Real GDP and our Economy

"Tracking the pulse of the economy"

http://www.usatoday.com/money/economy/economic-outlook.htm

Real GDP is defined as the quantity of goods and services produced in a nation during a year. Real GDP takes nominal GDP and corrects for price increases. Real GDP is calculated by tracking the volume or quantity of production after removing the influence of changing prices or inflation. This article from usatoday.com is talking about the real GDP of the United States and its predicted growth over the immediate future. The USA TODAY/IHS Global Insight Economic Outlook Index believes that the United States real GDP will grow at an annualized rate of 3.7% to 3.8% during the summer months. The USA TODAY/IHS Global Insight Economic Outlook Index is predicting that this growth rate will be driven by gains in manufacturing, capital spending, and exports.

To derive this GDP growth forecast, IHS Global Insight uses eleven leading economic and key financial indicators. The eleven indicators include: the real federal funds rate, interest rate yield curve, corporate bond spread, hours worked, building permits, non-defense capital goods orders, the money supply, stock prices, ISM export orders, crude oil prices, and light vehicle sales. Some of the indicators used were positive in February including hours worked and the yield curve. Further, consumer spending and employment are also expected to show continued improvement. However, several indicators were negative last month, such as seasonally adjusted crude oil prices, declines in building permits, real capital good-orders, and light-vehicle sales.

Based on what we have learned in class and from the graph provided in the article, the predicted small and slow growth rate over the summer for real GDP seems to go right along with what has been occurring over the last six months. While we are not having a huge boost, we are slowly getting better and increasing the quantity of goods and services produced which if it continues to increase will only make are country economically stronger with a stronger dollar value. Hopefully, the quantity of goods and services being produced will continue to increase because if GDP starts to decline again, this could cause us to experience more prolonged high unemployment and not allow us to get out of these critical times. Getting a higher percentage of people back to work will boost consumer confidence and spending. With approximately 70% of the US GDP based on consumer spending, getting unemployment down to the pre-recession levels of 4-5% is key to a full economic recovery.

The Effectiveness of Fiscal Policy in Combating Economic Crisis

The article, "The Effectiveness of Fiscal Policy in Combating Economic Crisis" discussed the effects of the installation of fiscal policy to help stabilize the economy and reduce the consequences that stem from ecnomic crisis. The article talked about many concepts that we have covered in class such as consumption, GDP, taxes, investments, permanent income, the rate of interest, and business cycles. Expansionary fiscal policy is put into effect by Congress and the President and is where government expenditures are increased and taxes are decreased in order to stimulate the economy and get it back to where it needs to be when it is under producing. The article discussed how consumption is the main factor that helps to spread the fiscal multiplying effect in the economy and that it will be increased as a result of the fiscal policy that is put in place. The article stressed that a temporary decrease in taxes, as fiscal policy suggests, will cause an increase in consumption as well as an increase in GDP. When taxes are lowered, the real rate of interest (the interest that accounts for inflation and deflation) will be lower which results in long-term consumption by the people, investments made by businesses, as well as an increase in output. The article said that expansionary fiscal policy is more useful during periods of deep recessions because when people start to receive additional income, they are more likely to consume that additional sum instead of save it. On the other hand, when people have a lack of confidence in their economic representatives in times of economic crisis, they will start saving instead of consuming. When people start saving instead of consuming, a decrease in output is a result which causes the reverse effect than was intended to occur. Another factor that sometimes affects the progress of expansionary policy is when people do not consume more because they are thinking about their permanent income as opposed to the changes in the economy positively effecting consumption. Human beings always look ahead to what could come next which in turn can sometimes have a negative effect on policies that are put into place. The article talked about business cycles and how they are caused by fluctuations in the economy that reflect increasing and decreasing GDP and output. The area from the trough to the peak in a business cycle is where expansionary fiscal policy would be put into place. After it is put into place, the desired result would be to move up from that trough to make the new peak to complete the business cycle. This article was a nice parallel to many things we have learned about in class.

Roanoke College Economics: Roanoke College Economics Professor Wins the 2011 ...

Roanoke College Economics: Roanoke College Economics Professor Wins the 2011 ...: "Alice Louise Kassens (Associate Professor of Economics, Roanoke College) was the top female finisher in the 2011 Quintiles Marathon at Wrigh..."

High Gas Prices and the American Economy

http://pictures.funnyjunksite.com/funny-cartoon-pictures/loan-for-gas/

Automobiles are a big part of the American economy and because most people use them and depend on them to get from place to place, gas is also a necessity. Gas comes from oil which is a nonrenewable resource and is not abundant the United States. The U.S. gets most of its oil from the OPEC countries in the Middle East. When these gas prices increase, America suffers not only directly but indirectly as well.

