Chapter 35

I would give this chapter a 1.5 out of 3. This chapter covers a topic that we briefly talked about in chapter one: The trade off between inflation and unemployment. The two have a negative correlation as shown by the Phillips curve. As one rises the other will fall. This interaction is very important in the short run. Policy makers have an array of options to influence inflation and can thus approximately choose where along the curve they want to lie albeit only in the short run. The long run Phillips curve is vertical and thus the inflation rate won't deviate the unemployment rate in the long run according to classical economic thinking. Because of expected inflation the nominal wages and employment rate can adjust. The sacrifice ratio, or the amount of output that falls to reduce inflation by 1% is said to normally be around 5%.

Chapter 34

I would give this chapter a 1.5 out of three. It started by talking about some the of the variables discussed in the previous chapter. It mentioned the wealth affect, interest rate affect, and the exchange rate affect. It talks about how monetary policy can affect aggregate demand. It then talks about the theory of liquidity. Money supply is not affected by interest rates because its the fed that determines the money supply through open market operations or setting the reserve rate. Interest rates do however affect the demand for money because it is the most liquid form of asset available. As interest rates go up the cost of holding money is higher as it could be earning interest in a bank. This will decrease demand for money. The equilibrium interest rate balances the quantity supplied with demand. As interest rates rise this was also cause production to decrease because of the lowered investment and increased saving.

Chapter 33

I would give this chapter a two out of three as I felt that there were a lot of things that I needed to remember in the chapter. We learned about aggregate demand and supply, and looked at it specifically in the short run as well. In the short run economists agree that the classical dichotomy does not hold up as it does in the long run. This is because it takes time for the various markets to respond to changes in many factors. Some factors that affect it are the price level. For instance the short run demand curve could be affected if the value of money doubled consumers would be inclined to both spend more and save more of their money. This is because the price of goods and services still hasn't adjusted to the new value of money and has remained at the old price level. Consumers will also save more as the are in effect "wealthier". A change in the long run would be governments purchases which can affect the demand curve as well by increasing the total demand or reducing the total demand in the market by increasing or decreasing spend. On the short run supply side changes in the price level could also cause a change. If the value of money was halved, companies would be more inclined to supply a greater amount to the market because they would be getting more dollars for each item they sold. A long run example would be a change in the work force, like an influx of immigration shifting the supply curve to the left.

Chapter 32

I would give this chapter a 1.5 out of 3. This chapter talked about a new market, the foreign currency exchange market. We learned before that the loanable funds market is saving=domestic investment + net capital outflow. We learn that interest rates can have a big affect on this market because of the principles of supply and demand. The difference is that many variables in this chapter affect more than just one market. If you want to get foreign goods then someone is going to have to change your money into that foreign currency, which increases supply in the foreign currency market and increases demand for that foreign currency. The real exchange rate is what balances this market. Net capital outflow doesn't depend on the real exchange rate because the people who invest will eventually turn their investment back to their own currency at the same lower valued amount.

Chapter 31

I would give this chapter a 1.5 out of three. This chapter introduced us to open or global economies. Previously we had kept the economies closed for simplicity's sake but now we look at a variety of factors concerning them. These include net exports and net capital outflow. Net exports is the value of the goods exported by a country minus the value of the goods imported by the country. Net capital outflow is the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreign residents. Foreign assets can either be a direct or portfolio investment. Net capital outflow can be influenced by a variety of factors including the real interest rate on foreign and domestic assets, perceived risk, and government policy. Net capital outflow is always equal to net exports.

Chapter 30

I would give this chapter a 1.5 out of 3. Most of the material intrinsically makes sense to me although it is a little less interesting than normal. The basic idea of the chapter was to explain inflation; what it affects and how it happens. The general idea was that inflation is the result of monetary policy and that it didn't have an affect on real variables in the long run although it did on nominal variables. The velocity of money represents how fast money changes hands in the economy. Despite inflation economic velocity is relatively stable. Hyperinflation is when inflation is over 50% and results from the government printing to much money. As they need to pay for various goods and services countries may succumb to hyperinflation. This is called the inflation tax. Inflation doesn't necessarily have to be bad.

Chapter 29

I would give this chapter a two out of three for difficulty. There was a lot of material introduced in this chapter although nothing was inherently difficult to grasp in particular. I learned about how our monetary system works. Things like how transactions are facilitated and how much money is in the money supply. The reason why we are able to use money as a means of exchange is because people put trust in the future value of the money. Our currency is intrinsically worthless (other than the penny) and so it's important that people have trust in the government and thus the money. Using currency is much more efficient than trying to use items or services to barter. The money supply can also be increased or decreased through the sale and purchase of government bonds. This is one way to control inflation.