Thursday, September 13, 2007

Italy Jobless Rate Fell to Record Low in 1st Quarter

This analyzes Italy's steady decline in unemployment, citing economists' opinions on the causes. Strong economic growth combined with a more leniant political atmosphere have reportedly spurred companies in expanding their businesses and hiring more workers, which has lowered the unemployment rate.

Saturday, August 25, 2007

Tuesday, August 14, 2007

Summer Commentary #2

This article is remarking on Toyota’s strong performance in the global automobile market. It notes the different reasons for this strong performance and comments how the performance has been so strong over not only the past months but over the past few years has led to Toyota replacing GM as the dominant global automaker force.
The article then ties its title to the body by connecting the strong performance with Toyota’s desire to expand its business into emerging economies such as Russia and China.

Toyota has had much success in the past few months for a few reasons.
1. Increased pump prices around the world has increased the popularity of Toyota cars. Pump prices (gasoline) is a complement of an automobile. Thus, when the price of gas goes up, the demand for automobiles decreases. However, since Toyota’s cars are high-mileage (that is, little gas for many miles). Therefore, Toyota’s cars are marginally more popular because they are marginally more efficient.
2. Reminiscent of the Yuan-Dollar conflict, Detroit automakers (Big Three – GM, Ford and Chrystler), are working themselves up because of the weak Yen. They are claiming that the weakening Yen as compared to the Dollar is making Toyota’s exports cheaper in the States.

In the face of climate change, where China and Russia are slowly but surely becoming more conscious of their environment, Toyota’s efficient cars (the new Hybrid Prius, for example) are becoming more attractive choices. True that these cars are more expensive, but the very reason that Toyota wants to expand into these countries is because of their growing middle class. It also seems that Toyota might have an edge over the competition with the currency. The weakening Yen would make Japanese cars such as Toyota marginally cheaper than American cars such as GM or European cars such as Audi or Fiat.

In light of emerging auto-markets, where Toyota has the potential to tap a new middle class, it is only natural that they would try and expand. Considering the factors discussed in this analysis, I believe that they will be successful therein.

Wednesday, July 11, 2007

Summer Commentary #1

CNN: Can tainted toys spark U.S.-China trade tiff?

In this article, the US accuses China of neglecting safety and quality controls, opting for large economic growth instead. Calls in Washington for trade protectionism have now strengthened after poisoned pet food, faulty toys and sub-standard human food was found in the Chinese exports to the US. These strengthened calls come after the US goods trade deficit with China rose to $ 233 billion in 2006 and have come in the form of Senators’ outcry in Congress and ads on television.

This article is describing the call for trade protectionism on the part of the Americans. The reasons for trade protectionism are the infant industry argument, anti-dumping, protecting unemployment, balance of payments, externalities and demerit goods, strategic reasons and unrealistic assumptions of comparative advantage.

In this situation we can directly identify that the Americans want to adopt a policy of protectionism because of the externalities resulting from the trade. These externalities would come in the form of poor quality goods that have already “killed dozens of animals”. The reason why the poor quality goods are still being exported to the US is because of their lower price. However, if the US adopts trade protectionism, then the Chinese goods become more expensive and thus the consumers will be more inclined to buy the better quality American goods (tariff graph omitted due to technical difficulties).

Looking deeper into the situation, we can identify that the Washington is keen to adopt protectionism to stabilise the balance of payments. The trade protectionism would also be strategic. Prior to this incident, there was already concerned talk among Washington lawmakers about “the massive US trade gap [with China]”. This situation offers the excellent opportunity to “pressure China”. Pressuring China is exactly what some US lawmakers want to do. Many claim that the undervalued Chinese yuan gives Chinese goods an unfair comparative advantage.

Looking at it from this perspective, the protectionism is also strategic. As Merrill Weingrod points out in the article, "It [the tainted goods] fuels the anti-China lobby. The next time senators want to bring up protectionist trade regulations, they'll get a sympathetic hearing." It is the perfect chance for the US to slow down the runaway Chinese trade train.

However, trade protectionism also brings about a bigger cost to consumers. This may lead to higher inflation. It could also lead to a trade war with China. Some US lawmakers are weary of this, pointing out that China holds over $ 1 trillion in US assets, making “the US economy vulnerable if China decided to dump dollars in the event of a trade war.”

Although the tainted goods may just be a bit of poisoned pet food and faulty “Thomas the Tank engine trains”, but it signifies a much deeper problem in the trade relations between the US and China. As the article title suggests, this may be the final drop.

Tuesday, May 22, 2007

Chapter 13 Homework

Key Question 4
The components of M1 are;
- Currency
- All checkale deposits
The largest component is checkable deposits, by a small margin.
The face value of a coin is greater than its intrinsic value because the recipient is confident that they will be able to exchange the coin for a good of the same value.
Near-monies included in M2 are "certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into curreny or checkable deposits." (McConnell and Brue, 247)
M2 and M3 money supplies are distinguished by their lack of liquidity.

Key Question 6




If instead;


From this, we can draw the conclusion that there is an inverse relationship between the purchasing power of the dollar and the price level.

Key Question 7
The basic determinant for the transactions demand is the level of nomial GDP.
The basic determinant for the asset demand for money is the interest rate.
We can add these two, horizontally, to graphically show the asset demand against transaction demand. The result is a downwards sloping curve. The equilibirum interest rate is then determined at the intersection between this curve and the money supply.
a) the expanded use of credit cards may increase the demand for money, and thus the interest rate will decrease.
b) a shortening of worker pay period may increase the demand for money, and thus the interest rate will decrease.
c) an increase in nominal GDP signals an increase in the demand for money, and thus the interest rate will decrease.

Monday, May 14, 2007

Chapter 12 Homework (Part 2)

7. Key Question
The full-employment budget measures what the Federal budget deficit or surplus would be with existing tax rates and government spending levels if the economy had achieved its full-employment level of GDP in each year. It allows economists to adjust the actualy Federal budget deficits and surpluses to eliminate the automatic changes in tax-revenues.
It can differ from the actual budget if there is economic expansion or recession.

On page 219, figure 12.3, GDP2 reflects a zero deficit or surplus of full-employment budget. To further the country's GDP, I would raise government spending. In terms of the graph, this would cause an upward shift in G.

10. Key Question
The political business cycle is when politicians use expansionary fiscal policy right before an election, and contractionary fiscal policy right after an election, to dampen excessiev aggregate demand.

Thursday, May 10, 2007

Chapter 12 homework : Questions 2 and 3

Multiplier = 1 / (1-0.8)
= 1/ 0.2
= 5

$25 Billion / 5 = necessary government spending

The government must spend $5 Billion to increase the GDP by $25 Billion

To end severe demand pull inflation, contractionary fiscal policy may be in order. To do this, the government would have to decrease public spending, increase taxes, or somehow combine both. This would then cause an inward shift of AD, bringing down the price level.
Someone who would want to preserve the size of the government would increase taxes rather than decrease public spending, and someone who thinks the public sector is too large would do the opposite.