About the economy

Laura Adams asked:


Macroeconomics is a branch of economics that looks at aggregate or total economic variables to study the behavior of a national economy as a whole.

This is in contrast to Microeconomics which looks at production and prices within specific markets.

When Macro-economists study an economy, they look at 3 major variables. These are output, the unemployment rate, and the inflation rate.

1. Output is the level of production in an economy as a whole. The measure of aggregate output in the U.S. is known as the Gross Domestic Product, or GDP. It can be thought of from 2 different perspectives, production and income.

From the production side: GDP is the value of the final goods and services produced in an economy during a given period. GDP is also the “value-added” that all the businesses added to the economy during a given period.

From the income side: GDP is the sum of incomes in the economy during a given period. This is the income or revenue that a business (a) is left with as profit, (b) pays to the government as taxes, and (c) pays to employees as wages.

2. The unemployment rate is the proportion of workers in an economy who are not employed but are seeking work. The total labor force is a combination of people who are working plus those who are not working but want to work.

In the U.S., the Bureau of Labor Statistics conducts the Current Population Survey or CPS. It interviews about 50,000 households each month to determine if the adults are employed.

The survey classifies an individual as employed if they have a job at the time of the interview and as unemployed if they don’t have a job but have been actively seeking a job within the prior 4 weeks.

If someone isn’t working and doesn’t want to work, they are not counted as part of the labor force.

So the unemployment rate is the number of unemployed people seeking work divided by the total labor force. The lower the unemployment rate, the more people are working, and this results in higher economic output.

3. Inflation is a sustained rise in the general level of prices. The inflation rate is the rate at which the average price of goods in an economy increases over time.

And deflation is the rare opposite, a sustained decline in price levels. Deflation is also called negative inflation.

Here are some more economic scenarios: hyperinflation is extreme inflation and stagflation is when inflation gets combined with economic stagnation.

Macro-economists measure the cost of living by the consumer price index, or CPI. The CPI has been used since 1917 and is published monthly. It gives the cost in dollars of a specific list of goods and services over time.

U.S. Bureau of Labor Statistics employees actually visit over 22,000 locations in 85 cities to see what’s happening to the prices of products on the CPI list such as cars, gas, clothing, food, etc.

As an index, the CPI is set equal to 1 in the base period chosen. This is so its level has no particular significance. The current base period are the years 1982 to 1984, thus the average for the period 1982 to 1984 is equal to one.

In the year 2000, for example, the U.S. CPI was 1.71. This means that when comparing prices for similar products, they were 71% higher in 2000 than they were in the time period 1982-1984.

When demand rises, this is called a Boom and it leads to inflation. Follow this:

When consumer demand increases, the goal of production is, of course, to keep up with that consumer demand. This entails paying workers overtime or hiring additional workers to beef up output. All this extra work means that labor costs rise because more people are being paid to do the work. These increased labor costs are passed on to the consumer in the form of higher prices. And higher prices, as we’ve said, are the definition of inflation.

When demand falls, this is called a Recession and it leads to deflation. Follow this:

When consumer demand falls, workers get laid off or have their working hours cut back. If production needs decrease, fewer workers are obviously needed to fill the decreases in demand. The decreased labor costs are passed on to the consumer in the form of lower prices. Companies must reduce their prices to stay competitive in a shrinking marketplace. And lower prices are the definition of deflation.

Recession is a period of negative GDP growth. The time frame for a recession is debated. Many macro-economists insist that negative growth must last for at least 2 consecutive quarters.

Others define recession more loosely, as a significant decline in growth that lasts more than a few months. A sustained recession is called an economic depression.

“A creative economy is the fuel of magnificence.” -Ralph Waldo Emerson (1803-1882)

Julie

ableego asked:


I have read and heard repeatedly that, across all demographics, the economy was the number one issue with voters at the onset of this primary election. Yet, all the remaining candidates are talking about everything BUT the economy. Also, most of the topics in this section relate to candidates positions or style OTHER THAN THE ECONOMY. Is the economy still issue number one with voters?

Rosa

booboo asked:


I was readding today that Greenspan warns “US economy may fall into recession later this year.”.What does that mean for the general population and how will this affect us?
Yes, I was reading today that was typo.

Nancy

Dale Goldhawk asked:


Basically, the underground economy consists of people who are independent operators and who avoid or, more accurately, evade any legal responsibilities to their customers, communities or the country in which they live and from which they draw all the services they can manage.

