Naked Economics Essay Example for Free

Naked Economics Essay Baumbach AP Macro Response Paper â€Å"Making money takes time, so when we shop, were really spending time. The real cost of living isnt measured in dollars and cents but in the hours and minutes we must work to live (5). † After reading this sentence, I felt a little confused about what the author meant in this sentence. However, after reading the inflation example about stockings and cell phones, I truly do understand and agree with this quote. As the author explains, just because the price goes up, doesn’t mean that the cost of living has gone up. By factoring in wages people make per hour and comparing that with the price of an item such as stockings or cell phones, the cost of living can in fact be lower than it once was. It all depends on how much time of work is needed to acquire the item desired. Using this method, as the author elaborates, is really how we determine if the cost of an item costs more than it once did. Along with the importance of cost of living, the Real GDP and Real GDP per capita also play an important role in our economic growth. While talking about GDP, the author states the feelings of Americans by stating â€Å"Indeed, if we all believe the economy is likely to get worse, then it will get worse. And if we all believe it will get better, then it will get better (12). † I believe what the author means by this is that we decide whether the economy goes up or down based upon how we feel as a society about spending. The more we spend, the greater real GDP becomes which allows more investments to occur. Because this happens, our economy will continue to expand and do well leading to a respectful amount of inflation along with that. On the other side, when we feel that the economy is likely to become worse, we cut back on spending causing real GDP to go down allowing businesses to invest less forcing them to lay off people (greater unemployment) leading to a worse economy. It’s a continuous cycle; the people determine how the economy performs based on how much consumption, investing, government spending, and net exports occur. Furthermore, the after the national financial crisis of 2008 occurred, President Obama passed a stimulus in 2009, hoping that we could pull ourselves out of the recession. Even though the post-effect wasn’t extremely positive due to speculation of the economy, I thought President Obama did the right thing to pass the Stimulus. As the author says, â€Å"A bad stimulus is better than no stimulus, and a bad stimulus is what we got (18). † Instead of letting Americans live in chaos and fear for many more years, Obama decided to act with a fairly responsive stimulus. Of course, the stimulus wasn’t as effective as many hoped for, but it was a step in the right direction. As a result, the stimulus did little effect on the economy, but I believe that it had a large effect on American morale. The stimulus provided 2 to 3 percent GDP growth and provided millions of jobs to Americans which is perhaps some of the best news many received in the past two years. Even though Americans may have spent or invested in the short spurt of the stimulus, it allowed Americans to become more confident with their spending and investing instead of saving it all again. In addition, the author talks about borrowing and how economists view the budget differently than accountants. Economists seem to be more fluctuating about the amount of spending we do as long as we pay it back while accountants are all about balancing the budget. Based on that being said, the author proclaims that â€Å"As a nation, we are consuming more than we are producing, and we have to pay for the difference somehow (23). I believe this to be a bad thing because there have been no positive signs of our debt becoming any smaller which can cause economic destruction in the future. The author contradicts his previous quote by stating â€Å"countries that have gotten themselves into financial trouble are usually running large current account deficits (24). † I feel that we are one of those countries that have maintained a large current account deficit. If we continue to spend more than we are producing, then it is inevitable that the American economy will collapse.