Jason Welker's Public Library

02 Dec 09

China's currency: A yuan-sided argument | The Economist

Pressure is on China to revalue the RMB, but it's unlikely to happen anytime soon. Why? Read to find out...

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exchange rates China marshall lerner condition trade trade deficit current account

China allowed the yuan to rise by 21% against the dollar in the three years to July 2008, but since then it has more or less kept the rate fixed. As a result, the yuan’s trade-weighted value has been dragged down this year by the sickly dollar, while many other currencies have soared. Since March the Brazilian real and the South Korean won have gained 42% and 36% respectively against the yuan, seriously eroding those countries’ competitiveness.
exchange-rate policy is decided by the State Council, not the central bank. And many policymakers, notably in the Ministry of Commerce, do not favour a revaluation right now.
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- “We don’t think that it’s good for the world economic recovery, and it is also unfair, that you ask others to appreciate while you depreciate your own currency,” said a spokesman for the Ministry of Commerce on November 16th. The previous day Liu Mingkang, China’s chief banking regulator, blasted Washington for its low interest rates and for the falling dollar, which, he claimed, was encouraging a dollar carry trade and global asset-price bubbles.
  - China's accusing the US of devaluing the US$ through low interest rates! How the times are changing! - on 2009-12-02
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- Some Chinese economists warn that the benefits to America from yuan revaluation are much exaggerated. In particular, a stronger yuan would not significantly reduce America’s trade deficit. There is little overlap between American and Chinese production, so American goods cannot replace Chinese imports. Instead, consumers would simply end up paying more for imports either from China or other producers, such as Vietnam. This would be like imposing a tax on American consumers.

27 Nov 09

The Marshall Learner Condition

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25 Nov 09

Japan Sees Improved Trade Data in October - WSJ.com

Even as its currency hits a 10 year high against the dollar, Japan's current account surplus still grows! Why would spending imports fall even the Yen strengthens? Wouldn't a stronger yen lead to more spending on imports among Japanese households? How does the elasticity of demand for imports and exports affect the current account balance following a strengthening of the country's currency?

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balance of payments current account exchange rates marshall lerner condition

TOKYO -- Japan's merchandise trade balance logged its largest surplus in 19 months in October, as stronger Asian demand for steel, semiconductors and electronic components led a continued recovery in exports, the Ministry of Finance said Wednesday.
Demand for Japanese goods, especially cars and electronics, also continued to pick up in Europe and the U.S., the Ministry of Finance said.

Continued weakness in Japanese imports, however, highlights concerns about the domestic economy. Imports were down 35.6% from a year earlier at 4.502 trillion yen.
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- The Bank of Japan faces mounting pressure to loosen its policy as deflation tightens its grip on the nation's economy. The central bank last week kept rates unchanged and upgraded its assessment of the economy. The bank, which has stuck with super-easy monetary policy for more than a decade, has hoped to follow other central banks in looking at ways to tighten policy.

CARPE DIEM: U.S. Share of World GDP Remarkably Constant

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Somewhat surprisingly, the Economic Research Service of the U.S. Department of Agriculture has some great international historical macroeconomic datasets. According to its website:
The chart above shows the annual shares of real world GDP for four geographical regions (European Union 15, Asia/Oceania, Latin America and the combined share of Africa and the Middle East) compared to the U.S. share of world GDP between 1969 and 2009 (data here). What might be surprising is that the U.S. share of world GDP has been relatively constant for the last 40 years, and is actually slightly higher in 2009 (26.7%) that it was in 1975 (26.3%). It's also interesting that the EU15's share of world GDP has declined from about 36% of world output in 1969 to only 27% in 2009. Further, despite having a large share of the world's oil reserves, the Middle East's share of global output has increased from only 2.23% in 1969 to 3.16% in 2009 (graph shows Middle East combined with Africa).
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- Bottom Line: World GDP (real) doubled between 1969 and 1990, and has increased by another 60% since then, so that world output in 2009 is more than three times greater than in 1969. We might mistakenly assume that the significant economic growth over the last 40 years in China, India and Brazil has somehow come "at the expense of economic growth in the U.S." (based on the "fixed pie fallacy") but the data suggest otherwise. Because of advances in technology, innovation, and significant improvements in U.S. productivity, America's share of total world output has remained remarkably constant at a little more than 25%, despite the significant increases in output around the world, especially in Asia.
  - A good conversation starter for an AP Macro class! - on 2009-11-25
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The Marshall Lerner Condition [ Biz/ed Virtual Developing Country ]

