Chapter 28’s main focus was on unemployment and how to calculate the percentages of those working to the labor force and the labor force to the adult population. Overall, these concepts were relatively easy to understand through the way book describes the topics and the examples it provides. Rating would be a 1.5/3.
This chapter was longer than the others, but the book does a great job in making sure the information is clear and shows connections to real life effectively. the book also defines the two different kinds of unemployment, frictional and structural. Frictional unemployment is due to wanting to find a job that suits your tastes and it always changes via a change in taste otherwise known as sectoral shifts. Structural unemployment is a lack of wanted jobs in certain labor markets due to an increase in wages.
One reason for unemployment is the time it takes workers to search for jobs that best suit their tastes and skills. This frictional unemployment is increased as a result of unemployment insurance, a government policy designed to protect workers' incomes. A second reason our economy always has some unemployment is minimum-wage laws. By raising the wage of unskilled and inexperienced workers above the equilibrium level, minimum wage laws raise the quantity of labor supplied and reduce the quantity demanded. The surplus of labor represents unemployment.
A third reason for unemployment is the market power of unions. When unions push the wages in unionized industries above the equilibrium level, they create a surplus of labor.
Sunday, February 5, 2017
Wednesday, January 25, 2017
Chapter 27 Review
Finances were the main focus of Chapter 27. Mankiw’s teaching of the present/future value of money was pretty easy to understand mathematically. Conceptually with the risk aversion and insurance market (with its risk adverse selection) was explained well and left little room for confusion. Overall, this chapter was simple in its ideas and wasn’t hard to read. I would give this a difficulty level of 1.5/3. In order to calculate the present value and future values, you need to have the interest and we assume that the interest rate will not change as much as it has recently.
I think this chapter will have more real life applications as we are into Macro, this chapter teaches us how to diversify our risk and spread it out instead of dumping it all on one item. There is no way to get rid of risk completely, but there is a way to minimize it. The present value states that a dollar in the future is less valuable than a dollar today, and it gives a way to compare sums of money at different points in time. This is because due to savings earn interest, a sum of money in present day is more valuable than the same sum of money in the future. The present value of any future sum is the amount that would be needed today, given prevailing interest rates, to produce that future sum.
The book says that due to diminishing marginal utility, most people are risk averse. Risk-averse people can reduce risk by buying insurance, diversifying their holdings, and choosing a portfolio with lower risk and lower return. The value of an asset equals the present value of the cash flows the owner will receive. According to the efficient markets hypothesis, financial markets process available information rationally, so a stock price always equals the best estimate of the value of the underlying business.
Thursday, January 19, 2017
Chapter 26 Review
I thought this chapter was relatively hard compared to the previous chapter because there were many vocabulary terms to understand, and the concepts of this chapter are new to me, so it took a longer time for me to grasp the subject. (Stocks/stockholders and private/public saving) I would rate this chapter a 2/3.
Chapter 26 starts off describing how the Unites States financial system is made up of many types of financial institutions, such as the bond market, the stock market, banks, and mutual funds. All these institutions act to direct the resources of households that want to save some of their income into the hands of households and firms that want to borrow.
The book, later on, talks about national income accounting identities, which reveals some important relationships among macroeconomic variables. In particular, for a closed economy, national saving must equal investment. In a bond, the company will borrow money from the public in the promise of eventually paying the initial amount back, along with some interest. Of course, there are dangerous of defaulting on a bond, which can be made up for by offering higher interest rates to incentivize lenders. Stocks are introduced by Mankiw as a share of the company. If the company profits, so do the stockholders, but if the company loses, the bondholders get paid first before the stockholders get anything.
The book then moves to financial intermediaries, and the two examples used to explain are banks and mutual funds. Banks are explained by Mankiw as a place where people put their money in, and the bank will pay them interest on their money in exchange for lending out their money to borrowers for a slightly higher interest rate. This allows for a small profit for the bankers. Mutual funds seem to be less risky than either option since it’s not focusing all “your eggs in one basket” as Mankiw states. That was the first half of the chapter, and the second half seemed to just explain government surplus/deficit as well as private/public saving.
Chapter 26 starts off describing how the Unites States financial system is made up of many types of financial institutions, such as the bond market, the stock market, banks, and mutual funds. All these institutions act to direct the resources of households that want to save some of their income into the hands of households and firms that want to borrow.