In the summer of 2008, gas prices sky rocketed to an average of $4.09 per gallon of regular gas. During the summer season, gas prices usually go up some but not as drastically as this. The price of gasoline affects supply and demand in its usual ways. With the big increase in the price of gas people demand less since there is a negative relationship between quantity demanded and price. But elasticity also comes into play. On the other hand, suppliers tend to want to supply more since the price is higher and they can then get more profit from the high gas price. This is due to the positive relationship between quantity supplied and price.

Gas is an inelastic product which means that the quantity demanded is not affected as much by price unless there is a drastic change. In other words, no matter how high the price is, people still need gas to fuel their cars and will therefore continue to buy gasoline. This is why it’s possible for gas stations to raise their prices so much and still sell gas. People then have to turn to other alternatives. To help save money, they make lifestyle changes steering away from using their cars as frequently as normal. Instead, bicycles are used or a day is better scheduled to not make as many trips to and from home. Many people even trade in their bigger gas guzzling SUVs for smaller cars.

These high gas prices tend to affect small “mom and pop” businesses indirectly as well. My boss, Mike Look who owns Scott & Ellie’s Ice Cream Shop was affected. Even though ice cream and gas are not related, gasoline made an impact on revenue. When gas prices increased, he lost business because people avoided luxury items and leisure activities such as buying ice cream or going out to dinner in order to save money. So, though it was summer, Scott and Ellie’s actually lost a significant amount of money due to the high gas prices and this was true for other small businesses as well.

Gas prices also affect government spending. Public transportation that the government provides for consumers such as city buses, trash trucks, school buses, and mail trucks all use gas for fuel. When the government has to put more money in these public goods and services, it decreases the amount of money they can put into other important public goods such as education, roads, and national defense. Since transportation and gas are both inelastic, the government must decide what best action to take to prevent high gas prices affecting the economy so greatly. Oil is in high demand but it is a nonrenewable resource and will eventually be used up. Additionally, if the U.S. ever has major issues with the OPEC countries where most of its oil supply comes from, the U.S. economy could be in economic turmoil. The best possible solution is to find an alternate fuel source that will lower the demand for gas over a long term period of time or the problem will only continue to get worse.

why does money have value?

Why does money have value?

Moffatt, Mike. "Why Does Money Have Value?" Economics at About.Com -- Your Portal to the World of Economics. Web. 21 Mar. 2011. .

http://economics.about.com/cs/neoclassical/a/value_of_money_3.htm

Today I looked at an article online that asked that question; why does money have value. The last week in class we have been discussing money demand and money supply. As discussed in class and in the article money is exactly what it appears to be it is essentially just a piece of paper. Money doesn’t have any value like for example water which has a value because you need it to survive and keep hydrated, water has a use. Money on the other hand doesn’t it is just a piece of paper. Before money were coins and metals that had a value to them because they could then be melted and used to make other things. The reason why money is wanted is because as mentioned in the article it has a limited supply and people demand it because they want it. One of the interesting things mentioned in this article is inflation. “Inflation of the currency causes people to want to get rid of their money as quickly as possible”. This ties back to one of the topics that we discussed in class, which is liquidity. Cash is liquid therefore they can get rid of it quickly. When money becomes less valuable relative to those other goods which can happen by the supply of money going up, the supply of other good going down, the demand for money going down and the demand for other goods going up. Basically what this article is trying to say is that money is essentially a good and that a good depends on the supply and the demand for it. The main reason of inflation is going to have to be the increase in the supply of money, but there are also other ways that it can happen. Overall what this article is telling us is that the reason why money has value is because people believe that they will be able to exchange their money for goods and services in the future. In conclusion related to what we have been talking in class there is a certain amount of money supplied and demanded and it has a value because of what we believe this green piece of paper means.

