Unit Two

A. Circular Flow of Income

( From http://www.eoearth.org/article/Macroeconomics_and_the_environment )
This is an example of the most simple form of the Circular Flow of Income model. As stated
earlier this diagram shows how Firms supply goods and services to households through the
"product markets," and that households pay for these goods and services with money earned
from supplying the firms with labor and resources. In this model, all income earned by the
households is spent on goods or consumption, there is no savings. Likewise, all output earned by
firms or companies is purchased by households through their consumption. So in essence the
income follows a circular flow that never ends, as illustrated by the model.
The problem with this model is that not everything ends up as perfect as how this circular
relationship is theorized to predict. In the real market leakages and injections to the economy
occur such as savings and investments, taxes and government spending, and imports and exports.
Thus the more realistic model used to predict this relationship is the five sector model of income
flow as shown below. This model adds in three sectors to the flow of income, the Financial
Sector, the Government Sector, and the Overseas Sector. These sectors provide what is known as
Injections and Leakages to the circular flow of income. In other words, leakages such as the
saving of money in the Financial sector is replaced by injections know as investments by banks
into businesses. In the Government sector, leakages are the taxes that the government collects
and injections is the spending that the government provides to the economy. Finally, Imports are
leakages where money is flowing out in the Overseas sector and Exports or injections where
money is flowing into the circular flow. In the end all things are equal when the sum of all the
leakages equals the sum of all the injections. Unfortunately, this does not always happen in
today's modern economy, as we all know.

( From http://en.wikipedia.org/wiki/Image:Circular_flow_of_income.JPG )

B. Macro Economic Goals . . . are

1. Full Employment
With an economy at full employment there is lower rate of unemployment and a greater amount
of goods and services being produced. All of this contributes to a growing economy and GDP
2. Price Stability
Price stability reduces the chances for inflation or unanticipated inflation, which could in turn

upset the economy. It also prevents wealth redistribution.

3. Economic Growth
This occurs, when an economy's real GDP increases
source ( http://www.ncee.net/resources/lessons/ap_resources/AP-Macroeconomics-Visual-24.pdf )

C. Macroeconomic Measurement
1. Gross Domestic Product (GDP) The most closely watched statistic, GDP is the aggregate
output (the total market value of all final goods and services produces in a nation in a year). GDP
is not a measure of the number of goods and services produces, but rather the market value. It
measures (depending on the calculation method used) either the total income of everyone in the
United States or the total expenditures of everyone in he United States. Both values should be
equal.
The total expenditures of the U.S. can be calculated using the formula:
C + I + G + NX = GDP
Where C is consumption, I is investment, G is government spending, and NX is net exports.
Consumption measures households contribution to GDP. It includes spending on goods and
services, taxes (income, ad valorem, property, etc), and savings. Investment measures to
contribution of businesses and firms to GDP. This value includes salaries, resources, capital
goods (equipment), profit, and interest. Government spending describes the governments
spending, and encompasses all government purchases. Net exports measures the portion of GDP
attained from the foreign sector. This figure is determined by subtracting what we buy (import)
from what we sell (export). Therefore, if the U.S. imports more than she exports, the net exports
value will be negative.
The total income of everyone in the U.S. can be calculated using the formula:
Compensation of employees (wages, pensions, etc.) + rents (any use of buildings) + interest +
proprietors income (profit) + corporate profits + indirect business taxes (tariffs) + consumption
of fixed capital (depreciation) + net foreign factor (overseas business) = GDP
Either way GDP is calculated, it does not include illegal purchases, transfer payments (Social
Security checks, welfare payments, veterans payments, disability), the stock market, or second
hand sales (used cars and used houses).
GDP should not be the ultimate measure of success because it does not include nonmarket
activities (subsistence farming), leisure hours vs. work hours, quality improvements,
underground activities, the effect on the environment, composition and distribution of output,
and noneconomic sources of well-being (the crime rate, birth rate, etc.).
2. Economic Growth economic growth is measured as the percent increase in real GDP
(GDPr). Real GDP is not the same as nominal GDP, which is the named GDP. Real GDP is
nominal GDP after it has been adjusted for inflation. Real GDP can be calculated using the
formula: Real GDP = Nominal GDP/Price Index

