Open Market Operations

http://www.investopedia.com/ask/answers/06/openmarketoperations.asp
This article about open market operations is such a great connection to what we've learned in class. It goes into depth about each of the two open market operations, and clearly shows the connection between changes in aspects of the economy, like money supply, interest rates, investment, and inflation, due to the effects of these policies. Just like we discussed in class, the article pointed out that the Federal Reserve System (specifically the Federal Open Market Committee) is responsible for the control of money supply and, therefore, inflation, by putting these policies into action. The article distinguished between buying securities to increase the money supply (expansionary) and selling securities to decrease the money supply (contractionary) and even mentioned that the securities used in open market operations are Treasury bills, bonds, and notes, just as we learned. Something the article really helped my understanding of was the effect the policies have on the amount of lending money banks have. We had already covered that concept this chapter, but reading this article even furthered my comprehension of the topic. In my opinion, articles like this one are really useful studying tools because they reiterate the material we've learned in class and from reading the chapters in our textbooks, and sometimes they present ideas in ways that might be easier for us to understand. Plus, repetition of the concepts can never hurt.

Janet Yellen to be Next Chairwoman

President Obama has nominated Janet Yellen to become chairwoman of the Federal Reserve, replacing the current chairman, Ben Bernanke, as he retires. This decision has created a lot of controversy among U.S. citizens, but I happen to support it. First off, Yellen is very well-educated; she completed her undergraduate studies at Brown Univeristy and received her PhD from Yale University. She has worked hard to become qualified for this job, through being an economic advisor to Bill Clinton, being President of the Federal Reserve in San Fransisco, and currently working as vice chair of the United States Federal Reserve, alongside Ben Bernanke. Besides being qualified, I believe she would make a good chairwoman because she plans to continue with the Fed's current policies of improving employment rates while controlling inflation, which are low-interest-rate policies. These policies have definitely helped the economy already, and they would only continue to help by her enforcement of them. She also addresses possible issues in the economy, like future inflation or the continuation of monetary stimulus policies for too long, and devises plans to handle those situations. In my opinion, Janet Yellen has more than enough experience and wisdom to efficiently take on the title of chairwoman of the Federal Reserve, and will make helpful decisions concerning the future of our economy.

The Political Business Cycle

Everyone knows that politics is just about the most corrupt career field out there. Between the lying, taking bribes, cheating, and all the other dishonest behaviors they practice, it's hard to be more unethical than politicians. To add to everything they already do wrong, a lot of them are guilty of participating in the political business cycle. This means that they make inappropriate decisions for the stabilization of the government around election time in order to be more popular among the voters and increase their chances of winning the election. The political business cycle has proven to be a true problem in the history of politics. For example, before the election of 1940, President Franklin D. Roosevelt made a speech in which he promised America that he would keep all soldiers out of war and keep peace in the nation. Apparently, this wasn't the best decision at the time because once he was reelected, he broke his promise and sent the soldiers to war. He had only made that promise to the U.S. citizens because he knew that's what they wanted to hear and that's what would earn their votes. While this did ultimately help him win the election, it was clearly a very immoral thing to do. Politicians will most likely continue to take part in the political business cycle, among other wrongful things, forever, which will affect the economy negatively everytime it's practiced.

Savings Over Income

It's ironic how we learn things in school and then afterwards realize that we had been observing that very concept all along. That happened to me this week when I was studying and thinking about the formulas for the average propensity to save and the marginal propensity to save. Unbeknownst to me, my dad regularly calculates the APS and MPS of the money we share among our family. After discussing it in more detail with him, I learned that he finds our APS about every month to make sure we're continuously saving enough of our income to put toward college, family vacations, retirement funds, etc. Depending on the resulting percentage, he then adjusts our level of savings accordingly. He also measures the MPS of our income annually and compares the change in the percentage of income were saving between years. This is really important for him to do because his salary changes every year, partly due to the fluctuation in the amount of money his boss gives him as a bonus. As his salary changes year by year, the amount of our income that were saving should change too. After calculating the MPS, he knows how much he needs to save for the next year. By doing this, he ensures that we save the appropriate amount of our family income to continue living in the conditions that we currently live in and to create important funds and make progress in paying off investments and loans.

People Get Their Jobs Back!

As of tonight, Wednesday, October 16th, 2013, Congress finally approved a bill to temporarily reopen federal agencies, meaning that federal workers who had been out of work due to the government shutdown can plan on going back to their jobs tomorrow. This budget compromise is also allowing the Treasury to continue borrowing money to pay our nation's debt. We should consider ourselves very lucky that Congress has come to this agreement because not only is it giving people their jobs back, but it's preventing the possibility of a default that would have been very detrimental to our economy. Our country has enough debt as it is, and if we went into that default, we would just be falling into more and more debt. In fact, it's likely that this default would have put us in another recession and overall be completely disastrous economically. In order to try to prevent this type of situation from arising again, this deal requires a panel made of members from the House of Representatives and the Senate to come together and try to think of long-term deficit-reduction ideas to be approved by the whole Congress. They should have these ideas put together by December 13th, so we can hopefully expect a new year free of government shutdowns. It's nice to see that the government has finally helped U.S. citizens and reached somewhat of a compromise, enough to return workers to their jobs.

The Flaws of GDP

In my opinion, GDP is not the best possible measure of our nation's well-being. It excludes some factors that are necessary to calculate an accurate measure. For instance, it doesn't include the value of stay-at-home parents. Even though they don't affect the economy in terms of actual money, they sacrifice their time to help their families, and their hard work should be accounted for. Something else that is excluded from GDP is the satisfaction or lack therof that the consumers have after using a product or service. Basically, it completely ignores the emotional value of any and all goods and services. Also, perhaps one of the most important exclusions of GDP is the black market. Although the government likes to pretend it's nonexistent, the black market is real and a lot of illegal transactions take place in it that are not calculated along with GDP. Besides just illegal transactions, there are illegal immigrants in our country who purchase things and are not accounted for. Between all the illegal activity going on in the United States, there's a lot of economic productivity that the GDP doesn't cover. Another factor I thought of that isn't included in GDP is the increasing or diminishing value of second hand sales. If someone buys a house, GDP doesn't account for possible loans or debt the consumer might face down the road. Overall, it seems like GDP is a decent measure of our economic well-being, but it is definitely an understatement of our actual economy and could be improved to produce more accurate calculations.

Government Shutdown

One of the most controversial topics in discussion among Americans right now is the government shutdown. The cause for this decision to temporarily shut down the government was a disagreement between the House and Senate about a bill to pass that would subsidize the government for Obamacare (also known as the Affordable Healthcare Act). While I can see the validity of both sides of the argument and understand the reason for the disagreement, I don't believe a shutdown is the way to handle it. This shutdown is temporarily putting many people out of work and withholding their pay, while Congress, who proposed the idea of the shutdown, continues to receive pay despite the cut off of several federal services. Besides that, the shutdown is also very inconvenient for the American people, whose best interest the government claims they keep in mind. Some of the services that are being shutdown are ones that are in high demand by the citizens of the United States. For example, no one can get a passport until the government is fully operating again, which is upsetting to a lot of people. Another very important consequence of this shutdown to consider is the amount of debt it's adding and the long-term economic damages it will do. We have enough debt as it is; the last thing we need is to keep adding billions of more dollars to it. I know it's easier said than done, but the Democrats and Republicans who represent the Senate and House, respectively, need to either reach a compromise in regards to the bill for funding Obamacare, or they need to find another way to deal with their differences in opinion and keep the government in operation until they make their final decision because this shutdown is proving detrimental to our country and economy.