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John Wickham and Thomas Bolland

Post World War II Japan's economy has been closely linked with the United States. Although a much smaller population Japan’s GDP per Capita in dollars matched the U.S. in 1987. Japan’s GDP per Capita in dollars remained ahead of the U.S. until 2000, only dropping below the U.S.’s GDP per Capita in dollars in 1998. Since 2000, Japan has seemingly struggled to raise its GDP per Capita above $43,0000, its highest point in the 1990’s, only being able to have it at $48,000 for 2011 and 2012, until sharply dropping of to $34,000 in 2015. What this graph doesn’t show is the immense volatility that Japan experienced when when seemingly growing and over taking the U.S. in GDP per Capita in dollars during the late 1980s and late 1990s.

When looking at the percentage change of GDP per capita, Japan is significantly more volatile than the United State. While Japan saw GDP growth between 1980 and 2000 where it surpassed the United States for GDP per capita. However, in 2001, the United States overtook Japan in largest GDP growth. However, this should come as no surprise as Japan saw their GDP per capita dip to -12.61 percent from it peak of 47.24 percent in 1987. This trend has continued to follow the stagnated japan economy as the growth percentage dropped to a new low in 2013 reaching -16.76 percent. This trend after all is indicative of the japanese economy since it ben to stagnate around 1998. Japan’s GDP made a come between 2004 and 2012 where Japan saw a slightly less volatile GDP percentage growth rate ranging from 8% to negative 4% and back. However in 2013 the japanese economy reverted back to it’s negative trend with a GDP percentage growth of -16% but interestingly enough spiked back to 12% in 2016. At this point it is tough to predict what will happen to the japanese economy due to its extreme volatility.


Evans Alison and Chris Surran

The value of the US dollar can greatly influence the amount of imports and exports that flow in and out of the United States. A strong US dollar means that one US dollar typically has more value than one unit of a foreign country’s currency. When this is the case, foreign countries don’t tend to purchase as many US goods because they are more expensive relative to their domestic goods. Not only do exports decrease, but imports increase because it becomes cheaper to buy foreign goods. This phenomena causes US GDP to fall. On the other hand, when the US dollar is weak it’s value per unit is lower than the normal value per unit of another country’s currency. When this is the case, the US is less likely to import goods because they are more expensive than domestic goods. Also, a weak US dollar attracts foreign traders because US goods are less expensive than other countries’ goods. In this case, imports should decrease and exports should rise.

Since the Great Recession, the Trade Weighted U.S. Dollar Index, which is calculated against the United State’s main trading partners, has gradually risen. As the value of the dollar has risen, total net exports (exports – imports) has fallen, proving the theory stated above to be true. The strength of the US dollar has deterred foreign countries' interest in importing US goods. What would be a good way to weaken the US dollar to increase net exports and US GDP? Is there a better way to do this without having to weaken the US dollar?


Rosalie Bull and Katherine Ingram

A developed economy must have a means of facilitating transactions that transcends barter. The modern solution is the bank centered economy. Banks serve as financial intermediaries which lend liquid assets to borrowers, in order to fund their illiquid investments. Banks are able to do this-- create liquidity-- because a multitude of depositors trust the bank to invest their money in low risk, illiquid assets, such as loans or home mortgages. Banks cannot, however, loan out all of their funds at one time: if a depositor then attempted to withdraw money from their account, the bank would be unable to produce it and depositors would lose trust in their banks. The stability of a bank centered society depends upon deposit insurance, capital requirements, reserve requirements, and the discount window-- all forms of regulation which ensure that banks are able to produce liquid cash upon depositor demand.

Banks have not always been successful in this role, however. The 2007-2008 financial crisis, dubbed by many in the economic community as the worst financial crisis since the Great Depression, was caused in part by banks who practiced excessive risk taking, subprime lending, and deleveraging. The Federal Reserve contributed to the crisis by keeping interest rates artificially low in order to sustain the housing bubble. When the bubble exploded in 2008, as depicted in the graph above, many people lost their homes and jobs, and the economy plunged. People lost trust in the banking system, and the idea of a decentralized payment system, or cryptocurrency, was born.

