Response to Job Growth Steady, but Unemployment Rises to 7.9%

Response to Job Growth Steady, but Unemployment Rises to 7.9%

The article brings up some very interesting points about why job growth doesn’t necessarily affect the unemployment rate. I think it can be because of a high number of entrants into the labor market, the dropping out of the labor market, and high taxes.

The unemployment rate isn’t going to drop when 150,000 jobs are created while 160,000 new people enter the job market. Just because there is job creation doesn’t mean our economy is actually meeting the labor demand. It could also be because these are government stimulated jobs so government spending is increased which ultimately does not let the private sector grow. If the effect of the new jobs came from private sector growth then we could most likely see even more growth and job creation to match the labor supply which would drop the unemployment rate.

The article points out the millions of unemployed that are now no longer unemployed because their time allotted on benefits has run out. It has actually been seen that when a very large number of people drop from the labor force, it could make the unemployment rate lower because of the change in people looking for work. Finding work is difficult and as people become unmotivated to look for work, they ultimately have trouble reentering the labor force.

The article also points out how fiscal policy to create economic growth can result in high taxes. High taxes can take away money that business owners could put towards more labor. Because there is less money towards labor, there is a higher unemployment rate. If fiscal policy could lower taxes with decreased government spending, private sector employers according to Keynesian thought, will lower the unemployment rate.

This article pointed out some very interesting statistics in regards to unemployment. The author does a good job of showing statistics that show poor relations with the unemployment rate. However, it didn’t necessarily answer the questions and issues it presented. My response tried to suggest solutions to these issues. The solutions are to allow for job creation to come from the private sector market. Also, when millions drop from the work force we see a drop in the unemployment rate. This isn’t a good way for the rate to drop and we must motivate the workforce to continue looking for work. Lastly, lower taxes in fiscal policy can create more jobs because businesses will have more money to use towards labor.

Critique

Wes, I think your summary of the article was insightful. Also the article you chose was informative on the methods used by the Federal Reserve to stimulate the economy in times of crisis. It really is incredible just how many jobs the Federal Reserve can create.  " Rosengren estimated that every $500 billion in bond purchases by the Fed creates jobs for about 400,000 workers." That is an incredible number if you think about it. The Fed really does have a lot of pull in how the economy runs. Of course businesses have to create quality products and provide valuable services, but in the end the Fed does have a tremendous pull in how high or low the unemployment rate is, and how high or low the inflation rate is. As stated by Rosengren “Actions taken by the Federal Reserve to speed up the pace of the economic recovery seem to be having the desired impact,”. After seeing this quote it is proven that the Federal Reserve's process to stimulate the economy is working. The current unemployment rate is 7.7% already from 7.9% 2 months ago. Rosengren estimated the unemployment rate to be 7.7% by next February. Obviously the Federal Reserve’s monetary policy is working quicker than expected. At this rate the unemployment rate will be at the national norm before Rosengren's estimated time which was at the end of 2014. "Rosengren, speaking to a business group in Manchester, N.H., said he expects the national unemployment rate, at 7.7 percent in February, to decrease to just above 7.5 percent by the end of the year. It should decline further to slightly above 6.6 percent by the end of next year, he said." Now looking at the inflation rate, Rosenberg who happens to be one of the Federal Reserve’s most influential leaders said that the unemployment rate is slowly decreasing which is a positive for our economy, but the inflation rate is under the Federal Reserve’s target value of 2% which is a concern because it is not showing signs of increasing in the near future. Overall I thought Wes did a nice job summarizing the main points of the article and relating them back to work we have done in class. The topic Wes chose was interesting because it was a topic that is a modern day concern, and it was very insightful to see how the Federal Reserve was counteracting the economic crisis we have on our hands today.

Response to The Death of Inflation

Response to The Death of Inflation-

            The article that was written about is on the decrease in the rate of inflation. This blog post is very well written and easy to understand. It begins explaining that in the 1970’s the Federal Reserve decided to copy England and have high interest rates in hopes to lower inflation. Although this was originally thought to work, “price stability could actually be adding to the rich world’s economic anguishes”. The most recent recession inflation barely changed, even with the affects of the reduction of wage demands and lowering of prices. This was explained well when saying not everything always goes according to plan and you have to know how to deal with it. When unemployment goes up, inflation falls. A good example of this is between 1980-82 when the unemployment rate rose by 6.8% and inflation dropped to 4.5%. At this point it would be good to explain why that happens and if there are anyways to have a happy medium between the two rates. Although it was good to mention that it helps predict our future rates. It was then said that stable inflation rates can be a result of changes in the labor markets with workers leaving the labor market. The explanation that because of this wages and prices are not falling but welfare benefits continuing to rise. This makes it difficult for the inflation rate to fall. This blog does a really good job of showing the link between inflation and economic indicators such as unemployment. The charts in the blog do a great job of helping understand the material while also getting the main point across to the reader. The blog post was written in a way that made it easier for the reader to understand while still being very informative. 

