homework.
TITLE: OECD Warns of Economic Threats REPORTER: A Wall Street Journal News QUESTIONS:
1.) What is the OECD?
Organization for Economic Co-Operation and Development.
2.) According to the OECD, what are the risks to continued growth among its 30 members?
The risks are a pre mature rate hike by the ECB, and mercantilists exchange rate policies in some Asian countries, the U.S. budget deficit.
3.) How might the U.S. budget deficit affect growth in the OECD?
The U.S. budget deficit will affect growth in the OECD by growing to an average 2.9% across 30 members nations in 2006 and 2007. The OECD expects growth to average 2.7% this year.
4.) What are "mercantilist" exchange rate policies? Explain why these policies are a threat to growth in the OECD. Mercantilists exchange rate policies will change in some Asian countries.
5.) What policy action is the OECD warning the ECB not to take? Why?
TITLE: Economists See Real-Estate Boom's Impact on Retail Sales Consumption
Questions:
1.) How do rising home values fuel consumer spending? Home owners are spending the money they are receiving from equity loans and refinance.
2.) According to economists at Goldman Sachs, how much of the cash extracted from home values do consumers spend? What do consumers do with the remaining cash that they extract from their homes?
Consumer spend 68% of the cash extracted from home value, and they spend the remaining money.
3.) The article points out that Goldman Sachs and The Federal Reserve have different estimates of the fraction of cash extracted from their homes that consumers spend. Why does the fraction of cash that consumers spend from their home values matter? Which estimate (Goldman Sachs or the Fed) suggests that the economy is at greater risk if home prices stop rising or fall? Why? It matters because it affects the economy, and the Goldman Sachs estimate suggest that the economy is at a greater risk because its the larger number, meaning that it will have a greater affect on the economy if the home prices fall. A slowdown or even reversal in home prices could dampen consumer spending and slow the overall economy.
4.) What is expected to happen to home prices next year? How will this impact consumer spending and GDP?
Home prices are expected to rise, therefore causing more consumer spending.
5.) What, if anything, can or should policymakers do in response to the concerns raised in this article? Policymakers can try to keep home prices stable so there won’t be any sudden changes in consumer spending.
Why Latin Nations Are Poor
QUESTIONS: 1.) What are "property rights?" What does it mean for a country to have weak property rights?
Countries with weak property rights are much poorer than countries with strong property rights.
2.) Explain how weak property rights are detrimental for long-term economic growth.
3.) According to neoclassical growth theory, what is the primary determinant of long-term growth?
4.) What is regulatory burden and how does it affect long-term growth? Regulatory burden is how much it costs a business to fire a worker, and taxes on gross profits for businesses.
5.) According to public choice theory, why don't the political systems in Latin America produce reforms that would benefit the majority of voters?
According to public choice theory, governments act in their own self-interest which means that they aim to please the best-organized and most well-funded constituents. Special interest groups lobby against such reforms to protect their narrow interests.
TITLE: Consumers Might Curtail Shopping Sprees
QUESTIONS:
1.) What fraction of GDP is consumer spending? Describe how a slowdown in consumer spending would impact short term growth and inflation.
A slow down in consumer spending will have an impact short term growth and inflation because since people are spending money, inflation might rise.
2.) What three factors mentioned in the article are likely to cause a slowdown in consumer spending during the holiday season?
The number of hurricanes, higher interest rates and high energy prices are causing a slowdown in consumer spending.
3.) What is "equity extraction?" Describe how consumers use equity extraction to fuel consumer spending.
Equity extraction is when people take out home equity loans and spend the money on consumer spending.
4.) How will a slowdown in U.S. consumer spending affect the rest of the world?
It will affect the rest of the world because if no one is spending money in the United States, then there will be less imports from other countries and less traveling.
5.) What are the possible positive effects of a slowdown in consumer spending?
TITLE: Bonds Signal Challenges Ahead for Economy
QUESTIONS:
1.) What is the yield curve?
Yield Curve is the relationship between the cost of borrowing for a certain institution in a certain currency and the amount of time the money is being borrowed for.
2.) What factors influence the slope of the yield curve?
Factors such as recessions, hurricanes, pension funs and foreigners influence the slope.
3.) Why has the yield curve flattened recently? What might this flattening suggest about investors expectations of the future?
The yield curve has flattened recently because of Hurricane Katrina , Bernanke’s testifying that he’s vigilant on inflation, and long term bonds made by foreigners. Investors expects the future to enter a recession.
