Summary: As of today, there are concerns that due to the unemployment rate becoming lower, there will be a spike of inflation. This concern was brought up by Representative Ocasio-Cortez, when she was questioning Mr. Powell, the Federal chair, about central banks being aware of the flaw of inflation and unemployment. In the article, the concept of the “Phillips curve” is introduced. Inflation and unemployment have an inverse relationship. When unemployment is high or low, employers will either raise wages or keep them at the steady rate. As the inflation with wages occurs, it will soon turn into an inflation of prices of goods and services. Central banks are believed to push inflation and unemployment in different directions, as they face trade-off. 

Reaction: There were a few aspects of this article that I found interesting. The theory began in 1958 and has since developed into a formal concept. The “Phillips curve” has helped explain the trade-off that central bankers are facing. Economic activity revolves around those decisions. It’s interesting that with lowering unemployment, comes a steady wage but when the opposite occurs and wages are risen. It’s like the domino effect, the inflation of wages will carry out to production and goods. 

Relation to Class: Mentioned in chapter one, the tenth principle of economics is that there is a trade-off between inflation and unemployment. This connects to the article as the connection between the two represent a trade-off based on the central banks. 

Citation: 

Mankiw, N. Gregory. “Yes, There Is a Trade-Off Between Inflation and Unemployment.” The New York Times. The New York Times, August 9, 2019. https://www.nytimes.com/2019/08/09/business/trade-inflation-unemployment-phillips.html?auth=login-email&login=email.

 

The GDP has had only a growth of 1.9% for the third quarter. This pace of growth has declined since the spring of 2019 and then through July, August, and September. Businesses are showing a pull back on investments, such as buildings and equipment. The spending on factories and offices for businesses has dropped 15%. Although residential investments did rise 5.1% of an annual rate after months of the constant decline. The article mentions that the economic data will help shape the campaign narratives for the 2020 presidential election. Many business owners are terrified of the tariffs that are scheduled to be set in place. 

 

This article was interesting because the GDP is growing at such a slow pace. The rift between consumers and businesses is causing this slow growth. By many businesses pulling back on investments, it is causing the rift. The pullback was mentioned at 3%. This pull back resulted in consumer spending growth to fall from 4.6% to 2.9%. The article mentioned that the Federal Reserve has lowered the interest rates in efforts to keep the slow in growth from turning into a huge downfall. 

 

Mentioned in chapter 10, it was mentioned of the importance of the investment components for a good GDP. This article relates to that by the possible factor of businesses lack of investments which are leading to a drop in percentage of consumer spending. By the lack of investments occurring, there won’t be a more advanced or efficient way to produce new goods or services. 

Citation: 

Cohen, Patricia. “Economy Grew at 1.9% Rate in Quarter, Hit by Trade Fight and Global Weakness.” The New York Times. The New York Times, October 30, 2019. https://www.nytimes.com/2019/10/30/business/economy/us-gdp-growth.html.

 

Reaction: I think it was interesting the factors of transportation services and used car costs are involved in the CPI. I also find it interesting that the core CPI only rose 0.11%. Perhaps the lack in sales in some areas caused this be lower than expected. 

 

Relation to Class: The reason this was related to macroeconomics was due to the CPI. The article mentioned that CPI rate excluded food and energy. The article also mentioned the inflation between living and medical care. These factors could make a big difference in the economy as a whole. 

Bueso, Alexander. “US CPI Rate Unchanged in December, as Expected.” BOLSAMANIA. Sharecast, January 14, 2020. https://www.sharecast.com/news/international-economic/us-cpi-rate-unchanged-in-december-as-expected--7231972.html.

 

Reaction: I thought it was interesting that growth has been steady. I knew that unemployment rates were low, but I had no idea that the US had the benefits of rising income. Although working two jobs, I noticed that there was a rise in minimum wage. I could see how this could increase consumer confidence with spending.
 

Relation to Class: This is related to macroeconomics because of the topic with growth. In Chapter 12, it discussed the many factors that effect or improve growth within an economy. The productivity and improvement given to the consumer is important and it is a result from these terms of low unemployment and rising incomes. 

 

Citation: 

Torry, Harriet. “U.S. Economy Heads Into 2020 With Steady Growth.” The Wall Street Journal. Dow Jones & Company, January 30, 2020. https://www.wsj.com/articles/fourth-quarter-economic-growth-11580386835

 

Reaction: It seems to be very common for housing to be in high demand. Many people today are finding it harder to secure a place to live from lease to lease. It was interesting that the rental controls in California are opposing the minimum wage laws. But after a second it made since that the costs of housing is so high that ordinary people need maybe two or three minimum wage jobs in order to afford living. Since California is a popular place it doesn’t surprise me that housing is experiencing a shortage. 

 

Relation to Class: This relates to the reference of supply and demand. This is mentioned in the chapter as well as previous chapters we’ve discussed. By the California being a well-known and very desired place to live, the demand is high. But the space and buildings are able to supply for the demand. This article also mentioned the increase of 5% due to inflation. Inflation is a factor that influences the price of rent and its effect on minimum wage.

Citation:

Phelan, John. “How We Know California's New Rent Control Law Will Make Its Housing Shortage Worse: John Phelan.” FEE Freeman Article. Foundation for Economic Education, September 16, 2019. https://fee.org/articles/how-we-know-california-new-rent-control-law-will-make-its-housing-shortage-worse/.