Business New Analysis
Article One: Rents lift U.S. core inflation; weekly jobless claims rise slightly
https://business.financialpost.com/pmn/business-pmn/rents-lift-u-s-core-inflation-weekly-jobless-claims-rise-slightly
Summary
The article was published on Feb 13th, 2020 on Financial Post by Lucia Mutikani. This article talks about recently changing claims for unemployment benefits which consumer price index raising. The interest rates remain steady.
Concepts
– Chapter 2 – Economic Environment: The Fundamental Connection
Unemployment (Althouse et al, 2017, p. 46)
Inflation (Althouse et al, 2017, p. 46)
Interest rates – monetary policy (Althouse et al, 2017, p. 48)
Consumer price index (Althouse et al, 2017, p. 47) – consumer spending
Personal Reflection:
Consumer price index (CPI) is “an index of the prices of a shopping basket of goods and services purchased by consumers” (Althouse et al, 2017, p. 47). CPI is the most widely used indicated for inflation which means “the situation in which the average of all price of goods and service is rising” (Althouse et al, 2017, p. 46). The CPI in Canada is used for variety of purposes including adjusting wages or payments in order to maintain purchasing power in the environment of changing consumer prices for example, pension payments and tax brackets are adjusted based on CPI. CPI is also used by government and business as a tool to evaluate the performance of the economy and to help guide the formation of fiscal and monetary policy. Based on the article, there was an increase in CPI of 0.2423% last month (January 2020). Due to this, signs of increase in inflation with the start of the new year as airline tickets, healthcare, recreation and education prices increased as stated in the article. From the base year of January 2019 to January 2020, the CPI increased 2.3% in the U.S which is a moderate amount of inflation. The average inflation rate in Canada is approximately 2.24%. Too much inflation is when inflation rates are greater than 5%, at this point, firms and households will rush to spend their money now before its value is eroded by higher prices. Also, at high inflation, it is expecting that the economy has full employment which is impossible for any country in reality as people are moving between jobs. Thus, the purchasing power decreases as people cannot afford the same goods and services anymore as they used to be able to afford. The race to spend money during this time causes demand-pull inflation, reducing real incomes and contributing to instability across the economy. High inflation can lead to lower real incomes, lower real interest rates for savers and reduced international competitiveness. Furthermore, I think that due to Coronavirus outbreak, Chinese economy is going to be taking a big hit in their economy. Alongside, the coronavirus “hurt investor sentiment” (Mutikani, 2020) which resulted in decrease in stock trade on Wall Street as per the article.
Article Two: U.S. raises tariffs on European aircraft in ongoing dispute over subsidies
https://www.theguardian.pe.ca/business/reuters/us-raises-tariffs-on-european-aircraft-in-ongoing-dispute-over-subsidies-411582/
Summary
This article was published Feb 15th, 2020 on The Guardian by Andrea Shalal. The U.S. increase tariffs on imported goods on European notwithstanding a 16 years old argument over subsidies.
Concepts
– Chapter 5 – International Environment: The Global Marketplace
o trade (Althouse et al, 2017, p. 112) – import
o protectionism (Althouse et al, 2017, p. 115) – tariffs
o subsidies
o trade war
Personal Reflection:
Tariff is a type of protectionism which means “the policy of protecting home industries from outside competition by establishing artificial barriers” (Althouse et al, 2017, p. 115). Tariff is “a tax imposed on imported goods” (Althouse et al, 2017, p. 126), service or resources. In the article, U.S. increases tariffs from 10% to 15% on aircraft imported goods for European Union and currently there is already 25% tariffs on “cheese, wine and other non-aircraft products from the EU” (Shalal & Brice, 2020), as per the article. This type of tariff is called protective tariffs, tariffs “that are imposed to make imported less attractive to buyers than domestic products” (Althouse et al, 2017, p. 126). A tariff increases the cost of imported goods for the U.S. citizens, reducing the EU’s supply and causing the price paid by domestic (U.S.) consumers to rise. Therefore, the domestic quantity supplied is greater than it would be without the tariff. Additionally, tariff could be beneficial for the US federal government as they would raise revenue which could go towards providing public goods. Moreover, the tariffs could be problematic in the long run because “the U.S. flying public – ultimately have to pay these tariffs” (Shalal & Brice, 2020) which means consumers suffer from higher prices and it could hurt many companies as they have to pay more for imported raw materials like the Wine & Spirits Wholesalers of America (WSWA) as they import wine and spirits from EU. Furthermore, tariffs lead to a misallocation of society’s resources and ultimately reduce total welfare because too much of the protected good will be produced domestically, not enough by relatively efficient foreign producers like EU. I feel like this may affect the relationship between the U.S. and EU as “more than $1 trillion U.S.-EU trade relationship, raising the specter of another major trade war as the global economy slows” (Shalal & Brice, 2020). The European Union could retaliate with their own protection, result in even worse resource allocation. In the article, the European planemaker Airbus shows the signs of this trade war as Airbus mentions “given the threat of EU tariffs on U.S. products in its own case” (Shalal & Brice, 2020). In my opinion, as there is currently a dispute over subsidies it is best to resolve the conflict before it worsens the relationship between the two major counties in the world.