critique of Josh Sibio's post

In response to Josh’s blog post about technology improving the consumer market. I thought he did a good job explaining the article, and using the information that we learned in class in connection with the blog post. He talked about how the technology has improved the economy, this is since consumers are spending more online shipping companies such as UPS and FedEx are experiencing more business. Also it creates a buyers market and Consumers are more likely to buy on impulse while shopping online. People will have to be specialized in working with advanced technology, which will create higher paying jobs  that requires higher education.

I would totally agree with the fact that consumers  spends more compulsively because when you are shopping online it is a lot easier to convince yourself to buy something. I feel like that are because when you are shopping online the you are not holding actual money instead you have a credit card number. I don’t know how to explain it but for some reason when you are shopping online it is a lot easier to spend money.

He goes on to explain that because Internet shopping has gone up in the last 10 years the GDP has risen as well. When you buy a product online instead of in the store you pay the company for their product and the company pays a shipping company to ship the product to you. So in turn it is not just one exchange of money, it is actually two, which increases the GDP that much more. Also the article explains that with the improvement in technology, product will decrease in cost. Which will improve revenue, thus improving the economy. However he mentions that in the article it said that because of the improving technology companies are able to produce more products and sell to over seas countries, and that international trade is one of our last hopes to get us out of our national debt. I would disagree with this comment because from our notes from class and other articles it clearly takes more than one aspect of the economy to lift us out of debt. It is true that our export are extremely low compared to other countries, but international trade is not the only aspect of our economy.

         In conclusion I felt that josh did a great job with his article he conveyed the information well and used info from class to support his claims. The topic he choose was also interesting because technology is a vital part of our world today and how it affect the economy will continue to change.

         

Critique of "Retail Sales Falling."

I have already posted this critique as a comment in the original article that can be found at:  http://kassensecon122.blogspot.com/2013/04/retail-sales-falling.html

Here is a copy of the critique.

     I think this article does a good job at relating the declining sales to increased taxes, and how that can lead to unhappiness, which in turn leads to people spending less on luxury items. Casey does an excellent job summarizing the main points of the article as well as analyzing the content. The article critique relates the article to our class discussions right away and defines many of the terms used in the article. I think Casey’s analysis is very good and does everything that can be done with the information given, my main critique is both the article and Casey not taking in how online sales effect the decline in the retail sales.
     The topic of failing retail sales is something I’m very familiar with. From 2006-2011 I worked for Best Buy and witnessed firsthand the steady decline of sales year to year. In the early years I worked Best Buy at Valley View Mall in Roanoke, VA did pretty well. We were never the top store in the company but sales were decent and one year (2007 or 2008) we made enough profit as a store to where even the part time employees such as me would receive a bonus each quarter. But online sales had steady been increasing, websites like Amazon and Newegg were the true competitors. From my experience, the appeal of online shopping has been the real killer for retail sales. This was evident when at one point we were price matching Amazon (And other various online stores) if customers requested it. This type of aggressive price matching only lasted a couple months because we ate so much profit doing it, it was actually more economic to let the business walk rather than discount the products to match online competitors. I can’t count how many times I would finish answering a customer’s questions about a camera, television, car speakers, etc. only to “ask for the sale” (Best Buy Lingo…) and receive the reply, “No, I think I’ll buy it on Amazon because it’s cheaper.” It’s hard to argue with that logic, and who can blame someone for trying to save money with how tight money is today.
     It’s pretty well known in the world of retail that a large portion of the people who come in to view a product, is basically just testing it out before they buy it online. Best Buy and most brick and mortar electronic retail stores are rapidly turning into a test drive center for online sellers and it probably won’t be long before giant stores like Best Buy, Circuit City, and hhgregg are all but a memory. Perhaps insight like this is not going to be found in a textbook just yet, but online sales have completely changed the game for retail stores and unless they change their structure very rapidly and effectively, it may already be too late.

