well done Madison. Good understanding and application of concepts. Love the kid! 10/10