4.) According to Alan Greenspan, what does the yield curve slope signal about future changes in the economy?
A flattening yield curve can give false signals of a slowdown
5.) What does it mean for the yield curve to invert? What does a yield curve inversion signal about future economic activity?
The economy entered a recession a year after the yield curve inverted.
6.) How did the yield curve slope change in response to Ben Bernanke's suggestion that he will be vigilant on inflation? Explain why the yield curve responded this way to that comment. The yield curve flattened in response to Bernanke’s suggestion on inflation.
TITLE: Firms Gain Power To Boost Prices In Some Sectors
QUESTIONS:
1.) In what sectors of the economy are prices of goods and services increasing?
Hotels, Broadway shows, car rentals and some consumer products, have recently experienced price increases.
2.) In what sectors of the economy are prices of goods and services not increasing?
Household furniture, cell phones and toys prices are not increasing.
3.) What factors account for the differing abilities of sectors of the economy to raise prices?
Increased raw material prices and capacity limits are contributing to increasing costs in some sectors.
4.) What is the ultimate source of inflation? What factors will determine whether the price increases mentioned in this article will translate into widespread inflation?
5.) What does it mean for a company to have "pricing power?" How does foreign competition affect pricing power? How has globalization changed the relationship between domestic capacity utilization and inflation?
Pricing power is when the company has a overall power of the pricing and knows how consumers will react if they higher their prices. Foreign competition affect pricing power because if a foreign country is offering the same product for a lower price, American consumers are going to purchase the cheaper one.
TITLE: Greenspan Says Workers Abroad Offer Just a Respite to Inflation
QUESTIONS:
1.) What are the long-term effects of recent hurricanes on U.S. inflation and output growth?
The long-term effects of the recent hurricanes on U.S inflation and output growth restrain labor costs, causing inflation world wide.
2.) What policy action did the Fed take last week? Why did it take this action? What effect will this action have on the U.S. economy?
3.) According to Mr. Greenspan, what effect has the integration of the world economy had on inflationary pressures worldwide?
He explained how the integration of world economies has restrained labor costs and therefore held down inflation world wide.
4.) Will the mitigating effect of economic integration on inflation continue indefinitely?
No, once the economy becomes sufficiently integrated wage pressures might again emerge.
5.) What is inflation targeting? How does it differ from the Fed's current policy? What are the advantages and disadvantages of inflation targeting? What are the advantages and disadvantages of the Fed's current policy?
Mr. Greenspan conceded that inflation in the range of 1% to 2% was "conducive to economic growth”.
Running the Fed? It's Easy Actually :
QUESTIONS:
1.) What is the Phillips Curve? What does it imply about the tradeoff between inflation and unemployment?
Phillips curve is a supposed inverse relationship between inflation and unemployment.
2.) Explain how the Phillips curve was used by politicians to justify inflationary policies during the 1970s. Explain why some politicians favored this policy.
In the 1970s, the Phillips Curve caused the trade off to worsen, politicians favor this policy because it pressures the Fed to finance government spending in order to maintain full employment.
3.) Describe the policy "rule" followed by Volcker and Greenspan. How might the new Fed Chair Bernanke's policy rule differ from the rule followed by Volcker and Greenspan?
Volcker and Greenspan conducted policy by "watching everything.", meaning that they both kept tabs on a large array of economic indicators and they both had an intuitive sense of how to conduct policy based on the signals they received from those indicators.
4.) Explain what it means for a central bank to be independent. What are the advantages and disadvantages of central bank independence?
5.) According to columnist George Melloan, what is the key principle that Bernanke must follow in order to successfully run the Fed?
Mr. Melloan states that running the Fed will be easy for the new Fed Chair Ben Bernanke as long as he resists political pressure.
Productivity Rises at Fastest Pace In Over a Year
QUESTIONS:
1.) How is productivity growth measured? What happened to productivity growth in the third quarter of 2005?
The productivity growth grew at an annual rate of 4.1% in the third quarter of 2005.
2.) How does an increase in productivity growth affect growth and inflation?
Increased labor productivity implies that wages can rise without creating inflationary pressures.
3.) How does an increase in productivity growth affect the Fed's response to tightening labor markets?
One economist suggested that the labor market is still not tight enough to produce increases in wage rates, so the Feds must tighten labor markets.
4.) What role does productivity growth play in the long-term growth of the economy?
5.) Where does increased productivity come from? In other words, what causes productivity to rise?