3. Price Level Price Level is also known as price index. Price index measures the cost of goods
and services in an area at a certain time. Various price indexes can be used to compare how
prices change over time and regions. This value can be calculated using the formula:
Price Index = (Cost in Target Year/Cost in Base Year) x 100
4. Employment Employment is measured using the civilian unemployment rate, which is
derived from a national survey. The survey encompasses some 60,000 households and the
monthly employment status of its inhabitants over age 16 (the adult population). The survey
consists of three categories: employed, unemployed, and not in the labor force. One might be
classified as unable not in the labor force because of old age, inability to work, or choosing to
not work. The unemployed and employed constitute the labor force.

D. Inflation and Price Indexes

1. Difference between price level and inflation - When inflation occurs, a rise in the overall level
of prices takes place. During this time, the dollar will lose value and fewer goods and services
can be purchased by the consumer. Inflation lowers the purchasing power of money. However,
this drop in the value of the dollar does not mean that all prices are rising at the same time and
rate. While some price levels could be increasing at alarming rates, others may decrease
gradually or even remain constant.

(http://www.oph.gov.au/images/upload/personalitieshoward1.gif)
2. Different price indexes- Inflation is most commonly measured by the Consumer Price Index
(CPI). This index is created by the Bureau of Labor Statistics (BLS) each month and year. The
government then reports the CPI rates to adjust income tax brackets and Social Security benefits.
The CPI takes the top 300 goods and services purchased by the common urban consumer in
American to find the current general price level. These goods and services are know as the
market basket. The expense pattern of the common consumer is measured over the course of
one year. As price levels and inflation percentages fluctuate from year to year, different price
indexes are reported.
Price indexes are measured with this formula.
Price index = (Cost of Market Basket in Target Year / Cost in Base Year) x 100
The total cost is calculated by multiplying the number of units of the goods and services in the
market basket by the price of each good or service.
Below is the United States Consumer Price Index from September 2006 to March 2007. Note the
types of goods and services that make up the market basket.

(http://www.usa.xorte.com/0,4,US-Consumer-Price-Index-in-March-2007,1274.html)
3. Nominal vs. real quantities- Nominal income is the amount of dollars received by a consumer
through wages, rent, profits, or interest. Real income is expressed as the amount of goods or
services that can be bought with the amount of nominal income obtained. Due to different prices
levels, real income is forced to be adjusted by inflation. The quantity of goods or services
received is a direct example of the purchasing power of the dollar in an economy.
Real income = [nominal income] / [price index (in hundredths)]
Real income will remain the same while nominal income and the price index rise together at
same rate.
In the Graph below, the Real and Nominal Price Indexes from 1862 to 1992 are shown. The
darker/thicker line represents the Real. The lighter/skinnier line represents the Nominal.
[[Unit Two|]]

(http://bigpicture.typepad.com/comments/2005/09/index.html)
Source:
Economics: Principles, Problems, and Policies (McConnell & Brue)

E. Unemployment
1. Unemployment rate
The unemployment rate is the percentage determined by dividing the total number of employable
people looking for jobs by the total number of employable people. This percentage is determined
monthly in a survey by the Bureau of Labor Statistics. The current rate of unemployment for the
United States is 4.7%, which means that about 7.2 million people in our country are unemployed
of a possible 146.7 million. Below is a graph of the change in U.S. unemployment since 1948.

2. Labor force participation rate

The labor force participation rate measures how active economically a population is. It measures
how many people who are able to work are willing. To calculate this ratio you divide the number
of people who are in the labor force (a sum of both employed and unemployed) by the entire
population of people who are able to work (typically between the ages of 16 and 64). This ratio is
also determined monthly by the Bureau of Labor Statistics. Our current labor force is almost 154
million people and the U.S. labor force participation rate is at 66.1%.

