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Reasons why Economists Disagree (from Gregory Mankiw )

Reasons why Economists Disagree (from Gregory Mankiw ). Differences in Scientific Judgments Example: Is it better to tax income or consumption? Differences in Values Example: Should we focus on growth or equity? Charlatans and Cranks (Mankiw’s words)

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Reasons why Economists Disagree (from Gregory Mankiw )

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  1. Reasons why Economists Disagree(from Gregory Mankiw) • Differences in Scientific Judgments • Example: Is it better to tax income or consumption? • Differences in Values • Example: Should we focus on growth or equity? • Charlatans and Cranks (Mankiw’s words) • Example: Supply-Side Economics (Mankiw’s words again)

  2. Economists in Agreement From Gregory Mankiw http://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html

  3. The Penn World Tables and EH.NET • http://pwt.econ.upenn.edu/php_site/pwt_index.php • http://www.measuringworth.org/usgdp/

  4. Happiness and GDP • From the research of Justin Wolfers… • Money Doesn’t Buy Happiness. Well, on Second Thought ... (pdf) • Don't Ditch the GDP (pdf) • GDP and Happiness (graphic)

  5. Websites • Department of Labor • Employment Report

  6. Reconcile the following empirical observations: - Most unemployment spells are of short-duration. - Most people unemployed at any given time have been unemployed for a long-duration • Example: • In one year, 2 people are unemployed • Each month, 2 people lose a job and find one at the end of the month • At any given time, how many people have been unemployed for a long time? • Over the year, how many people were unemployed for a short period of time?

  7. A bit of inflation history • Period % Change in Money Supply % Change in Price Level • ‑‑‑‑‑‑‑ ‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑ ‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑ • 1834‑37 + 61 + 28 • 1837‑43 ‑ 58 ‑ 35 • 1843‑48 + 102 + 9 • 1848‑49 ‑ 11 0 • 1849‑54 + 109 + 32 • 1854‑55 ‑ 12 + 2 • 1855‑57 + 18 + 1 • 1857‑58 ‑ 23 ‑ 16 • 1858‑61 + 35 ‑ 4 • (Sources: John Knox, A History of Banking in the United States, New York: Bradford Rhodes, 1903; and Historical Statistics, 1960, series E1‑12.)

  8. The CPI(from Mankiw) • A measure of the overall level of prices • Published by the Bureau of Labor Statistics (BLS) • Uses: • tracks changes in the typical household’s cost of living • adjusts many contracts for inflation (“COLAs”) • allows comparisons of dollar amounts over time

  9. Problems with CPI(from Mankiw) • Substitution bias: The CPI uses fixed weights, so it cannot reflect consumers’ ability to substitute toward goods whose relative prices have fallen. • Introduction of new goods: The introduction of new goods makes consumers better off and, in effect, increases the real value of the dollar. But it does not reduce the CPI, because the CPI uses fixed weights. • Unmeasured changes in quality: Quality improvements increase the value of the dollar, but are often not fully measured.

  10. 5 A 4 3 Inflation 2 B 1 0 4 5 6 7 Unemployment rate The Phillips Curve

  11. Inflation rate 1968 1956 4 1966 1957 3 1967 1955 2 1964 1958 1960 1965 1959 1963 1 1961 1954 1962 7 0 4 5 6 Unemployment rate The Rise of the Phillips Curve (1954-1968)

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