Scot Wick Blog

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 28 of 36 Unemployment Section 2 of 21 … Losing a job can be a person’s most traumatic economic event. People rely on job earnings to maintain their standard of living and they get a feeling of personal accomplishment from work. Job loss creates lower current living standard, anxiety about the future, and reduced self-esteem. Politicians often speak about how their proposed policies will create jobs and higher wages. ... We have previously seen some of the determinants of level and growth of a country's living standard. A country that saves and invests a high fraction of its income has more rapid capital stock and GDP growth than a country that saves and invests less. One determinant of a country's standard of living is its rate of unemployment over time. People who want to work but cannot find a job are not contributing to the economy's output of goods ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 28 of 36 Unemployment Section 1 of 21 … Chapter 28 of 36 – Unemployment How Is Unemployment Measured? Labor-Force Participation of Men and Women In the U.S. Economy Does the Unemployment Rate Measure What We Want It To? How Long Are the Unemployed Without Work? There Are Always Some People Unemployed – Frictional Unemployment Public Policy and Job Search Unemployment Insurance Unemployment Policy At Home and Abroad Minimum-Wage Laws Who Earns the Minimum Wage? Unions and Collective Bargaining The Economics of Unions Are Unions Good Or Bad For the Economy? The Theory of Efficiency Wages Worker Health, Worker Turnover Worker Quality, Worker Effort Henry Ford and the Very Generous $5-A-Day Wage ... … measurement of unemployment shitsugyō no sokutei 失業の測定 … … Grok chapter 28 summary: The Bureau of Labor Statistics measures unemployment each month through the Curren...

  Recessions Are Good – Government Should Not Fight Them Mostly summarized from article Without Recessions, Americans Would Know Very Little Prosperity by John Tamny. When governments fight recessions, they end up stagnating the economy. The federal government’s constant experimenting with bad ideas for fixing the market economy is one strong argument for limiting size and power of the federal government. To fight recessions increased government spending including grand infrastructure building programs is extraction of limited resources from the market economy, meaning reduced product innovation and supply. … Unlike business speculations in the marketplace, government spending isn’t market disciplined at all. Bad ideas die a quick death in the free market. Government-funded initiatives can be bad from the beginning and last many lifetimes. Recessions, although painful in the short term, are needed and healthy. They are a necessary cure so economies can expand. They lead to econom...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 27 of 36 Basic Tools of Finance Section 12 of 12 … Chapter 27 Conclusion. Here we have considered some of the basic tools people use when making financial decisions. The concepts of present and future value tells us a dollar in the future is less valuable than a dollar today. The theory of risk management tells us since the future is uncertain risk-averse people can take actions to protect against uncertainty such as buying insurance. The concept of asset valuation tells us any company’s stock price reflects both its present profitability and future profitability expectations. The efficient markets hypothesis tells us prices of all stocks in the stock market reflect all available value information, so even a skilled trader cannot beat the market unless lucky. Stock market fluctuations move in conjunction with fluctuations in the broad economy. Sudden large stoc...

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 27 of 36 Basic Tools of Finance Section 11 of 13 … How does Warren Buffett’s Berkshire Hathaway beat the market? CGPT: Berkshire Hathaway has historically been able to beat the market due to several factors: 1-Long-term investment horizon Berkshire Hathaway is known for taking a long-term approach to investing. Warren Buffett has famously said his favorite holding period is "forever." By holding on to investments for the long term, Berkshire Hathaway can ride out short-term fluctuations in the market and capitalize on the long-term growth potential of the companies it invests in. 2-Focus on high-quality companies Berkshire Hathaway invests in high-quality companies with strong fundamentals, competitive advantages, and attractive growth prospects. This allows the company to benefit from the growth of these companies over the long term. 3-Value investing Berk...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 27 of 36 Basic Tools of Finance Section 10 of 14 … One way to choose twenty stocks for your portfolio is to pick them randomly. There is a reason random choices won't give you a bad result. The reason is the efficient markets hypothesis. … The first aspect of the efficient markets hypothesis is each company on a major stock exchange is closely followed by many money managers, who use sophisticated computer programs. These money managers constantly monitor news and update fundamental analysis to determine each company’s stock value. Their job is to buy what they evaluate to be undervalued stock and sell overvalued stock. … The second aspect of the efficient markets hypothesis is the equilibrium of supply and demand sets the market price. The number of any company’s shares at any time offered for sale equals the number of shares people want to buy. At a stock’s ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 27 of 36 Basic Tools of Finance Section 9 of 15 ... Figure 3 – The Trade-off between Risk and Return When people increase the percentage of their savings invested in stocks they increase the average return they can expect but they also increase their short-run risks. … Here we consider three aspects of risk aversion 1· insurance markets 2· diversification 3· risk-return trade-off … 3-Risk-return trade-off In financial decisions, the most relevant trade-off is between risk and return. There are short-run risks inherent in holding stocks, even when the portfolio is diversified. Risk-averse people are willing to accept these risks because they are compensated in the long-run for taking them. Over long periods of time stocks have given much higher return rates than other financial assets, including bonds and bank certificates of deposit. Over the past two hundred y...

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 27 of 36 Basic Tools of Finance Section 8 of 15 … Figure 2 – Diversification Reduces Risk This figure shows how the risk of a portfolio depends on the number of stocks in the investor’s portfolio. The investor is assumed to own equal percentage of each stock. Increasing the number of different company stocks owned reduces stock portfolio risk. … Here we consider three aspects of risk aversion. 1· insurance markets 2· diversification 3· risk-return trade-off ... 2-Diversification Enron, a large and respected company, in 2002 went bankrupt amid accusations of accounting fraud. Several company top executives were prosecuted and sent to prison. Thousands of Enron employees lost their jobs and many lost their entire life savings. The employees typically had two-thirds of their retirement fund invested in Enron stock, which became worthless. … A person who buys stock in a ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 9 The Real Economy in the Long Run Chapter 27 of 36 Basic Tools of Finance Section 7 of 16 … Here we consider three aspects of risk aversion 1· insurance markets 2· diversification 3· risk-return trade-off … 1-Insurance markets One way we deal with risk is to buy insurance. The general feature of an insurance contract is a person facing a risk pays an amount of money to an insurance company which then agrees to accept all or part of the person’s risk. Every insurance contract in a sense is a gamble. It is possible you won’t be in an auto accident, your house won’t burn down, and you won’t need expensive medical treatment. To have a profitable business, the insurance company is counting on most people will not make claims on their policies. … From the viewpoint of the overall economy the role of insurance is to spread risks around. Having fire insurance does not reduce the risk of losing your home in a f...