Why are Gas Prices Rising?
Over the past couple of months, there has been a rapid increase in the price per gallon of gasoline. Studies done by the AAA motorist group show the current gasoline prices remain steady at $3.542 per gallon, and with the summer approaching that number could reach as high as $4.00 per gallon. Currently in Hawaii and California the price per gallon has already come close to reaching the $4.00 per gallon, hovering between $3.95 and $3.97 per gallon. Because of the intensifying fighting in Libya and the Middle East, oil prices are rising through the roof. If the fighting reaches Saudia Arabia, (the biggest oil producing nation) prices could reach an absurd amount in the near future. Through the basic concepts of supply and demand, we can better understand why this constant price increase is occurring.
As gas prices rise, fewer and fewer people are going to the tanks to fill up. Using the principles of the law of demand, we can see that the increase in the price of gas results in a decrease in the quantity demanded by consumers. This in turn hurts the total income of our economy because more and more people are refusing to buy gas. Our gasoline comes from crude oil and then is refined into the gasoline we sell at the pumps. Crude oil and gasoline serve as compliments to one another. The higher the price of oil equates to a higher price in refined gasoline. If the price of oil rises, then the quantity demanded of oil will decrease and the demand of gasoline will decrease as well. In order to keep prices from rising, quantity demanded and quantity supplied must meet an equilibrium; that is to say they must be the same.
Factors of supply such as taxes and technology can also affect the price per gallon of gasoline. The higher the tax is on refining oil, the higher the final price of gas. In return, this would decrease the amount of gas supplied because it would become too costly to earn a profit from gas. Technology in the refinery plants also affects the amount of gas supplied. If a new product was created in the refinery plants that could refine oil cheaper and more efficiently than ever before, then we would see an instant increase in gas supplied because there was an improvement made in the technology of the refineries. If more gas could be supplied more efficiently, then the price of gas would be able to slowly drop.
If gas prices do not decline then we can expect consumers to step back and slow spending. For every ten cent increase in gas prices, an additional $14 billion per year is taken out of consumer pockets. On average, Americans spend $1 billion per day on gas. Rising gas prices are and will continue to affect our economy. Gas prices affect everyone including, businesses, athletic teams, students, airlines, and everyday working citizens. With gas prices continuing to rise every week, I think we can continue to see the demand for gas to decrease as Americans do not want to trim daily expenses and choose to cut back on any unnecessary travel expenses.
Links:
http://www.usatoday.com/money/industries/energy/2011-03-08-gasprices08_ST_N.htm
http://www.washingtonpost.com/wp-dyn/content/article/2010/01/07/AR2010010704255.html
Works Cited:
Copeland, Larry. "Rising Gas Prices Could Stall U.S. Recovery - USATODAY.com." News, Travel, Weather, Entertainment, Sports, Technology, U.S. & World - USATODAY.com. 8 Mar. 2011. Web. 20 Mar. 2011. .
Ahren, Frank, and Mike Musgrove. "Rising Gas Prices Could Be a Drag on Economic Recovery." The Washington Post. 8 Jan. 2010. Web. 20 Mar. 2011.

Blog Cash For Clunkers

Cash for Clunkers Zach Barrett
Cash for clunkers was a program that was established by the government in July, 2009.Cash for clunkers can be defined as federal rebates of up to $4,500 to drivers who trade in a gas guzzler for a more fuel-efficient vehicle. This was established to help car dealers get a boost from the money drained struggling automakers and also to generate more sales taxes for cities to receive. This would result in an increase for demand of hybrids and fuel efficient cars. This would try to bring the supply down since people will use the voucher to help them be able to afford a new fuel efficient car. This will try to make an equilibrium price one could call it. This would help make people who were barely short of buying a new car be able too. What people didn’t realize was what this would mean to the supply and demand of used cars. With the world economy being in a recession the demand for used cars was at a high along with a shortage of vehicles. With the cash for clunkers being established it reduced the supply of used cars especially those with a value of 4,500 or less. This made prices on used cars increase because the people who were hurting for money bad could not afford a fancy hybrid or a new car even with a rebate over 4,ooo dollars. This plan however,did help auto dealers and manufactures make money along with help avoid layoffs and job loss in the industry. This is huge for the economy because it is said that over 10 million people rely on the auto industry as a job. This did help make July the month the program was started, to be the highest in auto sales that year. It boosted the auto industry until shortly after the program was over. Many economists such as Mark Zandi said that cash for clunkers will boost the second half’s earning, but then quickly flatten out as benefits fade out. A lot of the sales were from people that were thinking about buying a car in the future but decided to do it that year because of the government rebate being available. This will hurt the future of sales of the auto industry. Another big reason people were not fan’s of the cash for clunkers was because it was going to cost the government billions to do while the government is in debt already. In a time of recession which is explained in economics as two consecutive quarters of decline in real GDP many factors are need to fix the economy. For an economy to recover from a recession you need many different types of programs to help stimulate the economy back to where it needs to be. The big factors include businesses and people spend and invest at normal levels again, banks have to lend more freely, and unemployment needs to decline. In conclusion, cash for clunkers stimulated the economy temporarily, but was a program that was not going to single handily fix the recession that was faced.
Links: http://www.msnbc.msn.com/id/32299850/ns/business-autos/
http://www.lewrockwell.com/blog/lewrw/archives/32538.html
Works Cited
"Populist stimulus or economic clunker?." MSNBC. Associated Press, 8/5/2009. Web. 20 Mar 2011. .
Kramer, David. "Cash for Clunkers program meets the law of supply and demand." N.p., 8/8/09. Web. 20 Mar 2011. .