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Under a floating exchange rate regime a balance of payments disequilibrium should automatically be restored to equilibrium without the need for government policy. In the case of a fixed exchange rate, a devaluation or a revaluation may be used to restore disequilibrium.
The inflows and outflows of foreign currency recorded in a country's balance of payments account are dependent on these price changes. Crucially the price elasticity of demand will determine the impact of the price change on the quantity

24 Nov 09

Photos and Trip Reports: Ski Mountaineering and Climbing

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ski cascades

Nicki's Econ Blog

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Price Elasticity of Demand (PED) is the responsiveness of consumers to a change in Price.

Welker's Wikinomics Blog

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For students to understand the impact of time on the effect of a depreciation or devaluation of a nation’s currency on its balance of payments in the current account.

21 Nov 09

SAS Pudong MS PE & Health Education

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PE

YouTube - Physical Education, Teaching Balls Skills and Fitness

Learn a new game for PE Class.
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20 Nov 09

Another Mankiw problem for the motivated Micro student! | Welker's Wikinomics Blog

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mankiw microeconomics

Harvard’s Greg Mankiw just keep them coming! Here’s another micro problem from the esteemed professor and textbook author’s blog. Several readers enjoyed challenging themselves with his last Micro problem, so I will re-publish Mankiw’s test question here to see if people can solve it in the comment section on this blog (sorry Professor Mankiw, you have comments turned off on your blog, so how are your readers to know if they have solved it correctly?)
The town of Wiknam has 5 residents whose only activity is producing and consuming fish. They produce fish in two ways. Each person who works on a fish farm raises 2 fish per day. Each person who goes fishing in the town lake catches X fish per day. X depends on N, the number of residents fishing in the lake. In particular,
X = 6 – N.

Each resident is attracted to the job that pays more fish.

a. Why do you suppose that X, the productivity of each fisherman, falls as N, the number of fishermen, rises? What economic term would you use to describe the fish in the town lake? Would the same description apply to the fish from the farms? Explain.

b. The town’s Freedom Party thinks every individual should have the right to choose between fishing in the lake and farming without government interference. Under its policy, how many of the residents would fish in the lake and how many would work on fish farms? How many fish are produced?

c. The town’s Efficiency Party thinks Wiknam should produce as many fish as it can. To achieve this goal, how many of the residents should fish in the lake and how many should work on the farms? (Hint: Create a table that shows the number of fish produced—on farms, from the lake, and in total—for each N from 0 to 5.)

d. The Efficiency Party proposes achieving its goal by taxing each person fishing in the lake by an amount equal to T fish per day and distributing the proceeds equally among all Wiknam residents. Calculate the value of T that would yield the outcome you derived in part (c).
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- e. Compared with the Freedom Party’s hands-off policy, who benefits and who loses from the imposition of the Efficiency Party’s fishing tax?

14 Nov 09

LRB · John Gray · We simply do not know!

AP Macro and IB teachers should read this review of George Akerlof and Robert Schiller's book "Animal Spirits". There are some great points in this piece that can be brought into the AP or IB classroom with regards to the assumption of rational behavior and more importantly the Keynesian/Classical debate on Macroeconomic policy issues.

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Keynes rational behavior free markets markets macroeconomics animal spirits fiscal policy efficiency

