Wednesday, May 16, 2007

Under-investment in health costs lives and money

The article discusses the lack of government spending upon health care services for midst of Asia-Pacific countries. Many lives that could be easily saved are thrown away in some of these countries due to a lack of basic health care. The article also claims that government spending on health care is in fact an investment instead of an expenditure. Infact, it is the best investments a country can make. The level of "investment" on health care determines the level of development a country have.
I find the arguement about government spending on health care extremely interesting. After all, better health care will lead to better health for the citizens of the country. This will lead to a better quality in the over all labour force, the major source of resource. As both government expenditure and both government investment are determinants of GDP, it is quite hard to determine whether the increase in GDP is caused by an "investment" or expenditure. However in the long run, better health care services I think does play a major role in changing the quality of the entire labour force. Thus should be considered as an investment.

Monday, May 14, 2007

Chapter 12 key question 7, 10

7. The full-employment budget measures what the Federal surplus would be if the economy reached full-employment level of GDP with existing taxing and spending policies. If the full-employment budget is balanced, then the government is in neither expansionary nor contractionary policy. The budget is the surplus results when revenues and expenditures occur over a year if the economy is not at full-employment. Figure 12-3 shows that if full-employment GDP level was GDP3, then the full-employment budget is contractionary because there would be a surplus. Even though the budget has no deficit at GDP2, fiscal policy is contractionary. Government should cut tax or increase spending to move the economy to full-employment, to raise G or lower T line, or a combination of both until GDP3.

10. dont get this one

Chapter 12 key question 2, 3

2: Multiplier = 1/(1-MPC)= 1/0.2= 5 - government spending = $5 billion
80% Tax Cut = 5 Billion, Tax Cut = 6.25 Billion
The difference between tax cut and gov spending is because not all of the tax cut is spend, some is saved.
Possible Combination - 5 billion tax cut and 1 billion increase in gov. spending

3: 1) reduce government spending 2) increase taxes
The person who wants to preserve the size of the government may go for option 2 because that will get gov more money while the person who thinks the public sector is too large might go for option 1 so as to "waste" some of gov's money.

Sunday, May 6, 2007

May 7th hwk

1. I think both arguements combined caused the high unemployments in Europe. For deficient aggregate demand, high government fundings and high interest rate may have been the cause. As for high natural rates, i think it is also an essential cause since the high government social benefits decreased the incentive to be employed and thus, the natural rate of unemployment is high. So both arguements combined caused the essential high natural unemployment rate.

2. During this time period, US was experience an extreme case of GDP growth with GDP growing much faster than employment rate. At that time, the industries must have been experiencing revolutions where technology and things as such updates with faster speed than ever, thus US was able to still maintain a low inflation rate at the time. What stopped this may very likely be the case of 911 or a natural reccession due to the nature of business cycles.

Sunday, April 8, 2007

Why Do We Neglect Leisure and Cheer for Divorce? Answers

1. the quality of those activities cannot be reflected from the quantitative datas of GDP while lotsa of things were not taken into account when calculating the GDP also. Things such as underground activities like drug dealing and environmental or war issues are all ignored and thus the GDP does not clearly reflect economic development.

2. This means that some country's GDP may be higher than others not because they are having more economic activities but because more factors were taken into account when calculating GDP. Thus the values of the two GDPs are not comparable as they do not represent two equal sections of the countries.

3. year 1996, armstrong made his largest contribution to GDP. 1996 again, armstrong had his lowest level of individual welfare. In 1999-2005, he had his highest level of individual welfare. Income is the net cost + profit gain or price * quantity while output refers to the quantity of production. Your own happiness however, is the emotional and physical (cash) profit u gain. Therefore, income and output may only reflect physical profit gained and happiness gained from physical profit. It does not reflects the emotional profits, thus, income does not equal happiness.

a. out
b. out
c. in
d. in
e. in
f. out

5. by including the income and records of the areas where the lesiure times were spent on, these markets such as for vacation tours can produce measurable values to indirectly reflect the social welfare of leisure time.

Wednesday, March 21, 2007

Macroeconomic article and abstract

Gasoline and food prices push inflation upward
Associated Press
WASHINGTON (AP) - Consumers paid more for energy, food and a host of other items in February as a sluggish economy failed to extinguish inflation pressures. But in a hopeful sign for growth, factory output posted a better-than-expected increase.
The Labor Department reported Friday that the Consumer Price Index rose by 0.4 percent last month, double the January increase, as energy prices shot up and adverse winter weather in Florida and California sent citrus prices soaring.
The increase was larger than the 0.3 percent rise analysts had expected, although core inflation, which excludes food and energy, rose by just 0.2 percent, in line with forecasts.
But even there, economists saw problems with widespread increases in a number of categories including clothing, housing, education and medical care.
"Underlying inflation remains stubbornly above the Federal Reserve's target and these inflation figures put the Fed in a bind," said Mark Zandi, chief economist at Moody's
The Fed, which meets next Tuesday and Wednesday, would like to cut interest rates to give the sluggish economy a boost, analysts said, but the central bank cannot do so because of the stubborn persistence of inflation pressures.
On Wall Street, the Dow Jones industrial average fell 49.27 points to close at 12,110.41 as the inflation report deflated hopes that the Fed would start moving toward an interest rate cut when policy-makers meet next week.
In a separate report, output at the nation's factories, mines and utilities increased by 1 percent in February, led by a 6.7 percent surge in production of electricity and natural gas. The Fed report said this was the largest gain in utility output in 17 years and reflected colder-than-usual weather in February.
Manufacturing, which makes up fourth-fifths of industrial output, also showed strength, rising by 0.4 percent, only the second increase in the past five months, a period when factories have been caught in the downdraft from weakness in housing and autos.
Auto production was up 3.2 percent, helped by an increase in light trucks, a sign that automakers may be getting control of their bulging inventories of unsold cars.
"The rise in industrial production is very good news after all the downbeat data in the past two weeks," said Nariman Behravesh, chief economist at Global Insight, another private forecasting firm.
But other economists said it may take several months to reduce the backlog of unsold goods, particularly in industries supplying the slumping housing sector.

