Week 8, Oct. 19, 23: Monetary policy

 Readings for Monday Oct. 19  

1. "World Happiness Report, 2018", Read p. 17, the predictors of happiness; pp. 20-21, Finland is the happiest country, and where does your country rank; pp. 25-27, U.S. and Spain's happiness declined, but Venezuela the most; pp. 114-115, why are Latin Americans so darn happy?

2. From "The Economics Book".

p. 196 Government should do nothing but control the money supply. Location 3727
p. 202 The more people work, the higher their bills. Inflation. Location 3834

3. Mandel, Chapter 12, Monetary policy, on ADI.

You might like . . .

The Indicator podcast  "The Fed's sweet spot for interest rates" (transcript here) is a really good explainer on monetary policy, how the central bank's policy on interest rates can stimulate the economy (which can cause inflation), or slow down the economy (when inflation is too strong.)

 

Midterm exam summary of results, and some answers

The overall performance on the midterm exam was an average score of 7.4 with a median of 7.8. I was generally pleased. Some of you put a lot of thought into your answers and the examples you chose. Answers that introduced more elements to consider and more compelling examples received higher grades.

 

Students also got more credit for answers that were well expressed with good grammar and spelling.

For each question below, I have included a student answer that I thought deserved full credit. However, these were not the only acceptable answers.

Q1. President orders that the price of eggs will be half the current market price. A good student answer is below.

If the sale price of eggs gets cut by half, egg producers will not have any motivation to produce eggs anymore.They will begin to look for alternative revenues as their margins will get cut off.
If egg producers start to look for alternative revenues because of egg prices dropping, this will lead to a shortage of eggs.Egg consumers would most probably purchase more eggs, which would potentially cause a shortage in supply.
It is likely that store owners run out of eggs and stop making a profit as high as they could make before because producers could charge the same cost for the eggs as before this price cut.If the sale of the eggs from egg producers to supermarket increase this would contribute to the shortage.
In conclusion,if the eggs' prices would get cut in half by law,this would most probably lead to an egg shortage,causing eggs to get sold at a higher price on the black market.

The best answers to this question pointed out that this situation leads to shortages and a black market.

Points were reduced for answers that suggested producers will produce more eggs, consumers get more eggs, making everyone happy.

 

Week 7, Oct. 16 From the micro to the macro: GDP

 Readings for Friday Oct. 16, in “The Economics Book” about Macroeconomics and GDP (PIB)

• The economy can be counted, p. 36, Location 644
• Money and goods flow between producers and consumers, p. 40, Location 735-837
• The aim is to maximize happiness, not income, p. 216, Location 4161-4236
• "Has GDP outgrown its use?" from the Financial Times.
• Confused about GDP? Watch this video for an explanation of the circular flow of money in GDP. 
  

Exercise 4: This is a group exercise. WORK IN THE SAME GROUPS YOU WERE IN BEFORE. It is designed to have you analyze several key economic indicators of any country you choose. Download this document and fill it out. Upload your spreadsheet or PDF in Attach Files below. Deadline is Friday, Oct. 23, before class.  Can't find the data? Here are some authoritative sources.

 Suggestions for Exercise 4: Some countries report numbers for inflation, unemployment, and central bank interest rates by yearly average, by quarter, or by month. Annual average is preferred, but use what's available. Be consistent.

 Readings for Monday Oct. 19  

1. "World Happiness Report, 2018", Read p. 17, the predictors of happiness; pp. 20-21, Finland is the happiest country, and where does your country rank; pp. 25-27, U.S. and Spain's happiness declined, but Venezuela the most; pp. 114-115, why are Latin Americans so darn happy?

2. From "The Economics Book".

p. 196 Government should do nothing but control the money supply. Location 3727
p. 202 The more people work, the higher their bills. Inflation. Location 3834

3. Mandel, Chapter 12, Monetary policy, on ADI.

You might like . . .

The Indicator podcast  "The Fed's sweet spot for interest rates" (transcript here) is a really good explainer on monetary policy, how the central bank's policy on interest rates can stimulate the economy (which can cause inflation), or slow down the economy (when inflation is too strong.)

Feedback on interest rate exercise

Overall you did well on this research. Here is the link to the information from the 20 groups; I've summarized some of the information (if you have trouble opening the link, sign in to your university account).

The research is not easy and not straightforward. It is the kind of research that your boss might ask you to do about a competitor if you were working at a bank. Sometimes these banks make it difficult for a consumer to find the real, true cost of a loan, or the real true rate they will receive for their deposits. You have to dig below the surface.

