Principles of Economics.9E.N.Gregory Mankiw

Finished reading of the book, in either simplified Chinese or English.

To sum up, firstly I will lay down the ten principles as addressed by Mankiw; secondly, I would tried to demonstrate my understandings of these concepts in my own words, and also attempted to illustrate my understanding of the dynamics between these concepts; finally, to compare and contrast the current conditions with the theory, then come up with something, or, nothing.

Firstly, ten principles: One, People Faces Trade-Offs. Two, The Cost of Something Is What You Give Up to Get It. Three, Rational People Think at the Margin. Four, People Respond to Incentives. Five, Trade Can Make Everyone Better Off. Six, Markets Are Usually a Good Way to Organize Economy Activity. Seven, Governments Can Sometimes Improve Market Outcomes. Eight, A Country’s Stander of Living Depends on It’s Abilities to Produces Goods and Services. Nine, Prices Rise When the Government Prints Too Much Money. Ten, Society Faces a Short-Run Trade-Off between Inflation and Unemployment.

Secondly, understandings of the ten principles. One, we all buy and sell in the society, with the help of intermediaries, money, notes, credits, crypto and so on. These means that people need a measurement to value their wealth or works or something, and these buy and sell could not perfectly reflect the actual value of something. Thereby, create inequalities between trade-offs, could be happened solely by changing the measurements. So to say, without changing the current economic circles, inflation could only widen the gaps between the rich and the poor. Two, it sounds like a chance cost. If you choose to upgrade your education level after bachelor graduate, you may lose the chances to take a good job which might not be exited after your upgrading. Every choices you made have a unforeseeable cost of it, can’t not be exactly estimated, or to say, you can only calculate it later after the outcome. Third, marginal thinking is about the benefits of the goods and services below the surface.The rational here could be highlighted due to the fact that most people are nor rational at all, most people don’t think, they just react, and quite instinctively. Be cautious, being rational is not sufficiently means that you are right about the market or anything, being rational should be modestly say that you have a sense of logic, however be aware of the fact that no one could perfectly obtaining the whole picture of the events. DON’T BE ARROGANT. Forth, as said before, people do react to changes, incentives are not only in the sense of money or wealth, sometimes in honor or believe or something, this is the opposite saying as contrasting with the principles before, or to say, larger content. Nonetheless, in economics terms, incentives should only perceived in economic way, well, normally. Let’s face the truth, the whole world is not sole based on economics, there are so many other things could easily affect, create, destroy, alter the so call economics, so, do not forget that, should try to have a bigger picture in the mind. Five, making every one better off is a perfect possibility rather than reality. People are flawed, sometime even evil, not to mention rational. Therefore, the fifth principle is a statement of hopes, not how the real world worked. So to speak, rational people should work together to make a better world, chaotic and closed up are not good for every one. Six, the word “usually” here is quite the point of this principle. Market fails, from times to times, an absolutely free market could work perfectly only in the case of the fact that all the resources are right in the people who could perfectly distribute them, this scenario could never happened because of a simple fact, this world is not perfect at all. Everyone, everything are flawed as they are, and the mechanism is flawed as well. However, as I mentioned before, people are not at all rational, so some mandate and intervention is actually needed in some extreme cases. Seven, it’s a counter part towards the five due to the market failure. See the examples demonstrated in the book, we informed that government did have done some good relations to the economy and so how restore the market quicker and more efficient than they thought. Eight, this principle is some how like saying that the price level has nothing to do with the living stander. By essence it’s true that productivity is the key of a country’s living standard; nonetheless, adding the currencies problems and other market malfunctions, productivity alone is not the sole factors improving living standard. For instances, much higher productivity in igniters could not improve hoses qualities, well, that’s in a small scale speaking. Therefore, in the macro scale, it’s right. Nine, printing too much could bring out the rising of prices is easily understanding, the question is, how much would be too much? To my understanding, the rising of prices is a complexity of many combinations of market elements, however, macro or broadly speaking, the basic or to say controllable element is printing the money(mediation for exchange). Ten, it’s funny that economies have the so called Phillip’s Curve, it’s said that in the long-run inflation and unemployment will return to the “natural” rate, no matter how other economic tools twisted the economy. Lovely as it is, that means the government or to say the fed would easily mess around the economy in their wishes.

