Heather's Homework

Inflation is an increase in the money supply. Prices appear to become higher because currency loses its value, so it requires more money to buy the same item. People may begin to hoard groceries in order to get the most bang for their buck. This can create a feedback loop as people seek to spend their earnings rather than allow it to depreciate. Deflation is a constriction of the money supply. Prices appear to become lower, and people may delay their purchases in order to save money... so the economy stagnates. In addition, consumers have less disposable income after they have paid for the necessities because their wages are typically smaller. If wages are smaller, then any pre-existing debt becomes more difficult to pay off. This can be a dangerous position because the USA's economy increasingly relies on debt.

The federal reserve is not actually part of the government. They are a bank that has been given a government-approved monopoly on producing currency. Excluding the Fed from government politics is supposed to safeguard against corruption. But they are extremely powerful in that they can influence the value of every dollar in existence through their decisions to print currency. This in turn influences incentives for the general public, and perhaps even more effectively than legislation. Money stores value over time. For example, gold can be handed down for generations and will still be valuable because there is a finite amount on the planet. Money is also liquid, and can easily be converted. Money helps an economy grow because it makes transactions between individuals easier. If I have apples to trade, but I don't want anymore of your oranges, then we are at an impasse (and hopefully you can find some other parties to bargain with). If people can get what they need easily, their st...

My parents have always encouraged me to pursue education, and especially a college degree because it would enable me to get a job that pays a livable wage with health insurance benefits. When I graduated in 2011 there were new policies mandating employer-paid health insurance plans for companies with full-time workers. It sounds great, but in reality it incentivized employers to restructure in order to avoid this costly plan. The only jobs I could find were part-time!!! Ironically, I was under-employed even though I had taken the supposedly tried-and-true route of getting a college degree. Human resource regulations such as age-based policies can affect the cost of hiring workers if such regulations increase the time and efforts required to obtain eligible employees. Also, older employees generally have more work experience and more skills, which impacts the wage they will demand. Younger workers, such as high-schoolers, can work more cheaply. However, in some safety-related cases, y...

This week while in Sri Lanka I met two investors who were discussing the current economic climate. The current interest rate in Sri Lanka is 14%, which makes it very attractive to leave money sitting in the bank. The older gentleman was close to retirement age, so at this point in life he is more interested in taking the action that will have a guaranteed result. The younger gentleman is more interested in building a legacy by founding new businesses. Because of the amount of capital required to start a business he recognizes that cash flow is critical for success, but is hesitant to take a loan from the bank because it would be difficult to stay afloat with such high payments. However, it can be difficult to persuade investors to take the risk on a new business, so additional incentives help.

Private savings impacts investment since people use their disposable income to invest. If there is no income after basic needs are met, then investment will not occur. It is important for individuals to save so that they can provide for their needs during tough times. Accumulated savings can also help an individual increase their standard of living. Tax policies affect savings rates since a dollar paid in public taxes is a dollar no longer available for private savings.

An intermediary good is one that is used in the production process of a final good. For example, cloth used to make clothing, or drywall and plumbing used to construct a house. The cost of the intermediary good is reflected in the market price of the final good. GDP can give an idea of economic health, but it has its own shortcomings. The informal economy, ranging from babysitting for cash to trading in-kind services, is not included in the measurement. If someone grows their own food, that is also not reflected. So while people may be benefiting from the activities, there is no way to attach a number to it. The idea of Gross National Happiness is intriguing. Trying to measure overall quality of life by the number of dollars in circulation does not always give an accurate idea, because various classes or regions of society do not benefit equally. However, using more of a philosophical approach can more accurately depict the people's own idea of their wellbeing.

Public policy can certainly influence human productivity by affecting the availability of the resources people need to be productive. For example, in my recent travels to rural parts of both Paraguay and Nepal, I've realized that the poor working class depends heavily on their health in order to work. There is no employer-provided sick pay, so if they do not work, they do not have any safety net. Also, if they have to go the hospital then they have to travel long distances on very rough roads, which can be very slow going. This additional time spent away from work reduces productivity, and thus their income, and thus their quality of life. So the public policy of improving infrastructure can increase productivity in this way. Infrastructure also makes it more efficient for factories to receive and send shipments, which decreases the lead time required to make and sell a product, which increases their ability to gain market share. In another example, the availability of education ...

When I moved to the ski area, I knew that the cost of living would be higher. Because of the high-quality bus system, I knew that I could live well even without a car so I decided to sacrifice the convenience in order to reduce monthly expenses. Luckily, I was able to save a decent percentage of my paycheck by living in employee housing for a few months. I sought out 3 weekly community dinners to both save money and build my network. I planned my shopping list around sales and coupons. So while it is true that the cost of living is very high, my quality of life did not drastically decline. The consumer price index cannot accurately measure the added value available through local and community services, which changes depending on location.