Tom Troiano Macro Econ.

http://news.google.com/newspapers?nid=1346&dat=20001011&id=FPEvAAAAIBAJ&sjid=qP0DAAAAIBAJ&pg=3749,169088

As you can see from this newspaper article posted on October 11th 2000, there was a massive frenzy for Sony's Play Station 2. The anticipation for this gaming console was great in late 2000. Parents and teens across the country greatly anticipated the gaming systems release just before the start of the holiday season. This was supposed to be a huge hit and a huge profit for Sony. Because of manufacturing delays Sony did not release all 1.4 million Playstation 2's on time. They only released about 500,000. Now as you can imagine the demand for these PS2's was great because kids were begging parents to get one, and right around the holiday season there was no better present. Sony's delayed production led to a massive increase in demand for buyers. Not only did the demand become so high that people were willing to overpay for a game system that at most cost 200 dollars, but some people ended up paying thousands. People ended up buying these systems and re selling them on Ebay for 5 times the price. Looking at this incident on the Supply and Demand curve would show you that the demand side of the curve was very high, therefore jacking up the price of the product. Also because the price wasn't naturally increased by Sony, the demand curve chart was way up, drastically increasing prices. This situation had a skewed market equilibrium, there was simply not enough supply to meet demand. Furthermore if you look at this items price elasticity, it was basically non existent ( change in demand in % divided by change in price in %). The reason i say that is because even when the Playstation went on Ebay and the price was 3 or 4 times more expensive the demand never changed. This incident was one that really took the supply and demand charts and made no sense of them. Buyers were buying not with there heads, but they were buying on impulse. It seemed like there was no price to high for the Playstation 2 during this frenzy. It will be interesting to see when the next incident like this occurs. Tom Troiano

Rosengren sees more need for Fed stimulus

Wes Pancoast

Dr. Kassens

Macro Econ

April 18, 2013

Article Post

            The article I am posting about is an article from the Boston Globe on March 27, 2013.  The article is about the director of the Boston Fed, Eric S. Rosengren pushing for continuing support from the Fed by way of stimulus.  The article mentions a number of topics covered in class such as monetary policy, inflation, unemployment, full employment, and interest rates.  Rosengren wants to continue to push for more stimulus because it helps accelerate the recovery of the economy.  While the economy is recovering, he believes that it is too slow a rate citing expectations for the unemployment rate to drop only .2 percent from now until the beginning of next year.

            The Fed has been stimulating the economy by purchasing U.S. treasuries and mortgage-backed securities creating low long-term interest rates for the people of the United States.  This encourages consumers to purchase houses and cars to increase consumption and encourages businesses to produce more goods and create jobs because money is cheaper to borrow.  This is an example of monetary policy by the Federal Reserve Bank.  The ultimate goal of these policies is to get the economy back to full employment, which occurs when there is no cyclical unemployment, or insufficient demand for labor.  The Fed has a target unemployment rate of 6.5 percent before they allow interest rates to rise again.

            The counter argument to continuing this stimulation of the economy is a worry that inflation rates may begin to rise to levels that are too high possibly causing another financial crisis like the one we are currently recovering from.  Another is that it could cause housing rates to increase too much because of low mortgage rates.  Rosengren says that this should not be a worry; however, as the inflation rate remains below 2 percent and housing prices are below their peak.

            Monetary policy is a key tool to control the economy because it can be used to increase or decrease the money supply.  This will have a direct effect on production and consumption of goods because people will have more or less disposable income.  For example, times when the Fed may want to lessen the money supply are when inflation rates get too high raising prices.  Lowering the money supply will lessen demand and cause prices to drop.  The Fed may want to increase the money supply, however, when unemployment is high and consumption is low.  This will cause demand to increase, making a need for more production and new jobs.

