Question 1- Three Key Facts
Identify the three key facts about short-run economic fluctuations and how the economy in the short run differs from the economy in the long run. Provide real-world examples of those "key facts."
According to Mankiw (2015), those three key facts include:
Economic Fluctuations Are Irregular and Unpredictable.
Most Economic Quantities Fluctuate Together.
As Output Falls, Unemployment Rises. (pp. 316-318)
For example, according to the Bureau of Labor Statistics (2016), from December 2007 to 2008 the unemployment rate rose from 5.0 to 7.3, and, according to the Bureau of Economic Analysis (2016), GDP fell 0.3 percent.
Class - How does the economy in the short run differ from the economy in the long run? What real-world examples do you have of the three key facts posted in the above list?
Question 2- Shifts in AS and AD
Explain economic fluctuations and how shifts in either aggregate demand or aggregate supply can cause expansions and recessions using the model of aggregate demand and aggregate supply.
In the two threads, I have posted in response to this message, let's consider the factors that cause shifts in aggregate supply and aggregate demand . . .
Question 3- Why is unemployment a lagging indicator?
Patricia's comments were related to the assertion by Mankiw that "as output falls, unemployment rises" (Mankiw, 2015, p. 318). The relationship between output (GDP) and the unemployment rate is clearly shown in the graphs in Chapter 20. In addition, if you take a close look at the relationship between output and unemployment, you will see that unemployment is a lagging economic indicator.
Class -- What is the definition of a lagging economic indicator? Why is unemployment a lagging indicator? What behavior explains why unemployment a lagging indicator?
Question 4 - Shifts in Aggregate Supply
Hello, Everyone - According to our course text, Mankiw (2015), factors that might increase or decrease GDP from the supply side (aggregate supply) include changes in:
1) Labor.
2) Capital.
3) Natural Resources.
4) Technology (productivity).
5) Expected Price Level. (p. 336)
Please note: A change not listed is changes in taxes and subsidies. Also note: The availability of imported resources (labor, capital, and natural resources such as oil) affects the short-run aggregate demand curve.
For example, during the time that I was Finance Chair of the Adirondack Community Church in Lake Placid, we experienced increases in input prices including the cost of oil (for heating) and of health insurance for our employees. Consequently, we reduced our staff and some of our programs. Increases in the cost of producing goods and services would shift the SAS curve to the left and reduce GDP.
Class - In your Week 4 assignment, how will you explain how shifts in aggregate supply can cause economic expansions and recessions? What real-world examples do you have?
Question 5 - Shifts in Aggregate Demand
Hello, Everyone -- GDP includes four components of spending including:
1) Consumption (consumer spending).
2) Investment (includes nonresidential structures/buildings, residential structures/buildings, and equipment and software).
3) Government (includes spending by Federal, state, and local governmental units).
4) Net Exports (exports minus imports).
According to our course text, Mankiw (2015), factors that might increase or decrease GDP from the demand side (aggregate demand) include changes in:
~ Consumption.
~ Investment.
~ Government Purchases.
~ Net Exports. (p. 431)
For example, in 2012, concern was expressed that Europe could fall back into a recession, and that could hurt the U.S. economy (reduce exports) and possibly cause the U.S. economy to also fall back into a recession.
Class - In your Week 4 assignment, how will you explain how shifts in aggregate supply can cause economic expansions and recessions? What real-world examples do you have?
Question 6 - Why is the aggregate demand curve downward sloping?
Hello, Everyone - Chapter 21 of our course textbook (Mankiw) starts out by discussing why the aggregate demand curve is downward sloping. For those of you who have taken microeconomics, you will notice the aggregate demand curve is downward sloping just like a market demand curve. To be clear, a market demand curve shows the demand for a single product or service, such as the demand for iPhones or ice cream cones, while an aggregate demand curve shows the demand for all products and services, which is measured by gross domestic product. In microeconomics, we study market demand curves, and, in macroeconomics, we study aggregate demand curves; both are downward sloping.
According to Mankiw (2015), there are three reasons why the aggregate demand curve is downward sloping including:
Wealth Effect.
Interest Rate Effect.
Exchange-Rate Effect.
Class - What comments and/or questions do you have on the three effects that explain the downward slope of the aggregate demand curve? Consider one of the effects listed above and discuss why a decrease in the economy's overall price level (deflation) would cause aggregate demand to increase AND/OR consider one of the effects listed above and discuss why an increase in the economy's overall price level (inflation) would cause aggregate demand to decrease?
Question 7- Natural Rate of Unemployment and Inflation
Hello, Everyone - The Week 4 report requires you to:
Evaluate why policymakers face a short-run trade-off between inflation and unemployment and why the inflation-unemployment trade-off disappears in the long run. Support your contentions with statistics on inflation and unemployment from the Bureau of Labor Statistics.
Also, according to Mankiw (2015):
. . . the natural rate of unemployment depends on various features of the labor market, such as minimum-wage laws, the market power of unions, the role of efficiency wages, and the effectiveness of job search. By contrast, the inflation rate depends primarily on growth in the money supply, which a nation's central bank controls. In the long run, therefore, inflation and unemployment are largely unrelated problems. (p. 377)
Class -Let's start with the natural rate of unemployment, which we discussed in Week 2. What is the definition of the natural rate of unemployment and why is it important? Also, Mankiw said "the inflation rate depends primarily on growth in the money supply;" it also depends on growth or decline in output as well as declines in the money supply. Why does inflation also depend on growth or declines in output?
Question 8- Contractual Wages: A fixed cost
Patricia and All -- Patricia discussed how wages can be a fixed cost; she said "in 2014 after a large solar project my Husband worked on, Took a hard hit. He's a member of the Local Union Brotherhood, That worked him and promised that work will last three years or more,(Sticky)."
Here's another example of fixed labor costs . . . the labor union I belong to, Professional Employees Federation (PEF), usually negotiates three or four years wage and benefit contracts with New York State. Consequently, wage and benefits are considered to be fixed costs over the term of the contract. Please note: The contracts usually provide annual wage increases to keep pace with the cost of living; however, the terms of the contract are "fixed" over the duration of the contract. So, even though wages rise over the period of the contract, the wages and benefits are considered to be "fixed" costs for the duration of the contact because the contract is a legal obligation and cannot be changed during the life of the contract.
Patricia and Class -- What other examples do you have of contractual obligations, such as wage contracts, that are considered to be fixed costs?
Question 9 - Which Economic quantities fluctuate together?
Tomeka and All -- Tomeka said "Fluctuations in the economy are often called the business cycle. As this term suggests, economic fluctuations correspond to changes in business conditions." Let's discuss Mankiw's (2015) contention that "most economic quantities fluctuate together" (p. 316). For your Week 4 papers, you are required to provide real-world examples of how "most economic quantities fluctuate together." Please note: Economic statistics can "fluctuate together" while moving in opposite directions. For example, income usually falls as unemployment rises.
The Bureau of Labor Statistics, the Bureau of Economic Analysis, and the Federal Reserve among other agencies produce a large variety of economic statistics, such as trends in income, interest rates, household debt, education debt, GDP, unemployment, and inflation among many other economic statistics.
Class -- How can you use information from the Bureau of Labor Statistics, the Bureau of Economic Analysis, the Federal Reserve, and other creditable sources of economic statistics to support your contentions that "most economic quantities fluctuate together?" What statistics would be most useful to business managers?