3. Types of unemployment
Unemployment is when a person has no job, is available to work, and is actively searching for a
new job.
There are three main types of unemployment:
1. Frictional Unemployment - Frictional unemployment is when a person is in between jobs and
is searching for a new job. An example is a law school graduate who is looking for a private firm
to join.
2. Structural Unemployment - This type of unemployment occurs when a person does not have
the correct skill set for a job. An example is a pizza delivery person who is laid off when a
teleporter is invented (hopefully soon). This person cannot get another job if his/her only skill is
to deliver pizza.
3. Cyclical Unemployment - A person is laid off or cannot get a job due to a downturn in the
economic cycle (hence the name). The employer cannot afford the employee because there is not
enough demand for a good or service. An example is a laid off auto worker when the economy is
in a recession.
For more information on the latest unemployment rate or rate of labor force participation visit
the Bureau of Labor Statistics at: http://www.bls.gov/news.release/empsit.nr0.htm
Are you unemployed and on the hunt for a job? Maybe you could use a few tips!
http://www.youtube.com/watch?v=oqFfivzcmcw&feature=related
http://www.youtube.com/watch?v=GniH_akPvKQ&feature=related
http://www.youtube.com/watch?v=IcqCLdZtKh0&feature=related
http://www.youtube.com/watch?v=U35CVFbtOs4

F. Business Cycles
Business cycles are also referred to as economic cycles and they help explain the fluctuations in
the economy. Economists can also use business cycles to predict the future economic conditions
by analyzing trends. Periods of economic prosperity and growth are displayed by a peak on the
business cycle and periods of economic stagnation or recession are displayed by a trough.

1. Phases of the business cycle - the business cycle really has 4 phases: the contractionary phase,
the trough, the expansionary phase, and the peak. As displayed in the picture, when real GDP
declines, the economy experiences a contraction (or recession). At the lowest point of the
economy, the business cycle hits a trough. The economy then starts to recover and grow, which is
referred to as expansion. The peak of expansion is when the economy is at it's greatest strength
and this is called the peak. these cycles repeat in varying ways due to varying variables.
2. Definition of recession - A recession is often mixed up with a depression and the terms are
very similar. A recession is two consecutive periods of decline in real GDP. A depression is a
drawn out recession with severe decline.
user-14387

Economics Game
Lindsey08 Jan 2, 2008
help the economist!
http://www.mindjolt.com/game.jsp?gameKey=Z7Q4KVU0GUZ5MPTL

Lindsey08 Jan 2, 2008

I know it is past 12:00 on the 2nd, but I think I just got a high score!
Poor Bob! He didn't have an economics teacher like Mrs. Moeller!

Lets Imagine a Little Town

Lindsey08 Jan 2, 2008
http://youtube.com/watch?v=cHwYX_j3zuc
i like this one!

High Food Prices Hit Home

Lindsey08 Jan 2, 2008
http://online.wsj.com/article/SB119932361635363833.html
Higher Food Prices Start to Pinch Consumers
As Grocers, Eateries Pass On
Increases, People Are Shopping
More Carefully, Cutting Back
By JULIE JARGON, DAVID KESMODEL and JANET ADAMY
January 3, 2008

