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Article 11

Wealthy keep themselves on top The gains the rich got may have been ill gotten

o Fraud or exploiting most of the tax payers Rise in inequality due to market forces

o Globalization and technological change favor the highly skilledo Many winner take all markets are emerging

Why we might care about inequality: unfair process or harmfuloutcome

o The more unequal society becomes, the greater the incentivefor the rich to pull the ladder behind them

Plutocrats shape conversations by buying up newspapers and TVchannels

Article 12 wealth gap among races widened income distribution

Many people had loss of wealth during recession but a lot worse forblack and Hispanic compared to whites

o Whites averaged $2 for every $1 that black and Hispanicfamilies earned

o But now it has went up to $6 to 1 Might still be growing Rooted in society and not going away anytime soon Wealth gap may be worse than income gap

o Young black people are much less likely than young white pplto receive large sum from their parents for any help in school

or business

Black families hit disproportionally by housing collapse and sufferedbig hits to retirement savings

o Blacks lost 35% while whites gained 9% land grab as the houses start to appreciate again, some of the

minority buyers might not be back

very hard to catch up to the whites reforming policies that encourage savings but disproportionately

favor the wealthy

Article 13 lemongrass war monopolistic competition

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Ms. Tanzil is great at cooking Indonesian food started a food stallin own kitchen

Mr. Imansjah took her in to help him with his Indonesianrestaurant

o at first seemed good but Tanzil was eventually fired Tanzil opened up another Indonesian restaurant four doors away

from the old restaurant six months later

o They seem similar but are somewhat distinguishable Profits dropped from the original restaurant

o Another firm entered the marketArticle 14 fighting for classroom attention externalities

People are bringing laptops to classo Professors believe that they are doing other things than

taking notes, which in turn distract others from paying

attention in class which affects their performance in class

o Professors try to find other ways to deal with it Banning laptops Internet kill switch Concerned about distractions

Article 15 Eurozone ends now overview to macro France and Germany helped pull the 17 country euro zone out of

the recession

Many have been shrinking but the growth of france and Germanyhelped htem out

Not in recession anymore but still have debt crisiso Means that they are recovering but still in trouble else where

Better because foreigners coming in and spending more moneyArticle 16 GDP Fetishism Measuring GDP

GDP may be a poor measure of well beingo If G increases, output goes up

General trend is that GDP has been increasing US spends a lot on healthcare but gets poorer results compared to

other countries

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Problems: if bankers income increases by a lot, the average incomecan go up even if most individuals incomes decrease

Article 17 Gender gaps appear in employment in recovery

unemployment Jobs are coming back after recession As industries stabilized and recovered, men were more likely to find

jobs than women

Both men and women lost jobs at the same rate during therecession

Article 18 Easy useless economics

Talked about old economics in 1930s The economy has bled jobs across the board, not just where the

bubble was

People have been trying to declare problems as structural Should not focus on quick fixes but focus on the long rung

o LR generally inflicts pain on workers and poor Keynes said that LR is misleading in LR, we are dead. The biggest problem on the young Americans isnt facing incoming

debt but the lack of jobs, which prevents many graduates from

getting their lives started

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Article 19 more services means longer recoveries EQ output and AE

Previous recessions occurred over a shorter period of time This is happening because shifting from producing goods to a

service economy

o Producing services makes it longer to recovero Service sector is increasing a lot.

Includes fast food and brain surgery Partially attributed to faster productivity growth in manufacturing

and rising incomes

Services cannot be inventoried for and can only be produced ifthere is domestic demand

o Goods are not dependent on domestic demand They can produce if they expect increasing domestic

and external demand

o EX. Restaurants can only produce a meal if you are in thebooth

o Dentists can only produce and inventory teeth cleaning ifyoure in the chair

Article 20:Easy Credit Dries up, Choking Growth in China Investment

spending

Businesses were booming but now with credit crisis, thousandsbusinesses have closed and everything is repossessed

People packing up businesses and trying to sneak out w/o payingdebts

No cash and everyone stays home without a job Lots of defaulting shadow banking informal lending many people are affected

by this

lending has collapsed nobody will give a loan State owned banks loaned at low rates so many people borrowed

o Then the borrowers lend to others at a much higher priceo Ex. Mr. Liu his borrowers defaulted