A good catchall term for members of the underground economy is Leeches. When you use a member of the underground economy you use a person or an employer of other persons who:

-Does not pay income tax
-Does not pay GST or PST
-Does not pay workers compensation premiums
-Does not make employer contributions to the Canada Pension Plan or Employment Insurance
-Does not pay Employment Standards Act benefits so workers can have vacations and statutory holidays with pay
-Does not accept credit cards or, in most cases, cheques or other traceable payments
-Does not provide or honour guarantees or warrantees
-Uses and sells the cheapest and least durable products including counterfeit products
-Walks away from jobs at any time
-Has no business address or reliable means of contact
-Hires unqualified and potentially dishonest, unbondable, helpers
-May have a criminal record
-May be an illegal alien with no ties to the community or country
-Does not carry liability insurance and is likely uninsurable
-Is not licensed by any authority
-Is not certified for the work being done
-Is not trained
-Is not competent in at least some of the services offered and probably all
-Will not subject his or her work to inspection by any qualified person or agency.

This list could go on to include all of the negatives which can be countered easily by regulations, standards and mores prevalent in the legitimate above ground economy.

So what? If you deal with an unlicensed guy who paves your driveway or mows your lawn or fixes your roof for half of the price of a true professional, don’t you save money? And isn’t saving money a really good thing in any kind of economy? This is the dumbest way to look at dealings with the underground economy. An illegitimate construction contractor can cut his or her labour costs by about half by skipping all the ground rules of a legitimate contractor (see above).

This contractor can hire any yoyo to work on your roof or your electrical system or your plumbing. This contractor and his ilk cost our governments and the workers’ comp system more than $1.5 billion a year.

This means the government -this is us, folks- can’t adequately fund the apprenticeship programs we need badly across Canada. It can’t provide all the health and protection we need in the workplace.

It means also that the legitimate contractor, who pays for training and skilled sub trades and top grade products and a million other things we need, is severely damaged with unfair competition.

In addition, while you are paying your full share of income taxes, GST, PST and health costs, all the leeches who make up about 15 percent of our economy are costing us about $30 billion a year by not paying these taxes. Don’t blame only government when it can’t provide better roads or an improved environment or the zillion other things we want and need.

Blame yourself for abetting tax evasion by the underground economy leeches who are laughing at you all the way to their banks.

Every time you give a buck to the underground economy, you are taking a lot of that dollar away from elderly Canadians who depend on old age security payments and other supplements to their meager incomes.

You are depleting the money available to eligible unemployed workers including those who have to take time off to care for gravely ill or dying family members. You are potentially depriving low and modest income families of benefits from the Canada Child Tax Benefit and the GST credit.

You are taking money out of resources that should go to needy children, our health care system, post-secondary education and all our social services.

Think about this: the services we use to live decent lives in Canada are paid for, largely, by taxes paid by each of us. Without this money, Canada would enjoy a quality of life similar to Iraq or the Sudan but even worse because of our cold climate.

Deduct about 15 percent of the money we need and you put a huge hole in our services. That’s what the underground economy does every year. We are chumps for paying people to take money and resources out of our pockets while giving us, in all cases, inferior or, at least, questionable goods and services with no consumer protection whatsoever.

We might as well carry signs around our necks reading ‘Pickpockets welcome’ with a big arrow pointing to the pocket or purse where we keep our cash.

The next time someone comes to your door or telephones you offering cheap moving, renovation, land in Florida, car repairs or anything else in return for cash up front and no questions asked, ask yourself if you want your pocket picked once again or if you would rather pay for professional work from the above ground economy.

Ask yourself if you want to get involved in a criminal conspiracy to evade paying taxes or do you want everyone to pay fair taxes for the services your family needs. Ask yourself why you would want your blood sucked by a leech when you can deal, instead, with the good guys in Canada’s marketplaces.

Richard

Lucky asked:


What would happen according to the classical and keynesian theory, to move the economy back toward full employment?

Tara

serina asked:


Do you call it a “shady” economy or grey economy? I know that it is also called black or underground economy, but please tell me if one of the first two terms are used too and which one exactly, if any. Thank you in advance.

Carlos

Warren Graham asked:


Some months ago, I wrote an article (published on this site) entitled “A Sub-Prime Economy” and I urge anyone reading the following piece to revisit that material, both to see what was wrong about it, and what was right. In it, I predicted that the trigger for financial trouble would come either in the form of an overheating economy, which would drive up interest rates and end the era of easy money, pushing marginal companies over the cliff, or, alternatively, that a weakening economy would tighten up lending standards, starving weak companies by blocking their resource to working capital, and increasing business failures. I was wrong.

While even the chronically optimistic must surely now admit that there is a problem in the capital markets, and that it has, in fact, spilled over into equities, the fuse has been lit not by either of the phenomena described, but rather, by the proverbial “tail wagging the dog.” That is to say that while the fundamentals of the “Global Economy”—more about that hackneyed phrase below—remain strong, they threaten to be compromised by an absence of access to credit, hitherto provided by hedge funds and private equity sources, with seemingly endless pools of easy money looking for a home.