The last two years, in which capitalism has suffered one of its periodic shocks, have given John Maynard Keynes a new lease of life. Events have demonstrated the limits of the theory that economies can be relied on to be stable if they are lightly regulated and otherwise left to themselves. There is now much talk of the paradox of thrift, whereby the rational choices of individuals can prove collectively ruinous, and of the need for government to counteract the inherently anarchic tendencies of markets. Keynes has been revived because he understood that markets are very often irrational. Unfortunately, few of those who urge that we go back to him seem to have understood why he believed this.
Apart from a brief postscript to one of the chapters and a few remarks in the preface, George Akerlof and Robert Shiller’s Animal Spirits was written before the current crisis. Yet, based on research undertaken over many years, it can be read as prefiguring the current disillusionment with economics. The trouble with prevailing theories, in Akerlof and Shiller’s view, is that they assume human beings are more rational than they actually are. ‘This book, which draws on an emerging field called behavioural economics, describes how the economy really works,’ they claim. ‘It accounts for how it works when people really are human, that is, possessed of all-too-human animal spirits.’
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- ‘Just as Adam Smith’s invisible hand is the keynote of classical economics,’ they write, ‘Keynes’s animal spirits are the keynote to a different view of the economy – a view that explains the underlying instabilities of capitalism.’ Here they are endorsing the caricature of Smith propagated by neoliberal ideologues anxious to confer a distinguished patrimony on an illegitimate intellectual offspring.
- Shackle took Keynes’s argument a step further, and showed that no economic policy can ensure economic stability indefinitely. ‘Keynesian’ policies are no exception to this rule. Deficit financing and monetary expansion may have worked well in the conditions that existed after the Second World War. It is not clear that they will be so effective today, when globalisation has brought a freedom of capital movements that did not exist then.
  - Is old fashioned Keynesian fiscal stimulus enough to solve today's economic challenges? - on 2009-11-14
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- Economics and politics are not separate branches of human activity, and economic life cannot be studied independently of social divisions and political conflicts among populations, along with their cultures and religions.

home

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10 Nov 09

Life on Severance: Comfort, Then Crisis - WSJ.com

Things are scary out there for the unemployed in America! This article tells some sad stories of opportunities lost and next eggs blown! It also illustrates a key concept from AP and IB Economics: the theory of sticky wages and prices, at the heart of Keynesian macroeconomics.

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keynesianism wages recession sticky wages unemployment

The family recently vacationed in Virginia Beach, Va., and likes to dine on Porterhouse steaks. Since losing his job, Mr. Joegriner, 44 years old, has had several offers. He's turned each down in hopes of landing a position comparable to what he held before.
- Unemployed Americans unwilling to accept lower wage jobs! This sounds like evidence of the "sticky wages" Keynesian observed in his arguments for fiscal stimulus! - on 2009-11-10
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Mr. Joegriner is a member of what might be called the severance economy -- unemployed Americans who use severance pay and savings to maintain their lifestyles. Many lost their jobs in 2007 and 2008, and thought they'd soon find work. Now, they're getting desperate.
- I bet these people just wish they had taken that good offer a year ago. Finance people laid off during this recession must have an artificially inflated view of their own value in the labor market: over-inflated like the assets they had dealt in! - on 2009-11-10
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- Last week, lawmakers passed a bill extending unemployment benefits up to 20 weeks. Unemployment benefits, which typically last about 26 weeks, were expected to run out for 1.3 million people by the end of the year, according to the National Employment Law Project.
  - Extending unemployment benefits, while it is a NICE thing to do, only increases the downwardly inflexible nature of wages. - on 2009-11-10
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- The dramatic changes in such sectors mean that many of the eliminated jobs will never come back. Some workers may suffer a permanent hit to their standard of living.
  - Why won't certain jobs ever return to the US economy? Is it at least partially BECAUSE American workers are so unwilling to accept lower wages? - on 2009-11-10
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- When Michelle Patterson was laid off as an executive director of marketing for a publishing company in January, she figured she could subsist comfortably, at least for a while, on the $20,000 she had reserved from her savings and severance combined.
- She spent as much as $250 a week on networking meals and drinks with contacts. Some days, she scheduled up to four coffee meetings a day, picking up the tab most of the time. She also spent $30 a month for pedicures and $150 on her hair.
  - You've got to be kidding me! This is what our world has come to. Unemployed Americans, delusional about their own worth, spending $180 a week on what, mani-pedis? - on 2009-11-10
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09 Nov 09

A Micro problem for the advanced Econ student | Welker's Wikinomics Blog

I love that Harvard Economics professor Gregory Mankiw blogs, but I hate that has de-activated the comments on his blog. Yesterday he posted a question from his own Harvard introductory economics class. Since he doesn’t allow comments though, I cannot tell if I’m solving it correctly. So I will re-publish it here and ask my readers to solve the problem in the comment section.