As consumers have shown to be paying more for their purchases, inflation continues. However, the factory output shows a “better-than expected” increase recognizing the increase in inflation as a good sign of growth. Statistics show the the Consumer Price Index has rosed by 0.4% last month, much larger than expected however, it is also stated that core inflations only rose by 0.2%. Analysts said that the Federal reserves is targeting to cut interests rates to give a boost in the economy but the central banks is unable to participate due to inflation pressures. Another report states that output at the nation’s factories, mines and utilities increased led by a great increase in the production of electricity and natural gas. Some economists think that the rise in industrial production is very good after all the downbeat data in the past two weeks while others worries about the backlog of unsold goods.

Monday, March 12, 2007

Pictures will be uploaded when I get home


The article discusses the problem of pollution in Canada, TD bank of Canada’s economists suggest that beyond emission regulations that is already in process, taxing, subsidizing, and a trade system for emission credits are the ultimate ways to “create long-term conditions for industries and consumers to cut down on their emissions.”
The article brings up the market failure problem of pollution and states that “consumers will not change their behavior as long as it’s cheap to pollute.” As pollution creates negative externalities or additional harm to the society for the production of emission gases it is widely known as a market failure. This proves the statement the article made as market failures such as pollution that produces negative externalities usually involves a social cost beyond the obvious private costs. As the emission gases harms and pollutes the environment, an extra cost is then needed to deal with the pollution and clean the environment. This cost is the social cost.

(picture)As market failures such as pollution creates negative externalities for the society, an addition social cost is then created beyond the original private cost. It is this cost that the consumers and the firms tries to escape leaving the government paying for pollution.

Graph 1: Demonstration of Market Failure and its addition social cost

Just as the above diagram demonstrates, it is this social cost of pollution that creators of it – consumers and firms, tries to escape and thus resulted in the government policies enforcing the consumers and firms to pay this cost.
As the article identifies the “crux of the problem” or the market failure as the fact that “clean air is considered a free commodity.” and that simply “legislating emission cuts, only masks this problem and doesn't create long-term conditions for industries and consumers to cut down on their emissions.” Here the article revealed the essential cause of the problem - “clean air is considered a free commodity.”, because of the fact that clean air is a common resource, consumers and firms uses the good thinking they that they do not have any responsibility over any harms it causes or any costs it requires. This is the classic parable called Tragedy of the Commons. The “emission cuts” the article referred to represents the regulation policies by the governments. This policy deals with the restriction of production which sets a price floor to the market.

(picture)With the price floor or restriction to production, the quantity of production for the pollution causing good is reduced while the price is increased. Soon the Private cost curve will be forced to shift up and become just like the social cost curve in order to reach equilibrium

Graph 2: Government regulations of emission cuts

Just as the above graph demonstrates, the regulation policy forces the consumers to pay the higher price and the producers to produce at the lower rate. However, as the article also referred this policy as “only masks this problem”, it suggests how the existence of just this one policy will not solve the ultimate problem in the long run.
The two strategies that the entire article really favored were taxing and emission trading system or simply tradable pollution permits. The collective taxing policy deals with the collection of social costs of pollution more directly while the pollution permits allows the firms to make the deal more profitable.

(picture) The corrective tax sets a price for the pollution while the demand curve determines the quantity of the pollution. Together the social cost of pollution is paid by the consumers and the suppliers through taxes.

Graph 3: Government corrective taxation on pollution

The corrective tax, also known as Pigovian tax, demonstrated on the above graph is equal to the external cost of pollution with negative externality. Thus taxation is able to force the people to pay for the external cost.

(Picture) By limiting the amount of pollution permits, the quantity of pollution is limited while the demand curve help determine the price of the pollution. With the limit amount of quantity and the tradable characteristic of the permits, firms are able to benefit off each other while paying for the social cost of pollution

Graph 4: Tradable Pollution Permits

The tradable pollution permits suggested in the article is another one of the possible policies for government to gain back the social costs of pollution. The tradable characteristic of the pollution permits allowed the firms to negotiate and trade among each other while benefiting through the process. This strategy enables the firms to pay for the external cost of pollution while the “proven profitable” strategy also gives them the incentive to obey such policies.
Therefore just as the article has been arguing, although government regulations on the production of emission gases deals with the market failure, the policy is not as effective as taxation or tradable pollution permits. Thus it is inevitable to have the other two policies in process in order to battle against the market failure of pollution.