Economic growth, employment and spending causes productivity to rise.
1.) What is the OECD?
Organization for Economic Co-Operation and Development.
2.) According to the OECD, what are the risks to continued growth among its 30 members?
The risks are a pre mature rate hike by the ECB, and mercantilists exchange rate policies in some Asian countries, the U.S. budget deficit.
3.) How might the U.S. budget deficit affect growth in the OECD?
The U.S. budget deficit will affect growth in the OECD by growing to an average 2.9% across 30 members nations in 2006 and 2007. The OECD expects growth to average 2.7% this year.
4.) What are "mercantilist" exchange rate policies? Explain why these policies are a threat to growth in the OECD. Mercantilists exchange rate policies will change in some Asian countries.
5.) What policy action is the OECD warning the ECB not to take? Why?
TITLE: Economists See Real-Estate Boom's Impact on Retail Sales Consumption
Questions:
1.) How do rising home values fuel consumer spending? Home owners are spending the money they are receiving from equity loans and refinance.
2.) According to economists at Goldman Sachs, how much of the cash extracted from home values do consumers spend? What do consumers do with the remaining cash that they extract from their homes?
Consumer spend 68% of the cash extracted from home value, and they spend the remaining money.
3.) The article points out that Goldman Sachs and The Federal Reserve have different estimates of the fraction of cash extracted from their homes that consumers spend. Why does the fraction of cash that consumers spend from their home values matter? Which estimate (Goldman Sachs or the Fed) suggests that the economy is at greater risk if home prices stop rising or fall? Why? It matters because it affects the economy, and the Goldman Sachs estimate suggest that the economy is at a greater risk because its the larger number, meaning that it will have a greater affect on the economy if the home prices fall. A slowdown or even reversal in home prices could dampen consumer spending and slow the overall economy.
4.) What is expected to happen to home prices next year? How will this impact consumer spending and GDP?
Home prices are expected to rise, therefore causing more consumer spending.
5.) What, if anything, can or should policymakers do in response to the concerns raised in this article? Policymakers can try to keep home prices stable so there won’t be any sudden changes in consumer spending.
Why Latin Nations Are Poor
QUESTIONS: 1.) What are "property rights?" What does it mean for a country to have weak property rights?
Countries with weak property rights are much poorer than countries with strong property rights.
2.) Explain how weak property rights are detrimental for long-term economic growth.
3.) According to neoclassical growth theory, what is the primary determinant of long-term growth?
4.) What is regulatory burden and how does it affect long-term growth? Regulatory burden is how much it costs a business to fire a worker, and taxes on gross profits for businesses.
5.) According to public choice theory, why don't the political systems in Latin America produce reforms that would benefit the majority of voters?
According to public choice theory, governments act in their own self-interest which means that they aim to please the best-organized and most well-funded constituents. Special interest groups lobby against such reforms to protect their narrow interests.
TITLE: Consumers Might Curtail Shopping Sprees
QUESTIONS:
1.) What fraction of GDP is consumer spending? Describe how a slowdown in consumer spending would impact short term growth and inflation.
A slow down in consumer spending will have an impact short term growth and inflation because since people are spending money, inflation might rise.
2.) What three factors mentioned in the article are likely to cause a slowdown in consumer spending during the holiday season?
The number of hurricanes, higher interest rates and high energy prices are causing a slowdown in consumer spending.
3.) What is "equity extraction?" Describe how consumers use equity extraction to fuel consumer spending.
Equity extraction is when people take out home equity loans and spend the money on consumer spending.
4.) How will a slowdown in U.S. consumer spending affect the rest of the world?
It will affect the rest of the world because if no one is spending money in the United States, then there will be less imports from other countries and less traveling.
5.) What are the possible positive effects of a slowdown in consumer spending?
TITLE: Bonds Signal Challenges Ahead for Economy
QUESTIONS:
1.) What is the yield curve?
Yield Curve is the relationship between the cost of borrowing for a certain institution in a certain currency and the amount of time the money is being borrowed for.
2.) What factors influence the slope of the yield curve?
Factors such as recessions, hurricanes, pension funs and foreigners influence the slope.
3.) Why has the yield curve flattened recently? What might this flattening suggest about investors expectations of the future?
The yield curve has flattened recently because of Hurricane Katrina , Bernanke’s testifying that he’s vigilant on inflation, and long term bonds made by foreigners. Investors expects the future to enter a recession.