With the rising cost of milk, eggs, meat and produce contributing to the biggest jump in food
prices in 17 years, consumers are starting to feel the pinch.
Some shoppers, already dealing with falling home values and rising fuel costs, are finding
creative ways to save, opting for cheaper ingredients and private-label goods and leaning more
heavily on discount grocers. And restaurant diners, who have been eating out less frequently, will
likely face even higher prices on menus.
For Christmas dinner, Karen Littleton, a 54-year-old freelance writer in San Antonio, says she
bought a huge salmon fillet at discount retailer Costco Wholesale Corp. rather than an "exquisite
fish," such as Chilean sea bass, from a local grocery store.
She says she loves to prepare gourmet dishes, but "I'm using cheaper foods and having to be
more imaginative with how I put them together. ... I used to use eight or 10 ingredients in just a
sauce, but those days are over."
Many of the price increases seem small on a per-item basis. The average retail price of a dozen
eggs went up 38% to $1.86 in November from a year earlier; a gallon of milk rose 30% to $3.90;
and whole-wheat bread rose 12% to $1.78 per pound, meaning a 24-ounce loaf of bread now
costs, on average, $2.67. But the costs can add up on a weekly grocery bill. Overall, food prices
as measured by the consumer price index rose at a 5.3% seasonally adjusted annual rate through
November, compared with a 2.4% rise for all of 2006. That is the biggest increase since 1990.
Food prices are rising for a number of reasons. A growing middle class in Latin America and
Asia can afford more meat and milk, which has driven up demand for grain to feed cattle and
hogs. A drought in Australia in 2006 reduced the supply of milk available to Asia, further
pushing up the cost. Rising global demand for U.S. wheat and poor harvests in other wheatproducing countries caused wheat prices to soar to record levels last year.
Demand for grain-derived ethanol, driven by government incentives, has helped push up corn
and soybean prices, which in turn have raised the cost of many products derived from those
crops, such as oils and high-fructose corn syrup, a sweetener used in everything from soft drinks
to ketchup. To top it off, rising fuel costs are making it more expensive to transport food from the
producers to stores and restaurants.
'Everything's Going Up'
"Between weather conditions, fuel charges and labor, everything's going up," says Sandy Levine,
vice president of Carnegie Deli in New York, which will be raising prices on several menu items
this year. A slice of cheesecake will cost $8.50, up from $8, and coleslaw will cost $4.50 instead
of $4. The deli processes its own meat, but with produce, Mr. Levine says, "I can't buy direct. It
has to be trucked across the country from California or Florida."
For the past several months, food manufacturers including General Mills Inc. of Minneapolis and
Sara Lee Corp. of Downers Grove, Ill., have been passing along their higher costs to retailers,

which in turn have been passing them along to consumers. In addition to basics like bread,
cereal, cheese and eggs, nonessentials such as chewing gum, chocolate and ice cream also have
become more expensive.
Last week, an 18-ounce box of Kellogg's Corn Flakes cost $4.29 at an Albertsons in Lake
Havasu City, Ariz. The same box at a nearby Safeway cost $3.79, while it cost $3.43 at a nearby
Smith's, a chain owned by Kroger Co. Each store offered an in-house brand, which varied in
price across the three stores from $1.89 to $2.79. Other private-label goods were priced at a
significant discount. A 7.25-ounce box of Kraft Macaroni and Cheese Premium Thick 'n Creamy
cost $1.69 at Smith's, while the store-brand competitor made by Kroger cost 49 cents.
Phyllis Hoag, an interior-design consultant shopping last week at a Smith's in Lake Havasu City,
said she now plans many of her family's meals around what's on sale. After reviewing the weekly
specials, she scooped up six T-bone steaks for $3.99 a pound. "Usually they're $9.99," Ms. Hoag,
47, said as she pushed her cart down the pasta aisle. "I just try to shop with ads and stock my
cupboards with dry goods that are on really good deals."
Passing Along Increases
Some large conventional supermarket chains such as Kroger and Safeway Inc., which have
passed along most of the price increases in food products, say they haven't felt a negative impact
on their sales. "In our view, periods of modest inflation [are] a positive for our business, because
inflation tends to improve sales," Kroger CEO David Dillon told analysts in December.
And not all food items have gone up in price: The average price of red delicious apples remained
flat, as did the price of malt beverages. But food analysts are predicting that the prices of most
food products are likely to continue to rise throughout 2008.
Carol Skusek, a mother of two teenage boys in Temecula, Calif., says she is buying cheaper cuts
of meat to pare her grocery bill. "If I buy a chuck roast instead of a rump roast and just cook it
longer in some sort of broth, it's just as tender," says Ms. Skusek, 47. She shops at a nearby
Stater Bros. grocery store just before it closes at 11 p.m., when butchers often slash the price of
meat that is near its sell-by date rather than throw it away. "I recently got hamburger for 99 cents
a pound, and it's normally over $3 a pound," she said. She is also shopping more at a discount
grocer, WinCo Foods.
That shift appears to be helping Wal-Mart Stores Inc., which recently said its rate of food
inflation is lower than that of the rest of the grocery industry. During an earnings conference call
in November, Eduardo Castro-Wright, chief executive of Wal-Mart's U.S. business, told
investors: "Our grocery business, including pharmacy, was strong throughout the quarter, and
Supercenter food sales grew by more than 13%."
Restaurants have had a hard time passing along price increases because consumers already had
cut back on dining out due to rising gasoline prices and declining home values.
Burger King Corp. raised its prices 1% in July. McDonald's Corp. said in October it raised prices

