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.