The book, later on, talks about national income accounting identities, which reveals some important relationships among macroeconomic variables. In particular, for a closed economy, national saving must equal investment. In a bond, the company will borrow money from the public in the promise of eventually paying the initial amount back, along with some interest. Of course, there are dangerous of defaulting on a bond, which can be made up for by offering higher interest rates to incentivize lenders. Stocks are introduced by Mankiw as a share of the company. If the company profits, so do the stockholders, but if the company loses, the bondholders get paid first before the stockholders get anything.
The book then moves to financial intermediaries, and the two examples used to explain are banks and mutual funds. Banks are explained by Mankiw as a place where people put their money in, and the bank will pay them interest on their money in exchange for lending out their money to borrowers for a slightly higher interest rate. This allows for a small profit for the bankers. Mutual funds seem to be less risky than either option since it’s not focusing all “your eggs in one basket” as Mankiw states. That was the first half of the chapter, and the second half seemed to just explain government surplus/deficit as well as private/public saving.
Monday, January 16, 2017
Chapter 24 Review
Overall I would give this chapter a difficulty rating of 1.5/3. The general idea of the chapter revolves around the CPI, and the CPI, although initially difficult to understand, became easier. The book does a good job of explaining by using the basket example. Also, although there were a few equations (inflation rate and dollar figures from different times) to memorize, it didn't seem to hard to understand, only hard to keep into memory.
Chapter 24 began by introducing the topic of CPI, also known as consumer price index. It measures the overall cost of the goods and services bought by a typical consumer. The book also discusses the concepts of inflation based on real and nominal interest rates. The book had a very nice way of explaining this, especially with the basket example.
CPI also fails to account for the introduction of new goods in the market, making the so called basket unreliable as consumers may be interested in purchasing new goods. There are a lot of arguments that CPI overestimates the cost of living, and many are against it, espciailly those of which incomes are based according to CPI. Due to these reasons, the CPI overstates true inflation. Similar to the CPI, the GDP deflator measures the overall level of prices in the economy.
The nominal interest rate and the real interest rates were re-introduced in this chapter, and they were easy to understand because we learned it last chapter and this concept seemed more familiar.
Sunday, January 8, 2017
Chapter 23 Review
I would give this chapter a 1.5/3 in difficulty. This chapter is basically setting the foundation of Macroeconomics by explaining the concepts of GDP (Gross Domestic Product). The concepts are mostly common sense, and only some parts of this chapter (GDP Deflator) were a bit confusing, but that no longer was a problem once I read it over multiple times.
The book first introduces GDP and its definition: the market value of all final goods and services produced within a country in a given period of time. I would say that the book does a good job of explaining the definition because it elaborates on each part of the definition, separating it into their own categories. "Of all", "Final," "Goods and Services", etc.
Then the book goes on to give us an equation, Y= C +I +G+NX. This equation basically defines the components of GDP. Consumption, Investments (as mentioned in the book, doesn't mean financial investments, it actually means purchases of investment goods), government purchases, and net exports.
An interesting part of the GDP is that there are two types. Nominal, and real. The only part at which they differ is choosing a constant price or a current price. In addition, the book introduces the idea of GDP Deflator. I had a little bit of trouble trying to understand how to use it, but the table the book provided helped me comprehend this new concept.
The book first introduces GDP and its definition: the market value of all final goods and services produced within a country in a given period of time. I would say that the book does a good job of explaining the definition because it elaborates on each part of the definition, separating it into their own categories. "Of all", "Final," "Goods and Services", etc.
Then the book goes on to give us an equation, Y= C +I +G+NX. This equation basically defines the components of GDP. Consumption, Investments (as mentioned in the book, doesn't mean financial investments, it actually means purchases of investment goods), government purchases, and net exports.
An interesting part of the GDP is that there are two types. Nominal, and real. The only part at which they differ is choosing a constant price or a current price. In addition, the book introduces the idea of GDP Deflator. I had a little bit of trouble trying to understand how to use it, but the table the book provided helped me comprehend this new concept.