Woolhouse, Megan. "Rosengren sees more need for Fed stimulus." Boston Globe [Boston] 27 Mar 2013, n. pag. Web. 18 Apr. 2013. <http://www.bostonglobe.com/business/2013/03/27/boston-fed-rosengren-sees-slow-growth-more-need-for-fed-stimulus/vn9IN4CprzYWvzqsKy0qlJ/story.html>.

http://www.bostonglobe.com/business/2013/03/27/boston-fed-rosengren-sees-slow-growth-more-need-for-fed-stimulus/vn9IN4CprzYWvzqsKy0qlJ/story.html

Importance of Preventing Federal Spending Cuts

James Lee

ECON-122

April 18, 2013

http://www.nytimes.com/2013/01/31/business/economy/us-economy-unexpectedly-contracted-in-fourth-quarter.html?_r=0

               This article talks about how important the government is to help the hurt economy by preventing federal spending cuts and allow for the foreign countries to recover. The government has recently been lowering its government funding towards many sectors of the economy, especially the military spending dropping 22.5% in the fourth quarter. The vast government spending is due to the Federal’s Reserve campaign to stimulate growth along with the stimulus package. With significant federal spending cuts in March 1, how will the economy and the people react to this?

                With the recession causing firms, households, and foreign trade to decline, the government stepped in to make up for the slack and go above and beyond.  The federal spending is all part of the aggregate demand equation to stimulate the economy. However, the article states that the economy is shrinking at an annual rate of 0.1 percent in the last 3 months of 2012. This shrinking would show that the aggregate demand shifts inwards where the GDP and price has been reduced. This data would point towards another recession, but the article disagrees.

                As the federal spending decreases, the spending by consumers and business has consistently been strong. Since the GDP is shrinking, the unemployment should increase, but it was observed that it decreased possibly due to the consumer and business heavy spending. The strong business and consumer spending is due to the Federal Reserve’s campaign by giving out near-zero interest loans. This trend follows the determinate of investments where lower interest rates cause more demand for investments. Other developed countries have cut down on spending that caused weak foreign trade and affecting the shrinking of the economy. Even if other countries show their economy slowing down, the US private sector has been doing well.

                There has been 15.3% jump in residential investments, and investment in equipment and software increased 12.4%. However, the negatives outweighed the positives and caused this shrink. Also the shrink is partially due to only the big companies that make up the index like DOW, NASDAQ, and etc. struggling more than most of the private sector.

                The current aggregate demand affecting the economy is only causing shrinkage by only a percent, but to make federal spending cuts to an economy slowly recovering isn’t the wisest decision. The current world economy is very fragile where the slightest mishap like allowing banks to buy bonds with no committee to regulate them and when the housing market crashes, the whole world is negatively affected in some way or another. The federal spending should stay as is and allow other developed nations to recover and increase US foreign trade to boost the economy. Then the government can start cutting on spending, while the economy continually recovers.

Josh Sibio
Econ- Macro
April 18
http://technologyaffectstheeconomy.blogspot.com

                  It is often thought that the economy has a mine of its own and it just follows the natural order of supply and demand.  This article explains the role of technology in our economy, and how it can almost be directly linked to the rise and falls of the economy.  The article give examples and explains how our technology is closely connected to our nations wealth, standard of living, employment, and communication.
                 First, the article talks about how technology has changed the market place.  Its almost a no brainer to see how technology has revolutionized the way we look at goods.  Now-a-days the majority of us use the internet, and statistically in America the average amount of retail sold form online purchases is at six percent and scheduled at this rate to be twenty percent in ten years.  Being able to use the internet gives the buyer a better ability to make sure what they are buy is what they actually want and giving them the tools to research for the best good for them.  According to this article "a happy consumer quals a happy economy."  Also, the internet creates an environment for the buyer to buy on impulse. Which we know we all have done, but the more people buying puts more money into the economy which also is a benefit.    
             Second, the the article explains how technology makes our economy better buy increasing more production and in turn increases GDP.  The continuos advancements in technology has made creating products more efficient.  Meaning less money spent and more products made.  Having more products made drives the prices down and can mean more people spending money.  Being able to create many more products opens the door to international trade.  Being able to produce enough for both Home and over seas has increased our national trade more than ever, which many believe is our best hope to help our national debt.    
             Lastly, with more technology being used, the more specialized one has to be able to operate it.  With many types of machinery requiring more specialized types of talents  which causes the operator to have more education.  Companies are having to pay higher salaries for these people with higher education to make sure that they get the  employee that they want.  In a way more technology equals higher salaries and higher increase in pay contributes to the nation's increase of wealth.    

GDP and Unemployment

 

GDP and Unemployment
Thursday, April 18, 2013.

 

This cartoon explains a lot of what the last part of our macroeconomic class has been about; how people are not necessarily just unemployed but those who are employed are often under-employed for what they are qualified to do. This touches on the concept of economics as a whole as it takes a look at the unemployment rate and the reason for unemployment and how it can be explained. This also says something about our economy as a whole because with the people who are more qualified taking the jobs that require less qualification that is leaving fewer jobs available for those who do not have the qualifications even for only that job.

