Samuelson's book Summary Chapter 20

Chapter 20 Summary

A. Key Concepts of Macroeconomics

1. Macroeconomics is the study of the behavior of the entire economy: it analyzes long-run growth as well as the cyclical movements in total output, unemployment and inflation, the money supply and the budget deficit, and international trade and finance. This contrasts with microeconomics, which studies the behavior of individual markets, prices, and outputs.

2. The United States proclaimed its macroeconomic goals in the Employment Act of 1946, which declared that federal policy was "to promote maximum employment, production, and purchasing power." Since then, the nation's priorities among these three goals have shifted. But all market economies still face three central macroeconomic questions: (a) Why do output and employment sometimes fall, and how can unemployment be reduced? (b) What are the sources of price inflation, and how can it be kept under control? (c) How can a nation increase its rate of economic growth?

3. In addition to these perplexing questions is the hard fact that there are inevitable conflicts or trade-offs among these goals: Rapid growth in future living standards may mean reducing consumption today, and curbing inflation may involve a temporary period of high unemployment.

4. Economists evaluate the success of an economy's overall performance by how well it attains these objectives: (a) high levels and rapid growth of output and consumption [output is usually measured by the gross domestic product (GDP), which is the total value of all final goods and services produced in a given year; also, GDP should be close to potential GDP, the maximum sustainable or high-employment level of output]; (b) low unemployment rate and high employment, with an ample supply of good jobs; (c) price-level stability (or low inflation).

5. Before the science of macroeconomics was developed, countries tended to drift around in the shifting macroeconomic currents without a rudder. Today, there are numerous instruments with which governments can steer the economy: (a) Fiscal policy (government spending and taxation) helps determine the allocation of resources between private and collective goods, affects people's incomes and consumption, and provides incentives for investment and other economic decisions. (b) Monetary policy (particularly central-bank regulation of the money supply to influence interest rates and credit conditions) affects sectors in the economy that are interest-sensitive. The most affected sectors are housing, business investment, and net exports.

6. The nation is but a small part of an increasingly integrated global economy in which countries are linked together through trade of goods and services and through financial flows. A smoothly running international economic system contributes to rapid economic growth, but the international economy can throw sand in the engine of growth when trade flows are interrupted or the international financial mechanism breaks down. Dealing with international trade and finance is high on the agenda of all countries.

B. Aggregate Supply and Demand

7. The central concepts for understanding the determination of national output and the price level are aggregate supply (AS) and aggregate demand (AD). Aggregate demand consists of the total spending in an economy by households, businesses, governments, and foreigners. It represents the total output that would be willingly bought at each price level, given the monetary and fiscal policies and other factors affecting demand. Aggregate supply describes how much output businesses would willingly produce and sell given prices, costs, and market conditions.

8. AS and AD curves have the same shapes as the familiar supply and demand curves analyzed in microeconomics. The downward-sloping AD curve shows the amount that consumers, firms, and other purchasers would buy at each level of prices, with other factors held constant. The AS curve depicts the amount that businesses would willingly produce and sell at each price level, other things held constant. (But beware of potential confusions of microeconomic and aggregate supply and demand.)

9. The overall macroeconomic equilibrium, determining both aggregate price and output, comes where the AS and AD curves intersect. At the equilibrium price level, purchasers willingly buy what businesses willingly sell. Equilibrium output can depart from full employment or potential output.

10. Recent American history shows an irregular cycle of aggregate demand and supply shocks and policy reactions. In the mid-1960s, war-bloated deficits plus easy money led to a rapid increase in aggregate demand. The result was a sharp upturn in prices and inflation. In 1973 and again in 1979, adverse supply shocks led to an upward shift in aggregate supply. This led to stagflation, with a simultaneous rise in unemployment and inflation. At the end of the 1970s, economic policymakers reacted to the rising inflation by tightening monetary policy and raising interest rates. The result lowered spending on interest-sensitive demands such as housing, investment, and net exports. The period of austerity in the early 1980s ushered in a long period of macroeconomic stability.

11. Over the long run of the entire century, the growth of potential output has increased aggregate supply enormously and led to continual growth in output and living standards.

Childs Nowaday

Here’s a pop quiz:  Who is the U.S. Secretary of State?  The answer, as we prepared this report in the summer of 2008, was Condoleezza Rice.  If you knew the answer, you’re smarter than 74 percent of the 18- to 29-year-olds in a Pew Research Center study who recently answered incorrectly.¹

Moreover, 70 percent of them do not know what the Reconstruction was, and they were six times more likely to be able to identify the latest winner of theAmerican Idol reality television show than the Speaker of the House of Representatives.

Another study found that nearly 60 percent of 17-year-olds don’t know that the Civil War took place in the second half of the 19^th century.  And yet another survey found that 25 percent of 17-year-olds think that Christopher Columbus discovered America after 1750.