Cryptocurrency operates by means of a universal ledger. Instead of each bank maintaining its own ledger, a universal, distributed ledger is maintained by a blockchain, or thousands of computers which compete to accurately update the ledger every ten minutes. Computers within the blockchain must achieve a majority consensus (50%+) for the update to be included in the ledger. The result is, theoretically, a decentralized payment system operating by means of a globally shared ledger. The system offers several advantageous elements: transparency, accessibility, and efficiency. The ledger is available online, updated frequently, and transactions are authenticated by the rigor of blockchain-- thousands of computers simultaneously verifying or denouncing updates as they appear. It eliminates the need for financial intermediaries, and is accessible anywhere with internet. The development of cryptocurrency, blockchain technology, and Bitcoin in particular has proven controversial: some hail it as having the potential to disrupt, or even replace, the global financial institution, while others view it as bogus currency in the middle of a bubble. If cryptocurrency is to replace traditional, bank regulated currency, it needs to function as money. Can it?

Money has three defining qualities. It is a medium of exchange, meaning individuals use it as a means of transferring assets; it is a store of value, meaning it maintains purchasing power over time; and it is a unit of account, meaning it is a yard stick used to set prices.

Cryptocurrency has the largest issue meeting the second criteria. Though there are many commodity currencies like gold that we consider stores of value despite drastic fluctuations, many argue the price volatility of cryptocurrencies like Bitcoin precludes it from being legitimate money. In the past year alone, the value of one bitcoin has ranged from less than $3,000 to $19,000.


So what is it exactly? At the very least, cryptocurrencies are fiat currencies. Like the US dollar, which is no longer backed by gold, Bitcoin has no inherent value. Because cryptocurrencies are decentralized and unregulated, they’re a risky investment. It remains unclear whether Bitcoin can even deliver upon its main promise of reducing transaction costs of banking. In November of 2017, the average fee to process a transaction was $11.38, and miners were able to demand these higher transaction costs due to the increasing value and popularity of Bitcoin.

Bitcoin’s primary advantage, its anonymous and decentralized nature, also serves as its fatal flaw. Cryptocurrencies help facilitate illegal markets, but few reputable businesses accept cryptocurrency because of its risk. Additionally, whereas the Fed controls the money supply and ensures the US dollar maintains value, there is no central entity to prevent Bitcoin’s worth from falling to zero. For the time being, the risk-factor (which could be lessened by regulations and oversight) prevents cryptocurrency from truly entering the mainstream.

McArdle, Megan. “Bitcoin Is an Implausible Currency.”, Bloomberg, 27 Dec. 2017,

Iansiti, Marco, and Karim R. Lakhani. “The Truth About Blockchain.” Harvard Business Review, Jan. 2017,

Krugman and Wells Macroeconomics Textbook


By Cat Spencer and Kassi Hall

Personal Consumption Expenditures: Durable goods: Sporting Equipment, supplies, guns, and ammunition

Producer Price Index by Industry: Small Arms Ammunition Manufacturing: All Other Ammo Products, Including Industrial Shells and Cartridges, Air Gun Ammo, Percussion Caps

As guns become a more divisive issue and the frequency of news reports is on the rise, it becomes more important to analyze the rate of personal consumption of guns and ammunition. As more guns have entered the market, price has also been on the rise. The Personal Consumption Expenditures on durable goods like sporting equipment, supplies, guns and ammunition remained low until around 1970, when they began increasing steadily and then sharply beginning around 1990. Despite a dip in consumption during the Great Recession, the consumption of these durable goods has only continued to increase rapidly. In 2017, a record $74.814 billion increasing by almost $20 billion in only 10 years.

Analyzing the Producer Price Index in Small Arms Ammunition Manufacturing combined with the Personal Consumption Expenditure graph displays how, despite the fact that the prices for ammunition are continually rising, even when the consumption of these goods saw a downturn during the Great Recession, prices for ammunition increased. While the rate of increase was not as significant as during non-recessional times, they increased nonetheless. As demand has increased, so too has the price of these items, likely leading to a more lucrative market and more companies entering the field, clear with the emergence of gun shows and pop-up markets and the entrance of gun supply sections in national chains like WalMart.