by about 3.5% during the previous year and will continue to adjust for higher dairy and chicken
costs. Some McDonald's franchisees have raised prices of items on the company's Dollar Menu
above the $1 mark. At one Chicago restaurant, for example, that menu has been renamed "Dollar
Menu & More," and includes a $1.29 double cheeseburger and $1.49 chicken snack wrap.
Angel Crawford, a 49-year-old Chicago resident, says she visits McDonald's every day for
breakfast and other meals but has been staying away from the higher-priced items on the Dollar
Menu & More section. "I don't buy them because they went up," she says.
$12.99 for Chicken Wings
Wing Zone Franchise Corp., a chain of 103 restaurants in the Southeast, instituted an 8% price
increase in August and will try not to raise prices again during the first six months of 2008.
"There isn't a single product in our restaurant that hasn't gone up in cost from the vendor," says
Wing Zone founder and CEO Matt Friedman.
Now, an order of 20 chicken wings costs $12.99 instead of $11.99 -- and that has cost Mr.
Friedman some customers. Between September and December, Wing Zone saw its customer
count go down by 2% to 3%.

Inflation (WSJ - Jan. 3rd)

Lindsey08 Jan 2, 2008
http://online.wsj.com/article/SB119932397075163841.html?apl=y&r=769907
It's Time to Add Inflation
To Worry List
By SCOTT PATTERSON
January 3, 2008
For many years, investors have kept inflation crossed off their list of worries. But with oil prices
near $100 a barrel, gold tickling record highs and many agricultural commodities hitting new
records, one has to wonder how long they can keep ignoring it.
The bigger worry today is clearly economic growth. Bond prices rallied yesterday, sending bond
yields lower -- as often happens when recession fears mount -- after the Institute for Supply
Management reported a surprisingly steep drop in its index of manufacturing activity. The ISM's
index slid to its lowest level in nearly five years, suggesting the industrial sector might already
be contracting.
A weak economy often reduces inflation pressure. Investors seem to think this will give the