Could the vast majority of teens and adults under the age of 30 really be so clueless?  As a matter of fact, yes.  This is a generation of young people who grew up reading blogs instead of books.  They read updates about their friends’ parties on MySpace instead of reading about world events in newspapers.  They know more about video games like World of Warcraft than they do about World War II.

They look up information on Wikipedia instead of Encyclopedia Britannica.  They get their political information from Comedy Central’s “The Daily Show,” hosted by comedian Jon Stewart.  When they do read news online, it is filtered through RSS feeds that only send them stories about subjects that interest them — a list that could be as brief as celebrity weddings, panda bears, Paris Hilton, and new games for the Wii video game console.  They don’t want to read about subjects of which they know little or nothing.

Ironically, the generation that is most comfortable with digital technology, which gives them unprecedented access to all of the world’s knowledge, knows less than the previous generations that lacked this advantage.  Instead of using the Internet to improve their understanding of the world, young people are using it to stay in touch with their friends.

Mark Bauerlein, an English professor at Emory University, has seen this first-hand in his...

The Dawn

I ask God's protection, from the temptations of the accursed Satan
In the name of Allah, Most Gracious, Most Merciful.

By dawn,
and night for the ten,
and the even and odd,
and the night when passed.
At that, that was a pledge (which can be accepted) by the people who have sense. 
Have you not seen how thy Lord did against the Aad?, 
(It is) the people of Iram that have high buildings  
Which had never built (the city) like that, in other countries, 
and Thamood that cut boulders in the valley,
and the Pharaoh who have the spikes (lots of soldiers), 
The arbitrary act of domestic, 
then they do much damage in that country, 
Therefore thy Lord pour on them scourge the punishment, 
For thy Lord is ever watchful. 
As for man, when his Lord tested and honored him and given him pleasure, then he said: "My Lord has honored me '. 
But when his Lord tested him, restricting provision he said: "My Lord hath humiliated".
By no means (so), actually you do not honor the orphan, 
and you do not invite each other to feed the poor, 
and you eat treasures by mixing (which is lawful and a false way),
and you love your property with excessive love.
Do not (do so). When the earth is shaken in a row, 
and then came the Lord. and the angels lined up in rows.
And on that day, they were shown Hell Fire. and on that day man will remember but no longer useful to remember that for him.
He said: "I wish I would do (good deeds) for my life."
So on that day, no one who tormented him as He did,
and there is no bond like the bond of his. 
"O peaceful soul.
Go back to your Lord with a heart that is satisfied and liked by Him.
Then go to My congregation servants
and enter into My Paradise" {89 : 1-30}

Allah the truest , with all his words

Samuelson's book Summary Chapter 19

Chapter 19 Summary

A. The Sources of Inequality 1. In the last century, the classical economists believed that inequality was a universal constant, unchangeable by public policy. This view does not stand up to scrutiny. Poverty made a glacial retreat over the early part of this century, and absolute incomes for those in the bottom part of the income distribution rose sharply. Since the early 1970s, this trend has reversed, and inequality has increased. 2. The Lorenz curve is a convenient device for measuring the spreads or inequalities of income distribution. It shows what percentage of total income goes to the poorest 1 percent of the population, to the poorest 10 percent, to the poorest 95 percent, and so forth. 3. Poverty is essentially a relative notion. In the United States, poverty was defined in terms of the adequacy of incomes in the early 1960s. By this standard of measured income, little progress in reducing inequality has been made in the last decade. 4. The distribution of American income today appears to be less unequal than in the early part of this century or than in less developed countries now. But it still shows a considerable measure of inequality and increasing inequality over the last quarter-century. Wealth is even more unequally distributed than is income, both in the United States and in other capitalist economies. 5. To explain the inequality in income distribution, we can look separately at labor income and property income. Labor earnings vary because of differences in abilities and in intensities of work (both hours and effort) and because occupational earnings differ, due to divergent amounts of human capital, among other factors. 6. Property incomes are more unevenly distributed than labor earnings, largely because of the great disparities in wealth. Inheritance helps the children of the wealthy begin ahead of the average person; only a small fraction of America's wealth can be accounted for by life_cycle savings. B. Antipoverty Policies 7. Political philosophers write of three types of equality: (a) equality of political rights, such as the right to vote; (b) equality of opportunity, providing equal access to jobs, education, and other social systems; and (c) equality of outcome, whereby people are guaranteed equal incomes or consumptions. Whereas the first two types of equality are increasingly accepted in most advanced democracies like the United States, equality of outcome is generally rejected as impractical and too harmful to economic efficiency. 8. Equality has costs as well as benefits; the costs show up as drains from Okun's "leaky bucket." That is, attempts to reduce income inequality by progressive taxation or transfer payments may harm economic incentives to work or save and may thereby reduce the size of national output. Potential leakages are administrative costs and reduced hours of work or savings rates. 9. Major programs to alleviate poverty are welfare payments, food stamps, Medicaid, and a group of smaller or less targeted programs. As a whole, these programs are criticized because they impose high benefit-reduction rates (or marginal "tax" rates) on low-income families when families begin to earn wages or other income. 10. People are divided on how to improve the current income-support system. One proposal, called the negative income tax, would consolidate current programs into a unified cash income supplement. The supplement would be reduced (that is, income would be "taxed") at a moderate rate (say, one-third or one-half), so that low-income families would have a significant incentive to seek market employment. The United States has adopted a variant known as the earned-income tax credit, which provides a wage supplement to families with low earnings. C. Health Care: The Problem That Won't Go Away 11. Health care is one of the largest and most rapidly growing sectors of the economy. It is characterized by multiple market failures that lead governments to intervene heavily. Health systems have major externalities, which include preventing communicable diseases and discovering new biomedical knowledge. In addition, there are market failures such as the asymmetric information between doctors and patients and between patients and insurance companies. These asymmetries lead to adverse selection in the purchase of insurance and to moral hazard (or the third-party payment syndrome) in excessive consumption of medical services. Finally, because health is so important to human welfare and to labor productivity, governments strive to provide a minimum standard of health care to the population. 12. Dissatisfaction with the health-care system - over rising costs, a growing number of uninsured, and lagging health status, particularly of poor and minority groups - has prompted proposals for reform. Few advocate returning to a pure-market system because of hardships on the poor and adverse effects on public health and on the generation of new biomedical knowledge. A nationalized system would provide universal coverage but ration health care by long waits for services. The predominant organization of the private health system in the United States today is managed care; this system provides a package of benefits for workers or those who can afford to buy care, but the provider limits access to curb costs.

