Ch 27

Chapter 27 is about the basics in finance. It covers insurance, present value, risk aversion, and stocks. The chapter isn't difficult to understand and relies on a lot of common sense knowledge, but the math and understanding behind it might take a bit more time. Overall, the chapter discusses present and future value for money and how to calculate it [X/1+r)^N], how those who are risk aversion would look at the risk rather the reward, how insurance works and lowers the cost people have to pay in case of an accident, but also can make people more reckless. And how one should not put all their eggs in one basis but should diversify in stocks. 

A big point Mankiw makes is that time and risk work closely together. In the value of time, it profits one to measure how much a certain amount on money questions now versus ten years from now to see whether one benefits from accepting the money now of ten years from now, including the interest rate. If the value ten years from now is less the value of the money today, it would benefit the person to take the money now. If vise versa, the person should take the money ten years from now. 

Utility is a person's subjective measure of well-being or satisfaction, so every level of wealth has a certain amount of utility, and as the wealth growths, the marginal utility decreases. This is used to measure the risk aversion may experience in different situations. Insurance plays on this to give people a safety net. 

Article Review #6

I would like to start off by saying I don't enjoy Stockman's articles. Whether he's on the right path or is only speaking the truth, I can't say, but his delivery shows it all off. He comes off very pretentious and judgmental and throws around elaborate vocabulary to increase his ethos, which only makes me want to stop reading. That being said, David Stockman's article focuses on how the BSL is over estimating the jobs in December when they adjust the GDP for seasonal jobs. In between all of Stockman's sass and attitude, he explains how the economy is actually in shambles and jobs have been going down, contrary to what is being shown in the number. He addresses how not every December produces the same numbers which is valid, and then goes on to show the graphs to prove it. This relates to what we're leaving because we learned how GPD is often adjusted for seasonal fares, such as extra buying during the holidays. 

Ch 26

This chapter focused on saving, investment, and the financial system. Overall, it wasn't too difficult of a chapter, and Mankiw does a pretty good job about explaining everything in scenarios that make sense and we can connect do. It does introduce a lot of new vocabulary words, which can make understand the chapter a bit more difficult, especially when they contradict what the word means casually. The chapter discusses bonds, stocks, and how the borrowing and lending business works and how it created an interest rate relevant to the needs and risks in the market. The U.S. financial system is made up of different financial institutions which act to direct the resources of household that want to save some of their income into the household and firms that want to borrow. National saving must equal investment, because one person's saving is another person's investment. The interest rate is determined by the supply and demand for loan able funds. 

Ch 24

Chapter 24 wasn’t too hard to understand, but it did introduce new concept and discusses economic well-being more in depth. The chapter was about measuring the cost of living, and focused on consumer price index. Consumer price index is a measure of the overall cost of the goods and services bought by a typical consumer. You measure it by dividing the price of basket of goods and services in current year by the price of basket in base year multiplied by 100, and get the changes in the cost of living. Calculating the CPI also helps in finding the inflation rate: subtracting the CPI in year 1 from the CPI in year 2, and dividing by the CPI in year 1 and multiplying by 100. Measuring the cost of living can be difficult because the CPI ignores the possibility of consumer substitution and does not reflect the increase in the value of the dollar that arises from the introduction of new goods. The chapter goes on to compare the CPI to the GDP deflator; the first difference is that the GDP deflator reflects the prices of all goods and services produced domestically, and the consumer price index reflects the prices of all goods and services bought by consumers. The chapter also introduced inflation and how one figures out the actual value of dollars, in comparison between years and interest rates. Inflation can also cause the government to index wages and such. 

Ch 23