After reviews of my reading, I would like to try to deduct some possible outcomes of the reality. As the ‘covid 19’ pandemic over, the Fed(don’t fight the Fed) started its rapid interest rate rising, but with very low unemployment rate. The very differences this time is that the government had acted promptly during the pandemic to injecting into the household with free money to keep the US economy working without much troubles. But as post pandemic era, the Fed as I know had also acted very quickly to contracts the economy by rising the interest rate and many tools, but LOW UNEMPLOYMENT. Let’s see the AI responds as below.

Bard:

why in 2023, the us economy wasn’t affected by the Feb’s rapid growth of interest rates, and instead showing significant strength on labor markets?

The US economy in 2023 has been largely unaffected by the rapid growth of interest rates in February for a few reasons.

• The labor market is very strong. The unemployment rate is at a near-record low of 3.6%, and wages are rising at a healthy pace. This means that businesses are still able to find workers and keep their costs under control, even with higher interest rates.
• Consumer spending is still strong. Americans are still spending money on goods and services, even though inflation is rising. This is likely due to the fact that wages are also rising, and many people have built up savings during the pandemic.
• The housing market is still hot. Home prices are rising at a rapid pace, but demand for homes remains strong. This is because there is still a shortage of homes on the market, and many people are looking to buy homes before interest rates rise even higher.

However, it is important to note that the US economy is not immune to the effects of higher interest rates. If interest rates continue to rise, it could eventually lead to slower economic growth. This is because higher interest rates make it more expensive for businesses to borrow money, which can lead to them cutting back on investment and hiring. It could also lead to consumers spending less money, as they have less disposable income after paying higher interest rates on their loans.

Overall, the US economy is still doing well in 2023, but it is important to monitor the situation closely to see how the rising interest rates will impact it in the future.

Here are some additional factors that could affect the US economy in the coming months:

• The war in Ukraine
• The ongoing COVID-19 pandemic
• The Federal Reserve’s monetary policy decisions
• The state of the global economy

It is too early to say for sure how these factors will play out, but they will all be closely watched by economists and investors.

the strong US economy and the rising rates will attract much more USD back onshore, will this contribute to heat up the US inflation?

Yes, the strong US economy and rising rates could attract more USD back onshore, which could contribute to inflation.

Here’s how:

• When more USD flows into the US, it increases the demand for USD. This can lead to an appreciation of the USD, which makes imports cheaper and exports more expensive. This can put upward pressure on prices in the US.
• The higher rates also make it more attractive for investors to hold USD assets. This can also lead to an appreciation of the USD and upward pressure on prices in the US.

However, it is important to note that there are other factors that can also affect inflation, such as the supply of goods and services and the level of demand. So it is not possible to say for sure whether the strong US economy and rising rates will definitely lead to higher inflation.

The Federal Reserve is closely monitoring the situation and will take action if it believes that inflation is becoming a problem. The Fed could raise interest rates even higher, or it could sell some of its Treasury holdings. These actions would make it more expensive for businesses and consumers to borrow money, which could help to cool the economy and bring inflation under control.

Overall, the impact of the strong US economy and rising rates on inflation is uncertain. It will depend on a number of factors, including the behavior of businesses and consumers, the state of the global economy, and the actions of the Federal Reserve.

So are you saying that buying more US Treasury Bonds is helping US to get out of it’s unfavorable situation?

Whether buying more US Treasury Bonds is helping the US to get out of its unfavorable situation depends on the specific situation.

In general, buying more US Treasury Bonds can help to stabilize the financial markets and lower interest rates. This can be helpful in an economic downturn, when businesses and consumers are struggling to borrow money. However, if the US economy is already strong, buying more Treasury Bonds could lead to inflation.

Here are some of the potential benefits of buying more US Treasury Bonds:

• It can help to stabilize the financial markets. When investors are worried about the economy, they may sell off their assets, which can lead to a decline in stock prices and a rise in interest rates. Buying more Treasury Bonds can help to calm the markets and prevent these problems from happening.
• It can lower interest rates. When the government buys Treasury Bonds, it increases the demand for these bonds, which drives up their prices. This, in turn, lowers the interest rates that the government has to pay to borrow money. Lower interest rates can make it easier for businesses and consumers to borrow money, which can help to stimulate the economy.
• It can provide a safe haven for investors. Treasury Bonds are considered to be one of the safest investments in the world. This is because the US government is considered to be a very reliable borrower. If investors are worried about the security of their investments, they may buy Treasury Bonds as a safe haven.