4.) According to Alan Greenspan, what does the yield curve slope signal about future changes in the economy?
A flattening yield curve can give false signals of a slowdown
5.) What does it mean for the yield curve to invert? What does a yield curve inversion signal about future economic activity?
The economy entered a recession a year after the yield curve inverted.
6.) How did the yield curve slope change in response to Ben Bernanke's suggestion that he will be vigilant on inflation? Explain why the yield curve responded this way to that comment. The yield curve flattened in response to Bernanke’s suggestion on inflation.
TITLE: Firms Gain Power To Boost Prices In Some Sectors
QUESTIONS:
1.) In what sectors of the economy are prices of goods and services increasing?
Hotels, Broadway shows, car rentals and some consumer products, have recently experienced price increases.
2.) In what sectors of the economy are prices of goods and services not increasing?
Household furniture, cell phones and toys prices are not increasing.
3.) What factors account for the differing abilities of sectors of the economy to raise prices?
Increased raw material prices and capacity limits are contributing to increasing costs in some sectors.
4.) What is the ultimate source of inflation? What factors will determine whether the price increases mentioned in this article will translate into widespread inflation?
5.) What does it mean for a company to have "pricing power?" How does foreign competition affect pricing power? How has globalization changed the relationship between domestic capacity utilization and inflation?
Pricing power is when the company has a overall power of the pricing and knows how consumers will react if they higher their prices. Foreign competition affect pricing power because if a foreign country is offering the same product for a lower price, American consumers are going to purchase the cheaper one.
TITLE: Greenspan Says Workers Abroad Offer Just a Respite to Inflation
QUESTIONS:
1.) What are the long-term effects of recent hurricanes on U.S. inflation and output growth?
The long-term effects of the recent hurricanes on U.S inflation and output growth restrain labor costs, causing inflation world wide.
2.) What policy action did the Fed take last week? Why did it take this action? What effect will this action have on the U.S. economy?
3.) According to Mr. Greenspan, what effect has the integration of the world economy had on inflationary pressures worldwide?
He explained how the integration of world economies has restrained labor costs and therefore held down inflation world wide.
4.) Will the mitigating effect of economic integration on inflation continue indefinitely?
No, once the economy becomes sufficiently integrated wage pressures might again emerge.
5.) What is inflation targeting? How does it differ from the Fed's current policy? What are the advantages and disadvantages of inflation targeting? What are the advantages and disadvantages of the Fed's current policy?
Mr. Greenspan conceded that inflation in the range of 1% to 2% was "conducive to economic growth”.
Running the Fed? It's Easy Actually :
QUESTIONS:
1.) What is the Phillips Curve? What does it imply about the tradeoff between inflation and unemployment?
Phillips curve is a supposed inverse relationship between inflation and unemployment.
2.) Explain how the Phillips curve was used by politicians to justify inflationary policies during the 1970s. Explain why some politicians favored this policy.
In the 1970s, the Phillips Curve caused the trade off to worsen, politicians favor this policy because it pressures the Fed to finance government spending in order to maintain full employment.
3.) Describe the policy "rule" followed by Volcker and Greenspan. How might the new Fed Chair Bernanke's policy rule differ from the rule followed by Volcker and Greenspan?
Volcker and Greenspan conducted policy by "watching everything.", meaning that they both kept tabs on a large array of economic indicators and they both had an intuitive sense of how to conduct policy based on the signals they received from those indicators.
4.) Explain what it means for a central bank to be independent. What are the advantages and disadvantages of central bank independence?
5.) According to columnist George Melloan, what is the key principle that Bernanke must follow in order to successfully run the Fed?
Mr. Melloan states that running the Fed will be easy for the new Fed Chair Ben Bernanke as long as he resists political pressure.
Productivity Rises at Fastest Pace In Over a Year
QUESTIONS:
1.) How is productivity growth measured? What happened to productivity growth in the third quarter of 2005?
The productivity growth grew at an annual rate of 4.1% in the third quarter of 2005.
2.) How does an increase in productivity growth affect growth and inflation?
Increased labor productivity implies that wages can rise without creating inflationary pressures.
3.) How does an increase in productivity growth affect the Fed's response to tightening labor markets?
One economist suggested that the labor market is still not tight enough to produce increases in wage rates, so the Feds must tighten labor markets.
4.) What role does productivity growth play in the long-term growth of the economy?
5.) Where does increased productivity come from? In other words, what causes productivity to rise?
Economic growth, employment and spending causes productivity to rise.