Samuelson's book Summary Chapter 18

Chapter 18 Summary

A. Population and Resource Limitations 1. Malthus's theory of population rests on the law of diminishing returns. He contended that population, if unchecked, would tend to grow at a geometric (or exponential) rate, doubling every generation or so. But each member of the growing population would have less land and natural resources to work with. Because of diminishing returns, income could grow at an arithmetic rate at best; output per person would tend to fall so low as to stabilize population at a subsistence level of near-starvation. 2. Over the last century and a half, Malthus and his followers have been criticized on several grounds. Among the major criticisms are that Malthusians ignored the possibility of technological advance and overlooked the significance of birth control as a force in lowering population growth. 3. Studies of the relationship between pollution, population, and income have determined that the demand for environmental quality rises rapidly with per capita income, so for most indicators environmental quality improves rather than deteriorates as per capita income rises. B. Natural-Resource Economics 4. Natural resources are nonrenewable when they are essentially fixed in supply and cannot regenerate quickly. Renewable resources are ones whose services are replenished regularly and which, if properly managed, can yield useful services indefinitely. 5. From an economic point of view, the crucial distinction is between appropriable and inappropriable resources. Natural resources are appropriable when firms or consumers can capture the full benefits of their services; examples include vineyards or oil fields. Natural resources are inappropriable when their costs or benefits do not accrue to the owners; in other words, they involve externalities. Examples include air quality and climate, which have externalities that are affected by such activities as the burning of fossil fuels. 6. Important examples of appropriable, nonrenewable natural resources are fossil fuels such as oil, gas, and coal. Economists argue that because private markets can efficiently price and allocate their services, such natural resources should be treated the same as any other capital asset. C. Curbing Externalities: Environmental Economics 7. A major market failure that is increasing in importance is externalities. These occur when the costs (or benefits) of an activity spill over to other people, without those other people being paid (or paying) for the costs (or benefits) incurred (or received). 8. The most clear-cut example of an externality is the case of public goods, like defense, where all consumers in a group share equally in the consumption and cannot be excluded. Less obvious examples like public health, inventions, parks, and dams also possess public-good properties. These contrast with private goods, like bread, which can be divided and provided to a single individual. 9. Environmental problems arise because of externalities that stem from production or consumption. An unregulated market economy will produce too much pollution and too little pollution abatement. Unregulated firms decide on abatement (and other public goods) by comparing the marginal private benefits with the marginal private costs. Efficiency requires that marginal social benefits equal marginal social abatement costs. 10. There are numerous steps by which governments can internalize or correct the inefficiencies arising from externalities. Alternatives include decentralized solutions (such as negotiations or legal liability rules) and government-imposed approaches (such as pollution-emission standards or emissions taxes). Experience indicates that no approach is ideal in all circumstances, but many economists believe that greater use of market-oriented approaches would improve the efficiency of regulatory systems. 11. Global public goods, like slowing climate change, present the thorniest problems, which often cannot be solved by either markets or national governments. Nations must devise new tools to forge international agreements when global environmental trends threaten our living standards or ecosystems.