Can it be only a few weeks ago that the indomitable cheerleaders for the markets (who, by some magical coincidence, are, for the most part, individuals engaged in the business of selling securities) were telling us that we need not fear, because the world was “awash in oceans of liquidity?” Now, central banks worldwide are intervening almost around the clock to provide needed liquidity to credit markets.

As for this author, I thought I saw the worm turn about two weeks ago, when, in the face of tremendous (and rather scary) volatility in both directions, the folks at Goldman Sachs trotted out Abby Joseph Cohen to tell us that the bull was alive and well, thank you very much. I had forgotten about Abby Joseph Cohen, and last remember her telling us in March, 2000 (the last hurrah for the internet bubble) that that, well, the bull was alive and well. Ms. Cohen has, to the best of my knowledge, never suggested publicly that the market might {gasp!} go down.

Further evidence of a change in mood can be found by anyone who is a regular watcher of CNBC. Gone are most of the smiles, jokes and general bonhomie that could always be found when the expectations were of an endlessly rising market. Gone is that most annoying “cowbell” signal which rang at CNBC to herald any announcement of note in the business world. And although CNBC is supposed to be a source of business and market news, any regular viewer of its programming can have no doubt about the inherent love for bulls and loathing of bears exhibited by its on-air talent. After all, just as sellers of securities want us to think that the markets will always go up, CNBC’s producers understand well that broad, general interest in the markets (and hence, higher ratings) increase dramatically when the markets are rising. But today, the featured guest of CNBC before the U.S. Markets opened for trading was none other than Wilbur Ross, the unchallenged Dean of Distress. Wilbur is an icon in the bankruptcy/restructuring/turnaround world, and, speaking for myself (I have spent over 25 years in this field), I readily acknowledge that Wilbur has probably forgotten more about this subject than I will ever know.

And yet, his observations on the current turmoil in the markets were succinct and remarkably simple. He noted that: “for the past two years, consumers have spent more than they have earned, and the government has spent more than it has earned (sic).” He pointed out the obvious: that such a situation cannot continue indefinitely. He attributed some of the recent difficulties to what he called the two most dangerous words in the English Language: “Financial Engineering,” which, according to Ross means that “someone has figured out a way to underprice risk.” Ross noted that many people had relied entirely, and to their detriment, on ratings agencies and bought products that were designed to sell a “risk ignorant rate of return.” According to him, such a practice “always has a bad end.”

Yet, the purveyors of promised profits will, undoubtedly, continue to tell us that this is a mere “blip on the radar screen,” and that the indestructible “Global Economy” will save the day. If one has a memory that reaches back to before yesterday afternoon (not such a given in an industry whose “captains” are often “twenty-somethings”), one might easily substitute the words “Global Economy” for the words “New Economy” that was so prevalent during the internet bubble. One might also easily realize that the recent and massive spate of private equity deals, in which funds acquire public companies, and finance their acquisitions with either low-cost loans or investor capital secured by assets of the target company are (not-so) strangely reminiscent of the leverage buy-out boom of the late 1980’s, so well-exhibited in the film Wall Street. Those deals certainly came to a bad end.

The difference now, the starry-eyed optimists tell us, is that the defaults in these deals are much more difficult to trigger. In fact, some of these private equity deals have provisions in which, if the borrower cannot pay, in cash, it has the option of merely issuing more stock to the lender. That system works fine, until and unless the borrower is in genuine difficulty. It may not be in default, because it retains the right to issue more stock (of ever-increasing worthlessness) to its lender. So what has been accomplished? The risk of financial disaster has merely been transferred from the borrower to the investors in the private equity deal. To my knowledge, nobody has, as yet, figured out a mechanism to generate “junk bond” level returns with “treasury instrument” credit quality. And yet, the investors in many of these vehicles have somehow allowed themselves to be bamboozled into thinking that someone had. And they were willing to pay astronomical fees for it. Now, of course, many investors are running for the exits, shocked at having actually lost capital! And the “Financial Engineers” are begging the Federal Reserve to ride in to the rescue and reduce the Fed Funds rate. Who would benefit by such action? Well, the stock market would likely go up, at least for awhile. Is the Fed supposed to be in the business of propping up the stock market? On the other hand, there would almost certainly be run on the already battered U.S. Dollar. The Sub-Prime mess would not be solved by any such action, as it represents much more than a problem of less than stellar borrowers. It is mostly a problem of declining housing values in a system where there was precious little equity from the buyers in the first place. Borrowers who could not afford conventional mortgages bought homes, upon which they put little or no money down, and took on mortgages at teaser rates, which are now adjusting to market.