Federal Reserve a freer hand to reduce short-term interest rates to prevent a broader recession.
The Fed has already lowered its target short-term interest rate three times since September to
4.25% from 5.25%.
But its choices are getting harder by the day. Minutes from the Fed's December meeting, released
yesterday, noted that even as policy makers acknowledged the potential need for more rate cuts,
some worried that increases in commodity prices "may put renewed upward pressure on
inflation." Even though the U.S. economy is weak, demand for commodities is strong outside the
U.S.
The ISM's report underscored the dilemma. Even as customer orders shrank, many
manufacturers had to pay their own suppliers more. While 43% of manufacturers reported they
paid higher prices last month; only 7% said prices fell. One chemical producer reported "a large
volume of price increase notices," while a metals company said "higher raw material prices are
squeezing margins."
"The signs are pretty persuasive that we have an inflation problem," says James Grant, editor of
Grant's Interest Rate Observer.
Investors still don't seem to think this will tie the Fed's hands. Futures markets showed investors
now seem assured of another rate cut in January. A steeper run in oil and gold prices, however,
might eventually change their minds.
Monsanto Is Beneficiary of Price Boom in Grains
Oil and gold aren't the only commodities shooting up. Grain prices have also surged, largely due
to rising demand for corn-based ethanol, the gasoline substitute.
That's been a boon for chemical and fertilizer makers, the best-performing sector in the Standard
& Poor's 1500 index in 2007. It rose 108%.
Today's fiscal first-quarter earnings report by Monsanto will be an early look at one of the
stronger performers in the sector. Analysts surveyed by Thomson Financial expect the seed and
chemical maker to post earnings excluding some one-time items of 35 cents a share, more than
doubling last year's 16-cent profit.
Monsanto has enjoyed big growth in its DeKalb corn seed line, which captured 23% of the North
American seed market in 2007, up from 10% in 2001, according to Morningstar. Corn prices
were up 15% in December from a year earlier. The federal government's latest energy bill
broadens mandates for ethanol production.
This makes Monsanto one stock that is benefiting from pressures hurting the rest of the market.
It also makes it a place to look for signs of the next big market bubble.

Lindsey08 Jan 2, 2008

As of January 3, 2008, with only a few days into the new year, economists are already predicting
our already high inflation rate to increase even further. These economists fear that inflation is not
being anticipated by consumers. All of the signs are there, but no reactions are occurring. This is
because Americans assume that the economy could reach the point of an even weaker dollar. In
the next quarter, we should expect to see another cut in interest rates. By increasing the countries
nation currency, the demand for it will also increase. Our dollar is currently very weak in
comparison to the countries that we trade with. The United States is importing much more than
we are exporting. The writer discusses the price of a barrel of oil for this reason. We rely heavily
on foreign good and services.

Inflation - Duck Tales Style!

Lindsey08 Jan 2, 2008
For an interesting blast from the past with the help of Duck Tales, watch this video to review the
dangers of inflation.
http://youtube.com/watch?v=t_LWQQrpSc4

Lindsey08 Jan 2, 2008

Taken from Inflationdata.com
http://www.inflationdata.com/Inflation/Articles/HighOrLow.asp
Which is Better High or Low inflation?
It would seem obvious that low inflation is good for consumers, because costs are not rising
faster than their paychecks. But recently commentators have been saying that "Low inflation
introduces uncertainty". This is nonsense.
During the high inflation "Eighties" I remember commentators saying "High Inflation introduces
uncertainty". This is not quite true either. The truth is that steady inflation, if it can be relied upon
to remain steady, does not introduce uncertainty. Changing (fluctuating) inflation rates is what
introduces uncertainty.
Eliminate Uncertainty
But there is no guarantee that if inflation is high it will not go higher... or lower. So there is the
uncertainty. The only sure way to eliminate uncertainty is to have no inflation at all and that can

only be accomplished by a "Gold Standard".

