US trade deficit up as price of oil rises

This article talks about the US' trade deficit, which is the difference between imports and exports in the US' trade, is at the second highest level this year. This is due to the raise in oil prices and strong demand for Chinese products.

The reason that the US constantly has a high trade deficit may be because of a weak Chinese currency, which would make Chinese goods seem relatively cheaper. Chinese-made goods also have much lower costs compared to US-made goods, due to low labor costs. Also, oil has an inelastic demand, so when the price goes up, the quantity demanded wouldn't change much, therefore the total value of oil imported increases.

EU aid to help developing countries jump on biofuel bandwagon

EU aid to help developing countries jump on biofuel bandwagon

The article talks about wealthy countries in Western Europe are giving aid to developing countries in Africa, for them to grow crops that can be used to produce biofuels.

I think this shows how trade can benefit both sides. The Western countries can benefit from having a new source of crops they can use to produce biofuels, therefore lowering the price of biofuels, and making them less dependent on fossil fuels. The African countries can have more employment and improve their own economy.

Energy costs push up US inflation

This article talks about the raising energy costs is increasing the US' inflation rate. When the costs of production in an economy goes up, the aggregate supply curve shifts in, since resource costs is a determinant of supply. When the aggregate supply curve shift in, with the aggregate demand curve staying the same, GDP would decrease and price level would increase. Since energy is essential in the production of almost all goods and services, it has a significant impact on the aggregate supply, therefore the inflation rate.

Unit 3.3, Chapter 12 #7

7.
The full-employment budget measures the country's deficit or surplus if the economy reached the full-employment level of GDP with current Fiscal Policy policies. It is used to determine whether a government is engaging in expansionary or contractionary policy. A deflect or surplus in the actual budget when the full employment budget is balanced is a result of the economy not running at full employment.
If full employment was at GDP3, then there would be a full employment budget surplus. Even though the actual budget has no deficit at GDP2, the fiscal policy is contractionary. The government should cut taxes or increase spendings. The g line should be raised or the T line should be lowered so they intersect at GDP3.

Unit 3.3, Chapter 12 Key Questions #2, 3

2.
Multiplier
= 1/ MPS
= 5
government spending = $5 billion

.8 x Tax Cut = 5 Billion
Tax Cut = 6.25 Billion

1.25 billion is saved, not spent.

3.
Increase taxes, decrease government spending, or both. Aggregate demand shifts in, therefore inflation goes down.

Someone that thinks the public sector is too large would favor less government spending, someone that wants to preserve the size would raise taxes

Unit 3.3, Chapter 11, the Last Word

1. Weigh the two arguments regarding unemployment in Europe. Is unemployment high because of high because of high natural rates of unemployment or because of deficient aggregated demand?

The reason for Europe's high unemployment rate probably lies between the two arguments. It is probably true that the natural rate of unemployment of Europe, especially Western Europe, is among the highest in the world. This is because of their very generous social benefits and minimum wage, which gives employers very little incentive to employ, and people little incentive to look for jobs. Therefore, 7-11% unemployment could possibly already be full employment for Europe. The second argument could also hold partly true, high interest rates and other government monetary policies could have kept aggregate demand relatively low. These two factors combined gave Europe high unemployment rates.

Why do we Neglect Leisure and Cheer for Divorce?

1. GDP measures all the market value of all final goods and services produced in a country within a given period, usually a year. It can be used to measure the wealthiness of a country, since the more a country produces per year per capita usually means the more wealth an average person has. However, GDP is not always a good way to measure the wellbeing of people in a country. It does not measure leisure time, unreported goods and services, environment, quality of the products, and the distribution of wealth.
2. Illegal goods and services are not reported in GDP. Therefore, countries that legalizes prostitution, gambling, and some types of drugs might seem to have an advantage than a country that makes them illegal when their GDP are compared. There are also a lot of external costs to these goods/services that are not counted.
3. In 1996, Armstrong contributed the most to the GDP of the US in his cancer treatment, but also the lowest level of individual welfare, because of his sickness. His individual welfare was probably the highest during 1999-2005, because he was healthy and won the Tour de France 6 times in a row. Income and output is not always directly proportional to happiness, because the more goods and services you consume does not mean the happier you are.
4. a) none
b) none
c) in
d) in
e) out
f) none

5. When people go shopping, enjoy vacations, or spends money in other forms during their leisure time, this would be included in the GDP. However, welfare achieved during leisure time without spending money would be very hard to measure.