Sunday, December 4, 2016
Chapter 18 Review
Chapter 18 introduced the topic of the markets for the factors of production. The chapter discusses this in terms of a perfectly competitive market. This chapter was relatively easy to understand, because the book uses nice examples to back up the ideas and concepts .The chapter discusses a lot from what we learned from previous chapters too, so that was helpful. I rate this difficulty a 1.5/3
The book begins talking about the three major important factors of production. Factors of production, that was slightly touched upon in Chapter 2, are the inputs used to produce goods and services. The three most important are labor, land and capital. The chapter mostly analyzes factor demand by considering how a competitive, profit-maximizing firm decides how much of any factor to buy. For instance, in order to understand the importance of the graphs of a competitive firm when deciding how much labor to hire, we need to understand production function, marginal product of labor, and the diminishing marginal product.
Something I found interesting is production function. Production functionChapter 18 introduced the topic of the markets for the factors of production. The chapter discusses this in terms of a perfectly competitive market. This chapter was relatively easy to understand, because the book uses nice examples to back up the ideas and concepts .The chapter discusses a lot from what we learned from previous chapters too, so that was helpful. I rate this difficulty a 1.5/3 is used to describe the relationship between the quantity of the inputs used in production and the quantity of output from production. Marginal product of labor is the increase in the amount of output from an additional unit of labor. Lastly, diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of the input decreases.
We have learned all of these terms from previous chapters, and the book backs these terms up with a nice detailed chart to help you understand. Newly introduced is the value of the marginal product. This is the marginal product of an input times the price of the output. This can also be known as the marginal revenue product. Using these terms, we can efficiently discover how many workers a perfectly competitive firm would hire. The labor-demand curve is the value of the marginal product, and where the market wage and the labor-demand curve is the profit-maximizing quantity of labor needed.
Sunday, November 27, 2016
Chapter 16 or 17 (Oligopolies Review)
This chapter was relatively easy to understand. It dove into oligopolies, which is a form of imperfect competition. We briefly touched upon this the previous chapter so I kind of knew what was going on for the most part. The first 10 pages were very easy to understand, and the examples and charts the book gave helped me understand a bit more. I would give this chapter a 1.5/3
The definition of imperfect competition is that it has competitors but not so much that they are price takers. The book described two types of imperfect competition: oligopolies and monopolistic competition. A monopolistic competition is a market structure in which many firms sell products that are similar but not identical. This was what we learned in the previous chapter.
Just like the book explained in the previous chapter we learned, there are within the four types of market structures, which are monopolies, oligopolies, monopolistic competition, and perfect competition. The type of market structure talked about in this chapter was oligopolies. An oligopoly is a market structure in which only a few sellers offer similar or identical products.
Something interesting I found in the book is that economists measure a market’s domination using the concentration ratio, which is the percentage of total output in the market supplied by the four largest firms. Oligopolies tend to have high concentration ratios, which suits the definition of an oligopoly. The book begins to explain oligopolies by using the example of Jack and Jill and the control over water, a duopoly.
Also, the book has a nice way of achieving equilibrium for oligopolies, which is the Nash equilibrium. It explains further by explaining that the Nash equilibrium is a situation in which economic participants interacting with one another each chooses their best strategy given the strategies that all the others have chosen.
Later in the book, they talked about game theory, which is the study of how people behave in strategic situations. An example of this game is the prisoners’ dilemma, which is a game between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.
The definition of imperfect competition is that it has competitors but not so much that they are price takers. The book described two types of imperfect competition: oligopolies and monopolistic competition. A monopolistic competition is a market structure in which many firms sell products that are similar but not identical. This was what we learned in the previous chapter.
Just like the book explained in the previous chapter we learned, there are within the four types of market structures, which are monopolies, oligopolies, monopolistic competition, and perfect competition. The type of market structure talked about in this chapter was oligopolies. An oligopoly is a market structure in which only a few sellers offer similar or identical products.
Something interesting I found in the book is that economists measure a market’s domination using the concentration ratio, which is the percentage of total output in the market supplied by the four largest firms. Oligopolies tend to have high concentration ratios, which suits the definition of an oligopoly. The book begins to explain oligopolies by using the example of Jack and Jill and the control over water, a duopoly.
Also, the book has a nice way of achieving equilibrium for oligopolies, which is the Nash equilibrium. It explains further by explaining that the Nash equilibrium is a situation in which economic participants interacting with one another each chooses their best strategy given the strategies that all the others have chosen.
Later in the book, they talked about game theory, which is the study of how people behave in strategic situations. An example of this game is the prisoners’ dilemma, which is a game between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial.
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