Under a Gold Standard, the government owns a set number of ounces of Gold and issues
currency for that amount of money. The only way to increase the money supply is to increase
their holdings of Gold. This forces fiscal responsibility on the Government.
Disinflation
But disinflation (decreasing levels of inflation) also encourages people to reduce high debt loads
and become financially responsible. As inflation comes down it becomes less advantageous to
carry high debt loads. This is probably the reason for the current "hue and cry" among the
popular press. The writers are probably up to their ears in debt and hoping to pay it off with ever
cheaper dollars.
Have you ever considered that inflation is a form of consumer "dishonesty"? You agree to
borrow "X" number of dollars and pay it back with interest. But you hope that the value of those
dollars evaporates so you can pay your debts with worthless paper? In Rom 13:7 the bible says,
Pay all that you owe...
Inflation actually encourages debt because you can pay it off with "cheaper dollars". At first
glance this appears to benefit the debtor but if you think of Debt as voluntary servitude, it
shouldn't be encouraged.
Deflation (prices falling below zero) on the other hand can be downright disastrous for those
with high debt, because their debt is in a fixed number of dollars but each dollar is more valuable
than when the debt was first incurred.
Who benefits from Deflation?
Obviously creditors benefit. They loaned money and are getting paid back with dollars that have
a greater purchasing power. This scenario is distasteful to those with a "Robin Hood" mentality
i.e. steal from the rich and give to the poor.
But Deflation (falling prices) also benefits low debt consumers and those on fixed incomes,
because they receive a fixed number of dollars but can buy more with each dollar .
The periods in our history with the lowest inflation have also been when our Gross Domestic
Product has grown the fastest in terms of "Real Dollars".
(Real Dollars are measured after prices are adjusted for inflation or deflation).
In addition to encouraging fiscal responsibility on the part of consumers, low but stable inflation
(or even deflation) is also good for the long term economy, because it allows producers to know
their costs. This predictability allows producers to generate reliable profits which will eventually
result in a strong healthy economy.
Inflation is bad for the economy because economies built upon debt and encouraging consumers
to go further into debt eventually crumble of their own weight. As more and more consumers get

over burdened by debt, they declare bankruptcy, introducing uncertainty to the creditors and
robbing them of their rightful income.
Somehow it is difficult to feel compassion for the "rich creditors" but everyone with a bank
account is a creditor. How would you like it if someone who owed you money failed to pay you
back? Or you were never sure if you would be able to take your money out of the bank? What
would this uncertainty do? You would probably be less likely to put money in. Banks feel the
same way, if the chances of being repaid decrease they are less likely to make loans and that
decreases the health of the overall economy.
Rapidly falling or rising inflation is usually a sign of a suffering economy with high
unemployment and a lack of spending power (i.e. recession/ depression). But it is the change that
is the problem not the altitude (or lack of it).
The Historical Inflation Rates show that even when we have had price deflation (falling prices)
the country has been prosperous if the reason for the falling prices is that goods are being
produced so economically that prices can fall and producers can still make a profit. This
generally occurs after major productivity enhancements like the invention of the assembly line or
the completion of the transcontinental railroad.
Disinflationary pressures in the late 1990s and early 2000s were most likely the result of cheap
productive capacity in China and other former communist countries coupled with the
deflationary forces of the 9/11 attack and the stock market crash.

Discussion Reply
This article posted on www.inflationdata.com discusses the many sides to inflation. The writer
first informs the reader that only changing and unsteady inflation rates create uncertainty in an
economy. Overall and gradual rises in inflation actually prevent uncertainty. Decreasing levels of
inflation often force consumers to become financially savvy with their debts. On the other hand,
inflation tends to promote debt. Consumers can then pay off their loans with less money than
they originally owed. As a result, real income is redistributed to borrowers (away from banks and
others holding loans).
Unanticipated inflation is inflation that surpasses the original predicted level. When this occurs,
fixed-income recipients, savers, and creditors are at a loss. Fixed income receivers are hurt when
their real income decreases as inflation increases. Most commonly affected by this process are
retirees. Land lords receiving payments from renters are also at a loss when their fixed renter
rates remain the same while inflation occurs. Workers on fixed salaries are also greatly affected.
Suddenly, their income becomes less valuable, and they can no longer make certain purchases
with rising prices.
Savers are also affected when unanticipated inflation occurs. As inflation lowers the value of the
dollar, the money that has been put away weakens in value also. As a safety cushion, the money
will be fine as long as the rate of inflation does not exceed the interest rate set to the money.

