Chinese Stock Market Crashing

The Chinese stock market is plunging. Given our discussion of financial markets, what might account for such a drop in value? (Recall that what matters are profits, the real interest rate, and the growth rate).

Inflation

This article talks about rising consumer prices. If you model this as a shift upward in the SRAS curve, what do you predict will happen to output in the short run and the long run? What will happen to prices long run?

America's Recession

It looks more likely that the U.S. will actually have a recession (that is, the economy may actually shrink in size). This analysis assigns blame to two things a) less lending and b) consumer spending slowing down (MPC falls). Looking just at the loanable funds market, does both of these make sense? (Hint: not really). So the lending slowdown must show up somewhere else - like the money demand function. This would be a great article to use for your final paper.

For Future Reference

This commentary is about setting up a government infrastructure bank. We will talk in a few weeks about the causes and consequences of government debt. This article is about one aspect of that - is government debt a bad thing if it funds productive investments?

Falling Dollar

Martin Feldstein (really smart economist) has a commentary on the fall in value of the U.S. dollar. You can frame his argument in terms of the real vs. nominal exchange rates, and then think about how this relates to our large trade deficit.

Let's All Just Relax

Robert Samuelson tells us to calm down about the economy. Given our class on the Great Depression, how/why does he feel so little panic?

How did this happen?

The Economist has a nice article describing the conditions that led to the current financial situation in the U.S.. It's more complex than what we discussed in class, but it is a nice summary.

Icelandomics

What you've learned in this class doesn't just work in the U.S. This article discusses the situation in Iceland and how they are acting to try and rescue the value of their currency. Can they continually prop up their exchange rate? Why not?

Banks Raising Reserve Ratios

This article gets at the heart of the issue with a financial crisis - banks horde cash. So how does this work without our model of the money market and the IS/LM?

Spillovers

Apparently the Canadians are worried. Think about how poor economic performance in the U.S. might affect Canada - specifically, what might happen to their net export demand? Does this matter if they have perfectly flexible exchange rates? How about if they have fixed exchange rates?

Stagflation?

This editorial discusses the possibility of stagflation - that is, both rising unemployment AND rising inflation. How can both of these occur at the same time? Specifically, think about the AD/AS diagram. How can you generate both falling output and rising prices? Think about how rising commodity prices may be changing the SRAS curve.

Bernanke Asks for Easier Loans

In this article, the Fed Chairman asks for banks to renegotiate or forgive portions of mortgages that might default. In terms of our model of the money market, what is he trying to do to money demand (L)? How would this help the economy?

Bernanke Talks About Economy

A nice brief article on what Ben Bernanke is thinking about the economy right now. At this point, it should be relatively easy to frame his comments in terms of our IS/LM model.

China and the U.S.

This link is to a longer article by James Fallows on how China is subsidizing American consumption. He gives a great explanation of how this works in practice, and then considers the ramifications. It is long, but well worth the read. I'd suggest that people might want to use this as the basis for their longer paper that is due at the end of the semester.

Monetary vs. Fiscal Policy

This article looks at what ability monetary policy has to influence output in the U.S.. If you're thinking about this, remember when we talked about the slopes of the IS curve and how that affects monetary policy. Steep IS curves mean monetary policy is less effective, and flat IS curves imply monetary policy is more effective. So what might be happening in the loanable funds market to make the IS curve get steeper?

Bailing out Banks

This article has relevance to our next class, on the current state of the U.S. economy and the sub-prime mortgage mess. It's pretty dense, but think about it in terms of the model of money creation we went over.

Brazilian Macroeconomics

This article is a nice summary of Brazil's current economic position. If you're interested in reviewing it, hold off until we go through the material on open economy IS/LM models - they are more relevant that what we've learned so far.

By the way, this article is also a nice target to shoot for in terms of style and quality. It is well written and explains several economic concepts rather cleanly.

Recession?

This article reports that the administration is claiming the U.S. will not enter a recession in 2008. The rationale would be that the Fed lowering interest rates (meaning that money stocks are increasing), combined with the fiscal stimulus (the tax rebates, or T falling) will be sufficient to keep output from falling.

If you review this article, think of it in terms of our IS/LM model. How does the combination of increasing M and lower T shift around the curves and keep output up? What will actually happen to interest rates? Can we know for sure?

The Purpose of Tax Policy

This post from Greg Mankiw doesn't necessarily related directly to our material in class, but it's an interesting analysis of what matters when we set taxes. One question is which of his four goals of tax policy you find most important? Which is the least important to you?

Alternative Trade Deficit Explanations

This editorial looks at the decline in the U.S. current account (basically, NX) and wonders whether Alan Greenspan's explanation is correct. The author describes Greenspan's theory, and then offers his own counter-theory. If you read through this, think about describing the two theories in terms of the loanable funds market. In particular, changes in the world interest rate versus changes in our savings rates.