So who are the victims? Not the lenders. They got their fees and their points. And they got paid again when they “securitized” their loan holdings and sold them on a market newly created and packaged by other “Financial Engineers.” Not really the borrowers, either, who got houses without having put up any equity, and paid (for awhile) low-interest mortgages instead of rent, for a place to live which they could not otherwise have afforded.

But if the Fed plays the role of the cavalry, or the Government embarks upon yet another bail-out plan (anyone remember the Savings and Loan crisis?), we KNOW who the victims will be: the taxpayers. We will be called upon to save the banks and the hedge funds from the consequences of their “Financial Engineering.”

The “Global Economy” may well be strong, but the U.S. Economy is two-thirds driven by the true American vice: rabid consumerism. Once the credit cards are nearly all maxed out (and accruing interest at, in some cases, over 30%), and the middle class is no longer able to access its non-existent home equity (whether because of declining values or tightening credit standards), consumer spending MUST suffer. The first hints of this are coming from profit warnings from Wal-Mart, Home Depot and Macy’s.

I am certainly a believer in the resilience and ultimate success of this Country, and we will somehow grow ourselves out of this mess, too, in the long run. But for the shorter term, all the protestations of Government spin doctors and Wall Street salesmen posing as analysts will not change the simple truth: The Sub-Prime Economy is upon us.

Warren R. Graham

Copyright 2007

Lloyd

Annafur asked:


Well , we were talking about the american economy in my english class, and my teacher said that if the economy keeps on dropping there be a depresstion and that by the time were supposed to head off to collage , a bunch of jobs won’t be avable and other stuff. So i guess i want to be a photographer and i was just curious on how badly will photographers be effected.

Thank you

Jerome

warpedhybrid asked:


Who best survives these dips in economy? Is it just people who are state/government workers and military who are padded from these hardships?

Regina

Richard Soto asked:


One of the major reasons that Dallas residential and commercial real estate is “in demand” is because people are re-locating to the city in droves. Many financial and real estate industry experts believe that this “mass move” to Dallas is due to the prosperous, booming economy of the city. It is estimated that dozens of new businesses are seeking out Dallas office space and other commercial properties. Even some of Fortune 500’s biggest companies have relocated to the Dallas area. Dallas is “hot” in many different ways.

The Major Industries that are Big in the City of Dallas

The city of Dallas has an extremely broad and diverse climate for business. One of the leaders in the Dallas business circuit is the technological industries. These industries include information technology and data, defense, life sciences, financial services, telecommunications, processing, transportation and semiconductors.

A study performed by the Greater Dallas Chamber of Commerce reported that the city of Dallas is home to forty-three percent of the high-tech workers employed in the state. Plus there are thirteen privately-owned companies that are worth one billion dollars or more in the city. Some of the biggest corporations that are located in Dallas include Southwest Airlines, Advance PCS. Dean Foods, Kimberly-Clark, ExxonMobil, Texas Instruments and Neiman Marcus.

Dallas has been nicknamed the “Silicon Prairie” since the city has one of the largest centers of employment in high technology. Southwestern Bell, Nortel, Ericsson and Alcatel are an example of the large telecom companies that have made the city of Dallas their home. The city is an industry leader in the production of items such as machinery, food products, transportation equipment, chemicals and allied products such as parts for the airline and defense industries and electronic components.

The city of Dallas has one of the best, thriving economies in the entire country. People who relocate to the city can find a higher rate of pay and better employment then in other cities in the United States. This is because there is more competition between employers in Dallas. Dallas homes for sale and new construction projects have increased dramatically as the demand for residential and commercial property has increased triple-fold.

New Incentive Programs

Another reason for the year-long flocking to Dallas is because of all of the incentives that the local government is currently offering residents. Some of these new incentive programs include:

1) Tax Increment Finance Districts – This area is designed to make it less expensive for investors and developers to redevelop certain areas of the city and to make improvements to pre-existing Dallas commercial real estate structures.

2) Enterprise Zone Projects – These projects offer a reduction in state sales tax, or taxes paid, or tax refunds for the purchase of machinery, equipment and building materials in a designated enterprise zone.

3) Development Projects – These are different programs that are designed to generate thirty-four billion dollars in the Dallas Texas economy and to create close to eighty-thousand new jobs within the next decade.

4) Job Training Programs – Are designed to train residents for careers in specific, lucrative career fields. The local government has several different job training programs that one can choose from.

The Dallas economy is predicted to expand for the next twenty years. This is the perfect time to invest in Dallas commercial real estate. Families, professionals, students and businesses are quickly re-locating to the city of Dallas, noted for prosperity and high-earning power. This is a great time to learn more about Dallas Texas real estate opportunities.

Erica