                There are many reasons for unemployment. One thing to keep in mind is that as the gross domestic product (GDP) goes up that unemployment goes down, however there is generally about a six month lag. The GDP is affected by many things; some of the main things that affect it include: the government expenditures and taxes as well as consumption, exports and imports. In essence this means that unemployment is much more complicated than people being lazy and not getting jobs. GDP is also affected by the prices and quantities of items that are produced which is generally much easier for people to see how that would be related. Consumption is the largest factor on GDP and therefore unemployment. 

                GDP is the output of the economy. The output it produced by the labor force. To find the unemployment rate you divide the number of unemployed, which by definition means that they do not have a job but are actively seeking one, and divide this by the labor force, which consists of the unemployed and the employed. There are also people who are unemployed but are not included in the unemployment rate because they are no longer looking for a job for some reason. Another thing to keep in mind when thinking about employment though it is not taken into consideration is that there are people who are part-time employed for economic reasons and those reasons can vary person to person.

                In all this cartoon shows how unemployment and employment can be different things for different people, just because someone is employed doesn’t mean it is what they are capable of and the same for someone who is unemployed it is not necessarily their fault. This cartoon also illustrates how the economy’s state can have a big effect on everyone because by the person with the better education having to take the job that is below what they are capable of doing that is leaving those jobs unavailable to those who cannot do things that require more education.

http://www.econosseur.com/economic-jokes.html

Amber Cook

Supply and Demand Comic

https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiApKjF6sDweHFr8LvcsOQGjAuEJG1SpiA4r1VVbY4w4msp7tonBU93k48CmY0zketIWz98JPdk4UvtWN-odYcP0O3WQ09hfWfw95BBc7qQokfr0UWGUdv78zFXDlXt8JT2vyAtWmC8tORX/s1600/00954-funny-cartoons-supply-and-demand.gif

                

This comic pokes fun at the idea of supply and demand and visualizes what could happen in the absence of our normal market situation.  If it is not already clear, a very thirsty man is crawling towards a lone beverage salesman in the middle of the desert.  Obviously the demand is very high for the lemonade and the vendor being unopposed leads to a low supply and also demonstrates price elasticity (percentage change in quantity demanded dived by percentage change in price).  Price elasticity measures how much the quantity demanded of a good changes when its price changes.  In this case the lemonade would not have “elastic” demand as it would normally have in everyday life.  In a normal situation, if you went to the convenience store and made your way to the drink cooler only to find the lemonade you wanted was $200 a bottle, you would likely swap the lemonade (substitution effect) for a more affordable beverage.  In this instance lemonade would have a very elastic demand because it has substitutes and is not a necessity.  In the world of this political cartoon, lemonade has suddenly became extremely inelastic because it is now a necessity for the consumer and therefore the demand will remain constant regardless of the exorbitantly high cost and is immune to the income effect.  The size of the population generally has an obvious effect on the market (i.e. California’s population is 40x larger than Rhode Island’s therefore the state has 40x the amount of automobile purchases.) but the curve in this situation is basically not existent since it is stuck at a 1:1 ratio.  One characteristic of supply and demand that this comic plainly illustrates is called “special influences.”  For example, the snow plow market in Utica, NY is probably rather strong (during the winter season so this is a special influence within a special influence), while in Miami, FL the snow plow market is not very strong and probably never will be.  The comic shows us a very special influence, a dying and dehydrated man will pay any price demanded to get his hands on the lemonade.  While it may not seem like it at first glance, this situation has perfect market equilibrium.  Every single consumer in this market and single is the key word…is demanding lemonade.  Since the lemonade man clearly has the supply needed and only a single jug of lemonade to sell, there is no extra pull on either side of supply or demand.  This situation goes to show that, there is a lot more to supply and demand than one may think and that we should be grateful to have the type of market we do where (generally) the items we need are always in high supply and luxury items are also readily available.  Moral of the story, if you decide to visit the desert, bring some cash.

