Thursday, November 29, 2007
Wednesday, November 28, 2007
My question is about the net export curve. In his textbook, the net export curve shows the real exchange rate plotted on the Y-axis and equal to r = (eP)/P* yet the story is clearly about nominal rates. Nominal rate is the rate that one currency can be exchanged for another whereas real is the amount of goods that are exchanged. Which one is it?
Tuesday, November 27, 2007
Monday, November 26, 2007
Russ Roberts has a nice podcast here.
One of the most important issues facing the world today is property rights. An example would be who owns the polar ice caps as oil shortages and global warming becomes a daily portend.
Saturday, November 24, 2007
Friday, November 23, 2007
Economic models assume a cyclical use of resources that are renewable. But we know better. After burning coal, the pollution cannot be reused even though the same amount of energy is still available after we burn coal. Thus, entropy increases and this increase in irreversible and irrevocable. In other words, we're doomed. The author posits that 2100 will be the year all of our resources are deleted.
The authors conclude that long-run inflation expectations are not as firmly entrenched in the US as in the Euro area. The paper as econ 101 implications for the Phillips Curve, Fed Reaction Function, nominal interest rates and the Fisher Effect.
A salute goes to Mike Johannsen for the paper. Muscatine grads wanting to contract Ben can email: email@example.com
Monday, November 19, 2007
Sunday, November 18, 2007
Saturday, November 17, 2007
Tuesday, November 13, 2007
"The rule of 70Inflation erodes the buying power of a dollar, so that eventually it will buy only half of what it used to.
Want to know how quickly your money will lose half its buying power? Divide 70 by the expected inflation rate. If it's 3.5%, your dollar will be worth 50 cents in 20 years (70 divided by 3.5 equals 20). If inflation soars to 10%, your money's value is halved in seven years."
Money earns an interest rate of -expected inflation rate. In addition, you could have invested the money else earning a real return, R. My AP economics book instructs us to teach that the real interest rate equals nominal interest rate minus the expected rate of inflation. Rearranging this equation gives: Nominal interest rate = Real - expected inflation. If holding money earns negative expected inflation then Nominal = Real - - expected inflation which is the Fisher Effect. If inflation is increasing, look for nominal rates to increase by the same amount.
To read what Wikipedia has to say about Irving Fisher, click here.
Monday, November 12, 2007
Sunday, November 11, 2007
Saturday, November 10, 2007
To see a video of Dr. Janarthanan talking to Dr. Mather, watch the video below.
I don't believe that the strike will be successful for a couple of reasons. Note that at the higher wage, $W, less writers are hired that at equilibrium. This leads me to ask about the goals of this union. Does the union want to hire less and improve the wages for a few? I also believe that the Internet will allow those writers with the lowest marginal cost to work. The green line shows that 200 writers will work at wage $W. So an undiscovered talent in India will be able to submit a script for Jay Leno electronically. In addition, the shortage of writers will leave many questioning the rational of the strike. From my graph, unemployment of 400 writers will result so 200 writers can work for a higher wage. Not good.
Sometimes the goal of a strike is to influence the elasticity of the demand for labor curve. The union might say there are no substitutes or that the marginal product (quality?) is less for a substitute. I think the writer's union will find that there are many substitutes for their work including people willing to read a book and the the strike will end like a batter striking out.
Sunday, November 04, 2007
Marginal Revolution asks the title and answers it here and here. My answer uses a price ceiling to show that goods that are tied together actually sell for a higher amount that the seller can charge you more than she could if the product was sold individually. I've used rent control as an example. Say the rental price is $16 to rent a lawn mower for the day and the rental price is $8 to rent a rear bagger for the lawn mower. But you'd be willing to rent the lawn mower for $24. How can I get you to rent the lawn mower at $24 when the legal price is $16?
I tell you that you can only rent the lawn mower with the bagger.
If I am a cable company, I could price discriminate and sell you each cable channel separately. But the companies are actually doing you a favor by bundling the products together and selling the the package at the lower cost.
The brilliant Arnold Kling writes, "What George Stigler showed is that ordinary intuition about bundling is wrong. Your intuition is that the reason that the seller engages in bundling is to force you to buy something that you do not want. However, as Stigler pointed out, if that were the case, it would be cheaper for the seller to leave out the unwanted good and just charge you for what you want. That is why grocery stores do not bundle milk with broccoli -- it's cheaper for them just to sell you the milk. " You can find his notes here.
I wonder. Since cable and cell phones are an information good if the government could regulate the industry with marginal cost pricing where P = MC.
Saturday, November 03, 2007
For example, "Government policy makers also suffer from dynamic inconsistency, as they are best off promising that there will be lower inflation tomorrow. But once tomorrow comes lowering inflation may have negative effects, such as increasing unemployment, so they do not make much effort to lower it. This is why independent central banks are believed to be advantageous for a country: some believe they worry about making decisions for the greater good, not to keep government policy makers popular."
Basically, if you change your mind you have dynamic time preferences. I think is like discounting the future.