Creditors are just another group affected by unanticipated inflation. Over time, the borrower will
be paying off the debt with a less valuable dollar then the lender had loaned them. Therefore,
creditors are receiving less money then they had originally allowed to be borrowed. Flexibleincome receivers are one of the few that are either unaffected or helped due to inflation. Real
income can be increased when strong product demands and labor shortages occur.
Anticipated inflation is safer for the economy as a whole. When consumers, fixed-income
receivers, savers, creditor, and debtors can see where the inflation rates are heading, money can
be secured. Before an anticipated inflation occurs, lenders can adjust the interest rates on the
loans made to their borrowers.
Deflation is the lowering of the price level. The value of the dollar is raised. Instead of falling
during inflation, real incomes are greater than before. The purchasing power of the dollar
increases, and more money can be spent on goods and services.

They took our jobs!

BlaneParrish Jan 2, 2008
http://www.informationweek.com/news/showArticle.jhtml?articleID=189500043

Employment causes drug use?

BlaneParrish Jan 2, 2008
http://www.thefreelibrary.com/Illicit+Drug+Use%2c+Employment
%2c+and+Labor+Force+Participation-a080235172

Circular Flow of Income Game

AndrewC48 Jan 2, 2008
http://www.youtube.com/watch?v=lshvr4ug2rY.url

AndrewC48 Jan 2, 2008

Sorry I linked this wrong, here is the real link http://www.youtube.com/watch?v=lshvr4ug2rY

If you want to watch a boring guy explain a game that illustrates the Circular Flow Model of
Income then watch this.

I'm awesome
peytonrocks Jan 2, 2008
I put this in unit two because I thought it kind of measured our economic achievement. The US
has become so successful that kitchens are hardly functionary anymore. People just use precooked Costco meals (my family) or cholesterol-raising McDonalds. It's awesome. No more
wasting ridiculous amounts of time on cooking dinner. Now we can watch Oprah at 4 AND Dr.
Phil at 5 instead of cooking. Kitchens used to be all about big stoves and such where women
toiled over cooking meals. Now everything is about looks. I mean, I think stainless steel
refridgerators and dishwashers look lovely. Pretty much the only time anyone cooks is either for
fun (Rachel Ray) or because they don't use electricity (Amish people). It's incredible. I no longer
even have to cook maceroni on the stove. I can pop a bowl of easy mac in the microwave and
have it to eat 3 minutes later. Same with jello. Just mix the powder with water and POW you
have jello. Or better yet, you can go to Taco Bell and order 12 tacos for 70 cents each and not do
anything.

christinabins Jan 2, 2008

I'm personally a HUGE fan of the microwavable meal: neither my mom nor my stepfather knows
how to cook, and I'm too lazy. I suppose people could argue about how it has undermined
tradition and gender roles, but that's not relevant to economics anyway. Increased use of readyto-eat meals should actually enhance the economy. For example, these meals could provide more
jobs. No longer will only grocers and farmers be employed in this field, but the innovations can
employ more packagers and chefs, and could possibly boost the sales of microwaves and toasterovens. The ready-to-eat meals also increase individual productivity. Before the fast food craze, it
could easily take an hour to produce a meal, considering prep time, actual cook time, and
cleaning time. With the advent of microwavable meals, this preparation time is easily halved.
The time spent not cooking allows one to do more things. Instead of the traditional one parent at
home doing homemaking activities and one parent at work winning bread, both parents can
work, increasing the productivity of the household. Increased productivity means increased
supply, which, in turn, means increased GDP, which means economic growth.

christinabins Jan 2, 2008

190 words

Lindsey08 Jan 2, 2008

Yes, you are Peyton. :)
On nights when my family seems to be everywhere other than home, we turn to this tipe of
dining also. While very unhealthy to the body, these cholesterol filled trays have replaced the
need for a full kitchen. For young bachelors who only eat out or make such foods as these, a
microwave is all they need. As described in the article, kitchens have become a showcase room
in our suburban homes. I have a hard time relating because my parents usually cook some type of
dinner almost every night, however, on certain occasions, the microwave becomes the mommy
for the night. In many households when both parents are at work for the day, a fast dish from the
freezer is the simplest and easiest meal. Parents are getting away from the dark ages of cooking.
They spend more time at work where they can bring home more bacon. No pun intended!