--Adam Keith

Increase In Housing

Increase In Housing

According to an article from cnn.com, the building of new homes is finally on the rise. In March, for the first time since 2008 the housing starts have topped the one million annual rate.The housing starts annual rate was up 7% from February at 1.04 million annually, and up 47% from the past year. The reason for the increase in the building of homes has to do with more apartment and condominium complexes, which has five or more homes in them, being built. Units like that increased 27% in March from February and 82% from the previous year. With this increase in home building, there is also an increased desire for rental housing. The workers who were stuck living at home with their parents during the recession are now moving out in large numbers and looking to rent. Also, people who used to own homes before the recession that then got foreclosed are scared to buy again. Executive vice president of Resource Real Estate "said that even with a surge of multifamily construction, there is likely to be a shortage for years to come". With the almost record low mortgage rates, lower unemployment and a drop in foreclosures, home prices have increased. Because of the increase in sales and home values the overall economic growth has increased. Some concerns about the growth of housing are the rising prices of raw materials and shortages of construction workers. A lot of the builders are struggling with credit issues for lot development because of the rising construction cost and because of this fewer building permits are being filed even with the rise of the need for housing. A chief economist for the National Association of Home Builders, David Crowe, "estimates that the raw materials costs are up about 10% overall, and some key items are up much more than that". Plywood is twice as expensive, lumber is about 60% more, and drywall is up by 40%. The higher costs and labor shortages "are one of the reason single family starts are down. He estimates if builders were not facing those constraints, the annual rate of single-family starts would be about 100,000 higher". 

This article is showing that while there is a demand for increase in housing, the market can not meet the demand. Many factors are contributing to the problem, limiting the growth on housing which also limits the growth on our economy. 

Source:

Isidore, Chris. "Home Building Rises to Key Milestone." CNNMoney. Cable News Network, 16 Apr. 2013. Web. 18 Apr. 2013.

Job Growth Steady, but Unemployment Rises to 7.9%

http://www.nytimes.com/2013/02/02/business/economy/us-adds-157000-jobs-unemployment-rate-edges-up-to-7-9.html?pagewanted=2&_r=0

Unemployment at 7.9% is very high for our economy. As we talked about in class unemployment can be caused be a number of things. As well as different types of unemployment. Cyclical unemployment is when people lose their jobs due to insufficient aggregate demand. Structural unemployment is when people do not have the required skills to obtain or keep a job. Frictional unemployment occurs when workers lose their current job and are in the process of finding another one. Also when student are currently looking for a job after graduating. The natural rate of unemployment is defined as the rate of unemployment that still exists when the labor market it in equilibrium.

The article talks about fiscal policy hurting our economy, when it’s supposed to be helping it. The government budget cuts and tax rate uncertainty is problem a big still but the job growth increase at the end of 2012 was a lot higher then estimated. Employers added 157,000 payroll positions. With all these new jobs the unemployment rate is still at a high 7.9 percent.

However the increase in jobs is a great for everyone especially Wall Street.  “The economy, sales, employment and the stock market are all higher in spite of the bickering and rancor in Washington,” said Bernard Baumohl, the chief global economist at the Economic Outlook Group.

People are dropping out of the labor market or not even entering it. Millions of people have used up all their unemployment benefits, and are now helpless. With families to take care of it’s very hard to be unemployed in this economy.

Job growth is still slow compared to previous recession recoveries, and the unemployment rate stuck just below 8 percent lets us know that it takes time for unemployment to go back to its natural rate. The fiscal policy are useful in the long run, but not in short run. Those who are you are working and paying taxes are hurt most by fiscal policy. The problem is fiscal policy rises taxes, prices and the cost of living goes up.

Still, hiring growth has not been enough to decrease unemployment rate. There is still 12.3 million workers remaining. The average unemployed worker has been unemployed for about 35 weeks like the article tells us.

The problem is not who doesn’t have a job but more who wants one. The unemployment rate depends on the number of workers want to join the labor force. Right now, labor force participation is only 63.6 percent. The unemployment rate is calculated with people who are still actively looking for a job but are unemployed. With slow labor force participation the unemployment rate will not increase, and stay just where it is.

Rampell, Catherine. "Job Growth Still Steady, But Rate Rises to 7.9%." The New York Times. The New York Times, 02 Feb. 2013. Web. 18 Apr. 2013.

Is the Inflation rate to low?