With the political climate of the times and walkouts being held by students all around the country, it is interesting to see how gun rates have increased in recent years. Especially as mass shootings and school shootings have increased, so too has the consumption of guns, ammunition, and supplies. As time goes on, and gun reform policies come to the table for Congress, how these rates change will be extremely interesting. As the consumption of durable goods like guns and ammunition have increased, it is clear that the prices (shown by the PPI graph for small arms ammunition) have risen steadily to keep up with high demand. The easiest explanation for this increase in demand would be that proponents of the argument that we must arm ourselves in order to protect ourselves from these shootings are increasing the amount of guns that they’re purchasing. Though it is difficult to pinpoint what purchases are contributing to this increase in consumption, it is clear that the increase in mass shooting incidents is in no way decreasing the consumption of guns and ammunition.


Here is a table of the income side of our GDP accounting, with data for 2017Q3, the most recent available. You can find much, much greater detail on the NIPA portion of the Bureau of Economic Analysis web site. What you can see is that compensation is the largest single component. Of course we might think that should be combined with small business income of $1,382 billion. Other changes? Observations?

Gross domestic income 19,515 100%
compensation 10350 53%
wages & salaries 8388 81%
supplements (social security contributions) 1962 19%
excise & import taxes less subsidies 1270 7%
net operating surplus ("profits") 4842 25%
net interest 805 17%
transfer payments (social security taxes) 153 3%
small business income* 1382 29%
rental income 747 15%
corporate profits less government business 1755 36%
taxes 476 27%
dividends 764 44%
retained earnings 527 30%
depreciation (“consumption of fixed capital”) 3052 16%

Of course we would like to know how things changed over time. I could for example look up the change in compensation of workers as a percent of GDP. For some questions, that is the proper metric. But we really want to know how we're doing, how compensation has changed over time. The graph I add uses "real" data, that is, corrected for price changes. We'll get to the nominal / real distinction on Friday.

Note that in the following graph I use a log scale. That's preferable when there's a growth trends and the magnitude changes a lot. If X is the level, then a 10% increase is X*(1+.10). If we take a log then that becomes log X + log 1.1. So the same vertical increment represents the same percentage increase, whether the level of pay is low or high. If we use a regular scale, then a modest vertical increment to pay in 1960s represents a large percentage increase, while the same vertical increment in 2017 represents a small one. In other words, we can't "eyeball" what is going on. Another takeaway: with a log scale, the slope of the line is the (percentage) rate of increase. Again, your eyes fail you with a regular scale, as the slope doesn't translate directly into the rate of change.

Short-cuts: each item, as with any accounting system, incorporates lots of detail about what is and isn’t measured. Here is one example. Small businesses that aren’t set up as formal corporations don’t pay their owners a salary. Instead, earnings are simply part of personal income, and included as one part of overall income on Federal Income Tax Form 1040 (Schedule F for farmers, Schedule C for other businesses). A hint as to the technical accounting aspects: the formal line item is “Proprietors’ income with inventory valuation and capital consumption adjustments.”

Nov 29, 2017

Here are the target upper limit for Federal funds,
and the realized interest rate, both on a daily basis. Rock steady. As you can see, other short-term rates track this closely. Of course most businesses need finance longer than a month or even three; no individual building a home cares [or should care – stay away from variable rate mortgages!] about anything other than a 20- or 30-year interest rate.

Compare this with the "monetarist" period during Paul Volcker's chairmanship of the Fed. Interest rates of course were high, but they were also volatile. See for yourself:

Fiscal Year The (Unadjusted) Deficit Cyclical Component Structural Deficit Change
1992 290 60 230 n/a
1993 255 47 208 -22
1994 203 15 188 -20
1995 193 -3 196 8
1996 94 -8 102 -94
1997 22 15 37 -65
1998 -69 47 -22 -59
1999 -126 86 -39 -17
2000 -236 137 -102 -63
2001 -128 39 -89 13
2002 158 85 73 162
2003 378 106 271 198
2004 413 61 351 80
2005 318 15 304 -47
2006 248 -24 272 -32
2007 161 -107 268 -4
2008 459 -41 500 232
2009 1413 283 1129 629
2010 1293 404 889 -240
2011 1300 399 900 11
2012 1087 363 724 -176
2013 680 344 335 -389
2014 483 308 176 -159
2015 438 241 342 166
2016 616 156 318 -24
2017 504 74 389 71
2018 454 24 455 74
2019 549 -6 523 68
2020 534 -10 564 41
2021 552 3 598 34
2022 660 -1 627 29
2023 677 0 634 7
2024 650 0 639 5
2025 741 0 687 48
2026 793 0 793 106

Note: The Fiscal Year begins October 1st. Thus FY1995 ends Sept 30, 1995. Data from Congressional Budget Office. Analytical Perspectives: Budget of the United States Government. Various years, 1995-2017.