On the spreadsheet, notice the pattern of interest rates on auto, mortgage, and credit card loans. The interest rate is the price the bank is placing on the loan; the higher the risk of the type of loan, the higher the interest rate. The banks pay a much lower interest rate to depositors; they then turn around and lend those deposits at higher rates to other customers.

You will notice that some groups researching the same bank came up with different numbers. In some cases it's because more detail was needed. For example, Santander offers 3% interest on deposits--much higher than anyone else in Spain--but only if the depositor maintains a balance of at least 3,000 euros. There was also a lot of variance on credit card rates--possibly because they offer a variety of products. 

 

Week 6, Oct. 5, 9--Midterm review and exam

1. The exam will be given to you after class on Friday Oct. 2. It is individual work. You are not to collaborate with anyone else, but you can consult any materials we used for the class: books, articles, Zoom recordings, slides, class notes, as well as doing independent research. It's an open-book exam.

2. You will have a week to complete the exam. This process is designed to relieve some of the stress of a timed exam.

 

3. You will have to answer three or four essay questions with a strict word limit of 150 words. Answers should be direct, with data, evidence, reasons, the why, the how. 

 

4. There will be a graphic to draw and interpret.

5. You will email the completed exam to jbreiner@unav.es by noon on Friday Oct. 9, Pamplona time. There will be no class that day. 

 

6. Again, this work is to be done individually. You are not to collaborate with anyone else. You are on the honor system. I am trusting you to work individually. 

 

7. In class on Monday Oct. 5, I will have an exam review class in which you can ask me to review or clarify some concepts.

The following are some concepts and important people we talked about and read about. You will need to understand many of them to answer the questions on the exam. All of them are in materials we have used for the class.

Week 5, Sept. 28, Oct. 2, Money, banking, and interest rates

Readings for Sept. 28

From "The Economics Book".

p. 24 You don't have to barter when you have coins. The function of money. Location 366

p. 26 Make money from money. Financial services, Location 410

p. 30 Money causes inflation. Location 504

New: A recent podcast on the invention of paper money 1,000 years ago, and its meaning for today (transcript here).

* Recommended: A blockchain explainer, the technology behind cryptocurrencies 

Planet Money Summer School podcast: Advertising and Race. The podcast is here; the transcript is here. 

Blackrock Letter to CEOs: do more than just make a profit


In class exercise for Sept. 28, to be finished by Oct. 2

Work with the members of your work group: here is the list of groups and members.

Find the following interest rates for a bank in your home country or here in Spain and post them to this survey form in SurveyMonkey:

1. The interest rate paid to depositors by the bank. (Sometimes banks offer CDs, certificates of deposit, which pay a slightly higher rate for a 6-month commitment by the depositor.)
   
2. The interest rate that the bank charges customers for auto loans (4 or 5 years)
3. The interest rate that the bank charges on home mortgages (hipotecas), on a 30-year mortgage
4. The interest rate that the bank charges its credit card customers. (Don't just use the "teaser" rate or introductory rate.)
   

Use effective interest rate or TIE (tasa de interés efectiva), not nominal interest rate, or TIN (tasa de interés nominal). For example, if the nominal interest rate on a loan is 5%, but the interest is calculated monthly and added on to the monthly payment, the effective rate is 5.12%.

Week 4, Sept 21, 25: market failures, public goods, shared resources, externalities, monopolies

Homework readings Sept. 21 and 25

1. In  The Economics Book. All have to do with market failures: externalities, monopolies, imperfect competition, public goods, and shared resources.

• Private individuals never pay for street lights – provision of public goods and services, p. 46, Loc. 840-872.
• Phone calls are dearer without competition – monopolies, p.92, Loc. 1718-1811
• Make the polluter pay – external costs, p. 137, Loc. 2626-2637
• The biggest challenge for collective action is climate change – economics and the environment, p. 306, Loc. 5965-6045

2. The anti-monopoly case against Facebook, Google, and Amazon
3. European Union fines Google $2.7 billion for monopoly violations
4. Europe's anti-monopoly regulators take aim at how tech giants use data 

Recommended: Planet Money Summer School podcast, Scarcity and Pistachios

Pistachio growers in California use so much water, that entire communities have lost water service to in homes.
The podcast
The transcript of the podcast

Concepts:

• Tragedy of the commons
• Externalities
• Scarcity
• Cap and trade