IB and AP students who have studied microeconomic should be able to put some of their basic algebra skills to work to solve this one.

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microeconomics monopoly Mankiw

FT.com / China / Economy & Trade - Renminbi at heart of trade imbalances

This article is about exchange rate controls by china and the resulting imbalance of trade with US and Europe.

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Exchange rates current account

“In east Asia there has been a bit of appreciation against the dollar which helps at the margin, but the el
“The Americans get the toys, the Chinese get the Treasuries and we get screwed.” Thus a European Union official once characterised the pattern of Beijing accumulating US assets by selling renminbis for dollars, while nothing stood in the way of a rapid and destabilising appreciation of the euro.
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- Mr Lyons says that in previous economic cycles, there appeared to be a strong correlation between exports and business confidence in east Asia,

06 Nov 09

A special report on China and America: : Round and round it goes | The Economist

China and the US have a complicated relationship when it comes to trade. It may be changing in the future due to the recession in America, but for some that change can't come fast enough!

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economics current account capital account protectionism exchange rates managed exchange rate China

China, a developing country, lent vast amounts of money to wealthy America to feed its spending habit. Americans spent the money on Chinese-made goods, sending the dollars back to China, which lent them to America again.
for its growth, and on America in particular. By 2007 the value of China’s exports amounted to about 36% of its GDP, up from just over 20% in 2001.
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- American market, overtaking Canada. And by September 2008 China had surpassed Japan as the largest holder of US Treasuries
- China certainly helped its exporters by keeping the value of its currency low, buying dollars that were used to buy US Treasuries.
- e much of the value of Chinese goods consumed in America was created elsewhere. The biggest driver of growth in China was investment, and that has become all the more true as China tries to pump up its economy with nearly $600 billion in stimulus spending.
  - America might not be as crucial for Chinese growth as previously thought! Domestic investment is biggest factor now! - on 2009-11-06
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- trading system, but it has no desire to pull the rug from under America’s economy. A run on the dollar would be a blow to China itself, slashing the value of its stash of over $800 billion in US Treasuries. Chinese officials also worry openly about a possible resurgence of inflation in America, which would also drive down the value of the dollar.
  - China is worried about the dollar's value, but is not likely to sell its dollar assets, since this would surely devalue the dollar and harm China too. - on 2009-11-06
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- A recent study by the Peterson Institute says that the yuan remains “significantly undervalued”, by 15-25% against a weighted average of the currencies used by China’s trading partners
- As Americans save more and buy less from China, America’s trade deficit with China—which has been its biggest with any country since 2000—will shrink anyway. But protectionist sentiment in both countries will remain strong.
- Americ
- reject a takeover bid by Coca-Cola for a Chinese juice company as a bad omen. As Chinese businesses look around America for bargains, they will get a mixed reception: sellers are eager for China’s cash, but worried about the survival and security of Brand America
  - Chinese continue to demand US assets in the capital account, but American businesses are reluctant to sell to Chinese investors... - on 2009-11-06
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05 Nov 09

YouTube - ACDCLeadership's Channel

Mr. Clifford and ACDC Leadership is dedicated to creating interactive programs, lessons, and activities that make learning exciting.

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Economics videos resources review

Knowledge Learning Corporation | Child Care & Education Services

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teaching Economics Advanced Placement online education

03 Nov 09

FT.com / Asia-Pacific - Renminbi at heart of trade imbalances

This article talks about the weak RMB and how it affects trade between the US, China and Europe

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China currency exchange rates trade

The Americans get the toys, the Chinese get the Treasuries and we get screwed.” Thus a European Union official once characterised the pattern of Beijing accumulating US assets by selling renminbis for dollars, while nothing stood in the way of a rapid and destabilising appreciation of the euro.
A string of countries including Thailand, Malaysia and South Korea have intervened either verbally or in the foreign exchange markets in recent weeks to slow the rise of their currencies.
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- Mr Lyons says that the east Asians are wary of allowing the same to happen to them. “There is a concern that if they let the exchange rate rise, it will attract a lot of hot money but hit confidence,” he says