Since 1992 to the autumn of 2008 right before the economic recession, the U.S. has "suffered" from an increasingly growing trade deficit where the U.S. is a net importer. The recession temporarily cut this trade deficit, but since the end of the recession in mid-2009 the deficit has once again grown. Part of President Trump's trade policy was a promise to "renegotiate" trade deals to the "benefit" of America, presumably implying that the U.S. should export more and import less.

With the recent depreciation of the dollar over the summer, it does seem as if U.S. exports will increase while imports (especially from Europe where the Euro has gone up) will decrease. However, it is also important to note that the U.S. trade deficit is not as bad as it looks in the first graph when the fact that the U.S. is a net exporter and the rise in GDP are taken into account. This is reflective of Levinson's point of the U.S. becoming a service-oriented economy rather than a labor-intensive manufacturing one. In this sense, it does not necessarily seem bad if the U.S. has a trade deficit, because importing things such as clothes allows us to specialize in what we do best (i.e. capital intensive work). Why did the trade deficit drop during the recession of 2008? Why are we a net exporter of services and can you think of some examples?

See: FRED 3 view of trade deficit and NYT Charts

Ayub Herman & Jack Johnson


WordPress added various functions over the summer, and I'm testing the ability to embed graphs here. Why cobalt prices? Cobalt is a critical part of electric vehicle batteries, as cathodes rely upon nickel-chrome oxide crystals of various compositions (eg, along with manganese). It is a potential game-stopper, because enough is used that chrome content affects the overall price of a car. There are other chemistries ... in the lab. However, the path from lab to cost-effective volume production is at a minimum 20 years, and then adding capacity to meet the potential size of the market can (in the automotive case) take an additional two decades.

Now this isn't macroeconomics, but it is certainly a good exemplar of the challenges of turning exciting technologies into commercial realities. That IS of macroeconomic significance. Indeed, in the US context productivity is potentially the single most important contributor to economic growth over the 40-plus years your working life.

This however is a statement that needs both a theoretical foundation – what underlies growth? – and am empirical foundation – what are the numbers in the US context, and can we usefully project them for the next 4 decades? Making predictions is challenging, the moreso if they are about the distant future. Be skeptical about claims that pin that down to a precise number; be thoughtful about whether we can put likely bounds on what will happen, e.g., can we achieve 3% growth?


If I understand correctly, both these graphs should update automatically – come back in a month to see whether they still reflects Aug 26th data, which for cobalt happened to be the then historic peak of $60,750 per (metric) ton.

I just sat through a webinar by Macmillan, here is a list of textbook options. The bookstore already has used copies at $150+ without any of the online add-ons. Look around, but buying one or another ebook and/or printable looseleaf version looks to be the least costly route. If so, there's no need to rush to buy the text in advance of the start of classes.

Macmillan Krugman & Wells Macro takes you to the textbook page and HERE jumps you to the Macmillan student bookstore page. They try to upsell, with various packages as per below. These packages do however appear to add value, unlike the add-ons I examined a few years back.

  • just the Looseleaf which gives you an eBook version that you can print, at 5¢ a page that's cheaper than buying the physical book, esp as the first few chapters are a review of Micro
  • the LaunchPad option includes an eBook. LaunchPad looks quite useful, consider adding it
  • the slightly more expensive FlipIt + Launchpad + Looseleaf Sheets adds videos and other pre-class material that is well done. not a costly upgrade
  • Sapling is a fairly sophisticated homework/quiz function. I think you can purchase after-the-fact, again, I'll update once I've checked with the bookstore as I don't want to mandate something after you've bought other components.

Amazon appears to be more expensive than any of the above options, and what they sell in general will not include access codes to LaunchPad / FlipIt / Sapling. However you may be able to find a used 3rd edition. I've not been able to find a Table of Contents online to confirm, but typically changes are modest (updated graphs, examples but no wholesale changes to content and order or presentation). If you find a ToC, email it to me and I'll confirm whether the old edition is adequate.