The recent CNN news article about the inflation rate being too low, interviews James Bullard the president of the ST. Louis FED. The national inflation rate was 1.3 according to the FED’s report in February. According to Bullard the rate is to low and is currently still going down. He said, “If it doesn't start to turn around soon, I think we'll have to rethink where we stand on our policy.” Without taking Macro, I would have no clue that he was talking about. However I now know that there is a strong correlation between inflation and unemployment. As inflation goes down unemployment goes up. So what Bullard is saying makes sense because our economy is currently trying to recover from the last recession and our unemployment rate is above 7%, which is considered very high. With the inflation rate continuing to drop that means the unemployment rate will continue to go up which is the opposite of what the economy needs right now to get us out of the recession.

            According to Bullard in the article the FED aims to keep the inflation rate at roughly 2% each year, but because of the economy he has proposed raising it to 2.5% which would in turn lead to lowering the unemployment rate. In the article they talk about how the FED has the power to increase and decrease their spending based on the economy. Currently the FED buys “$85 Billion in treasury and mortgaged-backed securities, in an attempt to lower long-term interest rates and stimulate more spending.” Bullard backs his proposal of increasing the inflation rate if it becomes dangerously low. His policy has no end date, which shows that this is not just a simple fix to the problem. It will take time and other factors to rebuild the economy and lower unemployment. Since the economy can easily be altered by different policies and in some cases without knowing how much it will be affected, officials have to be careful before they implement their policies. Bullard has even said that it is getting so low that the economy may be on a path to deflation, which may put us, right back into another recession.

However I can see where critics of his plan have a problem. According to the LRPC when inflation increase the unemployment rate decreases, however over time the unemployment rate will return to the natural rate of unemployment and the inflation rate will stay at the higher percent. Which means that if the FED increases the yearly inflation rate from 2% to 2.5% the prices of items will increase that much. Since I’m no economist I do not know how much that will affect our economy or our/my daily life. What I do know however is that if the inflation rate continues to fall, which Bullard predicts. The unemployment rate will only further increase which is not good news for college graduates across the country.  It will also propel the country into another recession.

Source:

Kurtz, Annalyn. "The Fed's Bullard thinks inflation is dangerously low." CNNmoney.com. CNN, 17 Apr.

     2013. Web. 17 Apr. 2013. <http://economy.money.cnn.com/2013/04/17/

     the-feds-bullard-thinks-inflation-is-dangerously-low/?iid=SF_E_River>.

Inflation diving to dangerous lows

Inflation diving to dangerous lows

            According to the article on CNN, talking with “James Bullard, president of the St. Louis FED, is worried inflation may be getting too low”. The FED aims to keep inflation around 2% a year but is considering raising this to combat the high levels of unemployment that has been stuck around 7% for several years. (The FED)

            As we have recently been discussing in class, the unemployment rate and inflation rate are inversely related. Balancing the economy is a difficult operation that I did not fully understand at all until taking this course, and I still do not understand how the FED manages it so well. With the struggling economy in the process of recovery the FED has to tweak policy and make changes correctly to avoid another slip into a recession.

            To avoid deflation that would cause our economy to possibly fall into another recession, the FED may need to make policy changes soon. Including the possibility of allowing inflation to rise and even go past the normal yearly level of two percent. Although this may seem bad it is a measure that may need to be made to attempt to lower our level of unemployment, which have been above the levels the FED is comfortable with since our recession began. The natural level of unemployment and inflation is the optimal condition for our economy to function and is what the FED strives to get to.

            Currently the FED is purchasing “$85 billion a month in Treasuries and mortgage-backed securities” to try and increase spending by lowering long-term interest rates. These measures have not set end date, and according to Bullard more purchases are a possibility with interest rates becoming drastically low. The economy cannot be fixed overnight and measures like this will take time to come into effect but hopefully our interest rates will stable out. With interest rates at a stable point, our economy could begin to try and recover, hopefully lowering the unemployment rate.

            The inflation rate depends on whether or not the FED tries to make any more changes to policy to try and stabilize our economy. If the inflation rate continues to decrease, our government will take measures to avoid another recession. As mentioned before the FED attempts to encourage spending by lowering long-term interest rates, and if this does not help the lowering interest rate will require more policy change.

        Although it may not seem like it would be dangerous, the inflation rate becoming as low as it is terrifies economists. Economists want to try to stimulate the decreasing inflation rate and the lurking unemployment rate. To cause some change in our current economy the inflation rate needs to return to normal levels and hopefully bring down the unemployment rate.

Source: 

     "The Fed's Bullard Thinks Inflation Is Dangerously Low." Economy RSS. N.p., n.d. Web. 18 Apr. 2013.