Week In Review: December 5th - December 10th Snowmageddon! ~ Jon Robbins

Key Terms:

1. Dual Mandate of the Federal Reserve
1. The Federal Reserve wants to keep a steady growth of the economy through focusing on areas of Inflation and Unemployment
2. The Federal Reserve will attempt to raise or lower the inflation rate by using tools including the Discount Rate and the Federal Funds Rate.
3. The Federal Reserve strives to keep the unemployment rate at a mark that is close to or is at full employment
2. The Characteristics and Functions of Money
1. Some characteristics of money are that money has to be portable, durable, and has to have some level of scarcity
2. The functions of money include money serving as a unit of account, a means of exchange, and a store of value
3. Federal Discount Rate
1. The interest rate for which a financial institution may borrow money straight from the Federal Reserve Banks
2. This action of borrowing money from the Federal Reserve is commonly looked down upon, as it is synonymous with taking a loan from your parents
4. Deflationary Spiral
1. A cycle where deflation causes prices to drop leading to lower rates of production, which causes a drop in wages and demand of goods, which finally causes another lowering of prices
2. A Deflation Spiral occurs commonly in periods of economic crises including recessions or depressions
5. Criticism of Federal Reserve Chairman Janet Yellen, from the Republicans
1. Criticized for favoring the Democratic party, and the Obama administration
2. Believed that Yellen has kept interest rates artificially low
3. Republicans believe that Yellen has been promoting and favoring Hillary Clinton’s campaign rather than having an impartial mindset
6. Fiat Money vs Commodity Money
1. Fiat Money is money that has its value backed by the government. The money is not tied to any resource or commodity. For fiat currency to be successful, it is imperative that the people using the currency have faith in the government. Fiat money is backed by market confidence.
2. Commodity Money is money that has its value attached to a resource or commodity. An example of Commodity money would be the Gold Standard monetary system
7. Buying & Selling of Bonds by Government
1. When the government decides to buy bonds, the money circulating in the economy will increase
2. When the government decides to sell bonds, the money circulating in the economy will decrease

Due to increased levels of snow in Portland, our economics class only met twice this week instead of the planned three meetings. In our snow filled economics class, we were supposed to learn about the AD-AS Model, which I will discuss below:

AD-AS Model: Aggregate Demand - Aggregate Supply Model

The model shows the relationship between aggregate demand and aggregate supply through the variables of price level and real output.

Current Events:

1. On Monday, December 5th, our economics class got the opportunity to speak to a current Federal Reserve member in St. Louis, who focused his research on the area of income inequality. When prompted about his research by our class, he talked about how trends have been found between the amount of time a worker stays in his current occupation and their income. It has been found that staying in an occupation for an extended amount of time will lead to rises in income compared to if someone decides to move to a different occupation. This topic has led me to find a New York Times article written on December 8th, which focuses on the numerous factors that may cause economic success. The article’s main focus was based on research about the difference in success between parents and descendants. The trend found by the author is that there is a decline in the power of “the American dream” since the 1950’s. Americans have steadily been becoming less successful than their elders as The Equality of Opportunity Project shows that in 1940, 91.54 % of Children were earning more than their parents, while in 1985, the figure has dropped to 50.26% of children earning more than their parents. With the election being such a pivotal factor for the America of the future, it will become more interesting to see how the income inequality and American dream factors shift and change.

Article: http://www.nytimes.com/2016/12/08/opinion/the-american-dream-quantified-at-last.html?rref=collection%2Ftimestopic%2FIncome%20Inequality&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=2&pgtype=collection

2. On the same Monday as the Federal Reserve talk, our economics class also had a presentation on the economics of scalpers. As a class, we discussed the ethics and morals of the industry and whether the practice should be restricted. As a class, we came to the consensus that although scalping is an immoral practice it shouldn’t be restricted or regulated as the market is also immoral in itself. While this discussion was taking place, it has been reported that the House of Representatives passed an act called the Better Online Ticket Sales Act (BOTS), which will outlaw the use of bots by scalpers for concerts, sporting events, and other forms of entertainment. The act hopes to discourage any form of scalping through the implement heavy fines for the practice and to allow people who could never afford to get a ticket to the event, a chance to experience the event firsthand. The act is awaiting President Obama’s signature.

Article:

http://www.theverge.com/2016/12/9/13897204/ticket-bots-scalpers-congress-law-lin-manuel

Takeaways:

Over the course of this week, I have learned in greater detail the tools that the Federal Reserve have at their disposal, and about how the Federal Reserve views as a growing economy in terms of inflation and unemployment levels. Although we were first introduced to the numerous tools at the disposal of the Federal Reserve, this week we have talked in more detail about the effects of the Federal Funds Rate, Discount Rate, and buying/selling of bonds. For me personally, it was helpful to have the meeting with the Federal Reserve staff member as it in some way put a face to an organization that at times seems all powerful, as the federal reserve does have a huge impact on how our economy performs. Other than the topic of the Federal Reserve, our class didn’t really mention and learn much else as the Federal Reserve is such a huge topic of discussion. Next week, we will learn about the AD-AS model in more detail as it was only discussed briefly in our limited amount of time together.

This economics week seemed to be focused on current events. We discussed the interesting topic of scalping and also about the Federal Reserve, which I have heard are making some changes to interest rates in December. I think that this style of learning serves the greatest of rewards, as the information you are learning in class is directly applicable to what is happening in your overall society.