Article Three: German economy barely grows at end of 2019
https://www.bbc.com/news/business-51503542
Summary:
This article was published on Feb 14th, 2020 on BBC News by Andrew Walker. The article talks about German economy in the ending of 2019. There was no change in the Gross Domestic Product (GDP) of in the last quarter for the German economy.
Concepts:
– Chapter 2 – Economic Environment: The Fundamental Connection
o Gross Domestic Product (Althouse et al, 2017, p. 44)
o Economic Growth (Althouse et al, 2017, p. 44)
o Unemployment (Althouse et al, 2017, p. 46)
o Export (Althouse et al, 2017, p. 111)
Personal Reflection:
Gross domestic product (GDP) is “the total market value of all final goods and services produced within a nation’s borders in a year” (Althouse et al, 2017, p. 44). I feel like a lot of the times people mistake in what is GDP made of, GDP is the value of what has been produced not what was actually sold and it only includes final goods not raw materials. GDP also excludes second-hand sales and financial transactions. As per the textbook, it is measure quarterly which help evaluate a country’s economy and identify weather economy is growing. In high school, I took economics and I learned about microeconomics, macroeconomics and a little bit of international economics. In that class, I learned that GDP is made of four components; consumption, investments, government spending and net exports, it is also commonly known as aggregate demand. Additionally, GDP is a really good measure of economic growth which means “an increase in a nation’s output of goods and services” (Althouse et al, 2017, p. 44), economic growth is measured using the real GDP which is adjusted for inflation or price change from the base year. Also, government can place economic policies like expansionary fiscal or monetary policy to increase economic growth. Furthermore, the article mentions that Germany highly depends on overseas exports and the fact that from 2018 to 2019, the GDP only increase by 0.4% which is very little growth. The German’s economy was stagnant from the previous quarter. This is very shocking because Germany “is the third-largest exporter of goods after the United States and China” (Walker, 2020). And as we can analyze that export is a component of GDP, increase in exports which will increase net exports and GDP is the sum of all for components, thus GDP increases. Moreover, “both [U.S. and China] are important markets for German industry, any damage they inflict on one another can affect sales of German goods” (Walker, 2020). Lately, we see in the news that the relationship between U.S. and China are not looking too good which is going to have impact on German economy as per the article. Germany is a leading manufacturer of cars, but I feel like over the last couple of years it is very slowly dying off as people are moving slowly towards electric cars. And this could be the result of the stagnant growth of Germany. Nonetheless, Germany’s weak economy could be problematic for eurozone because it is the area’s largest economy but “Germany has one of the lowest unemployment rates in the world” (Walker, 2020). So, I think Germany should implement one of the two government policy; expansionary fascial policy or expansionary monetary policy, this will give boost to the German’s economy.
Works Cited
Mutikani, L., & Reuters. (2020, February 13). Rents lift U.S. core inflation; weekly jobless claims rise slightly. Retrieved from https://business.financialpost.com/pmn/business-pmn/rents-lift-u-s-core-inflation-weekly-jobless-claims-rise-slightly
Shalal, A., & Brice, M. (2020, February 15). U.S. raises tariffs on European aircraft in ongoing dispute over subsidies: The Guardian. Retrieved from https://www.theguardian.pe.ca/business/reuters/us-raises-tariffs-on-european-aircraft-in-ongoing-dispute-over-subsidies-411582/
Walker, A. (2020, February 14). German economy barely grows at end of 2019. Retrieved from https://www.bbc.com/news/business-51503542
Althouse, N. R., Allan, L. A., & Hartt, C. M. (2017). The Future of Business (5th ed.). Toronto: Nelson Education Ltd.