students will conduct an analysis of a recent article and provide their evaluation and outcome expectations in a written paper of 1500-2500 words that discusses:
- A minimum of three general economic principles related to the article
- Identification of three to five macroeconomic indices
- Definition and explanation of the indices e.g., GDP, CPI, and other economic calculations
- Discussion about what the specific indices mean in relationship to the overall article and how they impact each other
- Appropriate evaluation, decisions and forecasts that could be made from the information
•Contain at least three general economic principles
Trade makes people better off. Trade is a kind of voluntary cooperation, and it makes us wealthier. This happens in two ways. First, we know that since people act, they will only do things if they expect it to make them better off. If you trade $100 for a ticket to see the Jonas Brothers and Hannah Montana, we infer that it is because you expect to prefer the concert to anything else you could have done with the $100. This is not to say that people won’t make mistakes from time to time—we have all rented a terrible movie or ordered something at a restaurant that we didn’t like—but in general, trade will make us better off. The second way trade makes us better off is by increasing our productivity. According to the law of comparative advantage, when people specialize and trade, they can produce more output with the same inputs. Similarly, they can produce the same outputs with fewer inputs. In either case, people have more resources with which to attain their goals. This has an important implication that echoes a thought originally expressed by Adam Smith: people are more likely to help you achieve your goals if you help them achieve theirs (Carden, 2010, para. 6).
Article: All-cash sales constituted 33% of transactions in January and were slightly above (at 1%) those in the prior month. A majority of cash buyers are investors and 20% were individual investors. The figures also show that 70% of investors paid with cash for homes in January (Clark, 2014, para. 12). People in this situate thought they would get a better return on their investment by paying cash for the home purchase. In doing that they did not have to pay back interest like someone would if they would have taken out a mortgage to get the same home. The trade off to them was to buy something within the price range for the cash they had versus getting a loan and paying for the purchase over time.
People are Rational. This is a lot more controversial than it should be. When we say that people are rational, we mean that they will tend to do things that they expect to provide them with net benefits. We don’t mean that they will always make the right decision, that they have complete information, or that they will never make mistakes. We mean that they have goals, they tend to choose the means that they believe are appropriate to achieve them, they respond to incentives, and they learn from mistakes (Carden, 2010, para. 7).
Article: It used to be buyers sitting on the fence waiting for the right time to buy. Now it appears that homeowners have been sitting on the fence waiting for the right to time to sell. With interest rates expected to increase, this is the time to consider listing (Clark, 2014, para.13). For people to be rational in this situation the article talks about it being the time to sell your home to get the better benefits. If interests rates are going to go up people will try to get the house for less money so they are not paying as much in interest.
We shouldn’t ignore the long-term and unintended consequences of policies and actions. Careful economic analysis is, in part, the process of asking “and then what?” about any policy or action. In his book Applied Economics, Thomas Sowell calls this “thinking past stage one,” and in his classic Economics in One Lesson, Henry Hazlitt defined “the art of economics” as tracing the effects of actions and policies and seeing how they affect everyone rather than just particular groups. The Economic Way of Thinking defines economics as “a theory of choice and its unintended consequences,” and indeed, most applied economic analysis consists of isolating and exploring the unintended consequences—whether they are good or bad—of actions and policies (Carden, 2010, para. 10).
Article: The Federal Reserve, at its recent policy meeting, hinted at possibly raising the interest rate, bucking the recent trend of its policies (Clark, 2014, para.1). Why do we not ask ourselves and then what would happen if we did increase the interest rates.
•Contain at least three to five macroeconomic indices.
Interest Rates Announcement- Interest rates play the most important role in moving the prices of currencies in the foreign exchange market. As the institutions that set interest rates, central banks are therefore the most influential actors. Interest rates dictate flows of investment. Since currencies are the representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the forex market to experience movement and volatility. In the realm of Forex trading, accurate speculation of central banks’ actions can enhance the trader's chances for a successful trade (Main, 2014, para. 4).
Article: The Fed’s program of bond buying started at the end of 2012 and was intended to lower long-term interest rates to promote spending, hiring and investment. Now there has been some weak economic data since the end of last year (i.e., creation of jobs and results of retail sales) and officials have indicated that interest rates would not increase short-term until the unemployment rate decreased to 6.5%, which is a 10th of a percentage point away from what it is now (Clark, 2014, para. 4).
However, some others contend that if the unemployment rate is 6% by the end of this year, it will pressure the Fed to increase short-term interest rates (Clark, 2014, para. 5).
Employment Indicators- Employment indicators reflect the overall health of an economy or business cycle. In order to understand how an economy is functioning, it is important to know how many jobs are being created or destructed, what percentage of the work force is actively working, and how many new people are claiming unemployment. For inflation measurement, it is also important to monitor the speed at which wages are growing (Main, 2014, para. 7).
Article: For the past years, the Fed has been keeping a tight rein on short-term interest rates. Short-term rates have been near zero since December 2008. Some Fed officials argued at past policy meetings that increases are necessary to prevent the economy from “overheating.” Increases in the national unemployment rate have prompted the discussions of this plan (Clark, 2014, para.2).
Fed officials are considering dropping the jobless rate as a factor in determining policy. Some of the reasons are that the unemployment rate is not an accurate indicator as to the health of the economy. Some people have dropped out of the work force and some have retired and are considered unemployed (Clark, 2014, para. 7).
Retail Sales- The retail sales indicator is released on a monthly basis and is important to the foreign exchange trader because it shows the overall strength of consumer spending and the success of retail stores. The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy (Main, 2014, para. 8).
Article: Existing homes sales decreased in January of this year. The inventory available for sale continues to be challenging for buyers and is raising home prices in many areas of the country. Total existing-home sales (all types) decreased 5.1% from December to January. The decline in home sales has been attributed to the polar vortex, and the weather is adversely impacting not only home sales around the nation but also home construction (Clark, 2014, para. 9).
The median existing-home price for all housing types in January increased 10.7% (Clark, 2014, para. 10).
Distressed homes (foreclosures and short sales) accounted for 15% of January sales (11% were foreclosures and 4% were short sales) as compared with 14% in December and 24% in January 2013. Homes in foreclosure sold for 16% below market value, and short sales were discounted 13% (Clark, 2014, para. 11).
Government Fiscal and Monetary policy- Stabilization of the economy (e.g., full employment, control of inflation, and an equitable balance of payments) is one of the goals that governments attempt to achieve through manipulation of fiscal and monetary policies. Fiscal policy relates to taxes and expenditures, monetary policy to financial markets and the supply of credit, money, and other financial assets (Main, 2014, para. 10).
Article: In the past, the Fed adjusted the interest rate based on the unemployment rate, inflation or economic production and inflation (Clark, 2014, para. 6)
Carden, A. (2010, August 25). The Ludwig von Mises Institute. Mises Economics Blog RSS. Retrieved February 27, 2014, from http://archive.mises.org/13693/nine-principles-of-economics/
Clark, M. A. (2014, February 27). Thinking of selling?. The Greenwich Post. Retrieved February 27, 2014, from http://www.greenwich-post.com/23593/thinking-of-selling/
Main Macroeconomic Indicators. (n.d.). Marketscom News. Retrieved February 27, 2014, fromhttp://www.markets.com/education/fundamental-analysis/main-economic-indicators.html