However, there are also some potential risks associated with buying more US Treasury Bonds:

• It can lead to inflation. When the government buys more Treasury Bonds, it increases the amount of money in circulation. This can lead to inflation, which is a rise in prices.
• It can crowd out private investment. When the government buys more Treasury Bonds, it competes with private investors for these bonds. This can make it more difficult for private investors to get the money they need to invest in businesses and other projects.
• It can increase the national debt. When the government buys more Treasury Bonds, it adds to the national debt. This is the total amount of money that the government owes to its creditors. A large national debt can make it more difficult for the government to borrow money in the future.

Overall, the decision of whether to buy more US Treasury Bonds is a complex one. There are both potential benefits and risks to consider. The best decision for an individual or institution will depend on their specific circumstances.

I hope this helps! Let me know if you have any other questions.

i am not sure, but i thought i had read some news about the feb would like to sell more bonds to the world. however, according to your anylisis, this could lead to a higher inflation. i thought the fed is fighting the inflation

You are correct. The Federal Reserve is currently fighting inflation by raising interest rates and reducing its balance sheet. Selling more bonds would be the opposite of this, as it would increase the amount of money in circulation. This could lead to higher inflation.

However, there are a few reasons why the Fed might still choose to sell more bonds. One reason is that it could help to reduce the size of its balance sheet more quickly. The Fed’s balance sheet has grown significantly in recent years, and it is trying to reduce it in order to prevent inflation. Selling bonds would be one way to do this.

Another reason why the Fed might sell more bonds is that it could help to stabilize the financial markets. If investors are worried about inflation, they might sell off their assets, which could lead to a decline in stock prices and a rise in interest rates. Selling bonds could help to calm the markets and prevent these problems from happening.

Ultimately, the decision of whether to sell more bonds is a complex one. The Fed will need to weigh the potential benefits and risks before making a decision.

Here are some additional factors that the Fed will consider when making this decision:

• The level of inflation. If inflation is high, the Fed is more likely to sell bonds in order to reduce the amount of money in circulation.
• The state of the economy. If the economy is weak, the Fed is less likely to sell bonds in order to avoid making the economy worse.
• The behavior of other central banks. If other central banks are also selling bonds, the Fed is more likely to do so as well.

The Fed will continue to monitor the situation closely and will make adjustments to its policy as needed.

why other central banks sells bonds would make the fed sells too? isn’t that make the effect more dramatic rather thant stable?

Yes, it is possible that if other central banks sell bonds, it could make the Fed sell more bonds as well. This is because when central banks sell bonds, they are removing money from the financial system. This can lead to higher interest rates and a stronger currency, which can make it more difficult for businesses and consumers to borrow money.

If all central banks are selling bonds at the same time, it could have a more dramatic effect on the financial markets. This is because it would mean that there is less money available to lend, which could lead to a decline in economic activity.

However, it is also possible that other central banks selling bonds could have a stabilizing effect on the financial markets. This is because it could signal that they are concerned about inflation and are taking steps to address it. This could help to calm investors and prevent them from selling off their assets.

Ultimately, the impact of other central banks selling bonds on the Fed’s decision to sell bonds will depend on a number of factors, including the level of inflation, the state of the economy, and the behavior of investors.

Here are some additional things to consider:

• If other central banks are selling bonds in order to raise interest rates, the Fed may also need to raise interest rates in order to maintain the value of the US dollar.
• If other central banks are selling bonds in order to reduce their balance sheets, the Fed may also need to sell bonds in order to avoid increasing its own balance sheet.
• The Fed will need to carefully monitor the situation and make adjustments to its policy as needed.

the structure of the us economy is quite different from the chinese one that the two could almost impossible to be compare and contrast?

The structure of the US and Chinese economies are indeed quite different, but they can still be compared and contrasted. Here are some of the key differences:

• The US economy is more market-oriented, while the Chinese economy is more state-controlled. In the US, businesses are largely free to operate without government interference. In China, the government plays a much more active role in the economy, controlling key industries and setting economic policy.
• The US economy is more diversified, while the Chinese economy is more focused on manufacturing. The US economy is based on a wide range of industries, including services, manufacturing, and agriculture. The Chinese economy is more focused on manufacturing, with a growing service sector.
• The US economy is more open to foreign trade, while the Chinese economy is more closed. The US economy is open to trade with other countries, with few restrictions on imports and exports. The Chinese economy is more closed, with the government imposing tariffs and other restrictions on imports.
• The US economy is more developed, while the Chinese economy is still developing. The US economy is the largest and most advanced economy in the world. The Chinese economy is still developing, but it is growing rapidly.

Despite these differences, there are also some similarities between the US and Chinese economies. Both economies are driven by innovation and technology. Both economies are also facing challenges, such as rising inequality and environmental degradation.