Harder to repay loans Businesses could now afford to borrow at double digit interest rates

because nominal growth has been increasing a lot

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There was an increase in investment spending but there was not asmuch demand for the good as predicted so there was not much of a

profit

Housing bubble poppedo House prices dropped from 330k to 20k

Article 21: Electric Boat to lay off nearly 500 employees Multipliers

94 employees laid off due to a decline in contracted worko said projected workload was cannot sustain current

employment

due to anticipated decline in area of overhaul and repairo Will lay off total of 450 500 ppl b/c repair side of business is

slowing

Navy tried to come up with soluation to try not to get the peoplefired

EBs work is very cyclical and subject to ramp ups and downturns Groton is suffering loss from tearing down research headquarters

which then led to a $2 million loss in tax revenue

Will have trickle down effect b/c employees eat lunch at the cityand stop at the businesses

o Less employees less business for businessesArticle 22:Measuring the output responses to fiscal policy Fiscal Policy

Economists divided on areas such as:o Strength of fiscal policys macro effectso Channels through which these effects are transmittedo Variations in these effects and channels with respect to

economic conditions

Issue of debate is the size of multipliers G has large multipler when nominal rate is at zero bound only

occurs rarely and in recessions

The question is how fiscal shocks vary over business cycle Using SVAR modles estimate effects of tax and spending policies

over business cycles

o Large differences in fiscal multipliers in recessions andexpansions

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o Fiscal policy more effective in recession than expansions Multiplier depends on business cycle

o B/t 0 and 0.5 in expansion and b/t 1 and 1.5 in recessiono Size of multiplier change quickly as economy grows after

trougho Defense spending has largest multiplier

Article 23: Stimulating Economy in an Era of Debt and Deficit Fiscal

Policy

Monetary policy is ineffective to restore full employment Traditional fiscal policy tax cuts and/or spending increasing

o GDP will increase and the ratio of debt to GDP will decrease Critics say fiscal economy may not be best b/c government not

likely to spend all money and fiscal multipliers are small

o But government spending shows extraordinarily high returnon investinments in infrastructure and education

o At full employment, GDP cannot increase multiplier is 0o Multiplier is large b/c monetary authorities raised interest

rates constraining credit availability dampening private

spending

Fed now trying to keep interest rates low while increasing govspending

o There will be a lot of crowding in For deficitgov raises revenue by taxing upper class (who have

high save rates) and use funds for investments

o This directly injects the money into the economy that wouldhave otherwise been saved up

o MPC for poor is very high while mpc for rich is very low So an extra dollar spent on tax reductions for rich

reduces GDP by a much smaller amount

Article 24: Strong Yen is Dividing Generations in Japan Open Economy

Macro

Japan economy declining Business leaders say gov can control the Yen too high

o Expensive for others (meaning less exports to japan)

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High yen benefits Japans rapidly elderly populationo Bringing imports contributing to deflation broader drop

in prices to help economy back into shape

The strong yen and deflation due to clash of generationso High cost b/c japans companies begin to move abroado Elders have been standing in way of fundamental change

When crisis began in US, foreigners and others left the US marketand ran to Japan which decreased the price of foreign currency to

the yen so the yen appreciated

More effective effective to drive up inflation is to turn on theprinting presses encouraging currency to drop

Strong yen means ability to import a lot and travel at the cost ofnot increasing japan economy

Article 25: Quantitative Easing: Lessons Weve Learned Federal

Reserve

Central banks have been taking unconventional monetary policy quantitative easing

o Been trying to lower fed funds rate but cant go negative QE is when central bank goes from targeting intrest rates to

targeting amount of excess reserves held by banks

o Do this by buying financial assets in exchange for reserveso Difference is that the level of purchases and not the interest

rate becomes the target

o Fed began to buy more things such as MBS and GSEs andlong term US treasury bonds

QE doesnt impact future short term rates Central bank can use QE to signal its commitment to hold intrest

downs longer

QE make also directly impact term and/or risk premiumsNot in Readings Reading: Why did the federal reserve start paying interst on

reserve balances

Friedman recommended central banks pay interest to banks on thereserves they are required to hold against their depositi liabilities

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o Intended to improve monetary policy by making it easier tohit short term interest rates

Now important since Fed is not loaning Under 2006 act, banks were required to pay interest on required

reserve balances and on excess balances When pay interest rates on reserve, required reserves increased but

excess reserves increased even more (over required reserves)

o Meaning they can lend more? Paying interest rate on reserves allows Fed to increase lvl of

reserves and still maintain control of FFR

The excess reserves have sky rocketed so paying interest on excessreserves keeps it at a lower quantity and causes more loaning

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