The comparison and contrast of the US and Chinese economies can be a useful tool for understanding the global economy and the challenges that it faces. By understanding the different strengths and weaknesses of these two economies, we can better understand the dynamics of the global economy and the potential for future growth.

Bing:

The Phillips curve is an economic concept that describes the inverse relationship between unemployment and inflation. In other words, when unemployment is low, inflation tends to be high, and vice versa. N. Gregory Mankiw, a prominent economist, has written extensively on this topic. In one of his papers, he and Ricardo Reis proposed a model called the “sticky information” Phillips curve to replace the commonly used “sticky-price” model¹. This model is based on the assumption that information disseminates slowly throughout the population and displays three related properties that are more consistent with accepted views about the effects of monetary policy¹. Is there anything specific you would like to know about the Phillips curve or Mankiw’s work on this topic? I’d be happy to help you understand it better! 😊

Learn more:

1. dash.harvard.edu2. scholar.harvard.edu3. ecb.europa.eu4. business.baylor.edu5. nber.org6. dx.doi.org7. nrs.harvard.edu+5 more

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yes, i have a problem. as i can see, the us economy is in high inflation, the unemployment rate is low, is that fits the phillilps curve?

Searching for: US economy inflation unemployment rate

Searching for: US economy inflation unemployment rate

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Yes, according to the Phillips curve, there is generally an inverse relationship between inflation and unemployment. When unemployment is low, inflation tends to be high, and vice versa. However, this relationship is not always straightforward and can be influenced by many factors. For example, in July 2022, the unemployment rate in the US dropped to 3.5%, returning to pre-pandemic levels¹. However, inflation increased 8.5% over the prior 12 months¹. This suggests that the relationship between inflation and unemployment can be complex and may not always follow the simple inverse relationship described by the Phillips curve. It’s important to note that the Phillips curve is a theoretical model and may not always accurately reflect real-world economic conditions. Would you like more information on this topic? 😊

Learn more:

1. forbes.com2. bls.gov3. thebalancemoney.com4. factcheck.org5. econ.unc.edu+2 more

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this execption in July 2022 could be said is twisted by the stimulus packes during the pandemic , is that right?

Searching for: stimulus packages effect on inflation and unemployment

Searching for: stimulus packages effect on inflation and unemployment

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Yes, the stimulus packages enacted during the pandemic have been a factor in the current inflation and unemployment situation. According to a research paper from the San Francisco Federal Reserve, President Joe Biden’s $1.9 trillion American Rescue Plan is contributing to elevated inflation but it isn’t expected to overheat the economy¹. The package included stimulus checks, enhanced unemployment benefits, small business loans, aid to state and local governments, and relief for airlines designed to speed up the economic recovery following Covid-19 shutdowns¹. The SF Fed paper finds that the American Rescue Plan helped tighten the labor market and is expected to increase the Fed’s favored inflation gauge by 0.3 percentage points this year and 0.2 percentage points in 2022. Its impact will be “negligible” in 2023¹. However, it’s important to note that there are many factors affecting inflation and unemployment, and the stimulus packages are just one of them. Would you like more information on this topic? 😊

Learn more:

1. cnn.com2. factcheck.org3. jsri.msu.edu4. corporatefinanceinstitute.com5. investopedia.com+2 more

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what more factors may you demonstrate?

Searching for: factors affecting inflation and unemployment

Searching for: factors affecting inflation and unemployment

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There are several factors that can affect the relationship between inflation and unemployment. Some of these factors include:

• Monetary policy: Central banks use monetary policy tools like interest rates and quantitative easing to influence inflation and employment levels. These policies can either stimulate or dampen economic activity, affecting inflation and unemployment rates¹.
• Demand-pull and cost-push inflation: Demand-pull inflation occurs when demand for goods and services exceeds supply, leading to an increase in prices. Cost-push inflation occurs when the cost of production increases, leading to an increase in prices¹.
• Structural shifts in the economy: Changes in the structure of the economy, such as technological advancements or changes in trade patterns, can affect the relationship between inflation and unemployment¹.
• Fiscal policy: The government may increase taxes on businesses and individuals or lower government spending to combat inflation².
• Supply-side policies: To improve the long-term outlook, the government may reduce regulations to increase competition and reduce the cost of business².

These are just some of the factors that can influence the relationship between inflation and unemployment. The relationship is complex and can be affected by many different factors. Would you like more information on any of these factors? 😊

As shown above, I guess I show move on to next chapter, and gain some necessary licenses.