The Connecting With Macro Journal Assignment

Why study economics?  John Maynard Keynes once explained:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

There are two required “discussion forums” that students must use in this class.  Both of them are located in the school’s LMS (Desire2Learn at LCC), but I’m posting the prompt or explanation of one them here because it’s lengthy.  One of the forums is a simple, straightforward, “Introduce Yourself” forum in Unit 1. Any online student is likely very familiar with the exercise.  It’s purpose is to let you and your fellow students get to know each other a little so that discussion is possible and it feels less lonely.

The other assignment, what I’m calling the “Connecting With Macro Journal” assignment or forum, is what I want to discuss here.

The Where and When

In this assignment, you’ll use a D2L forum called “Connecting with Macro Journal” forum.  You’ll be asked to create a new thread (make a post) in this forum in Unit 1.  As soon as you create and post to your own thread, you’ll be able to see others’ threads and reply to them if you’re interested. However, the main purpose of your thread is for your own replies later in the course. Later in the course, you’ll be asked to post replies to your own thread. As a result, by the end of the course, you’ll have a kind of lightweight “journal” of your learning, thoughts on economics, reactions, etc.

How many replies and how often?  That’s partly up to you.  The minimum that I expect/ask for is 7 posts which will mean 35 points total. Please note that have a few reminders in the D2L Content tabs to post, but if you wait for just the reminders, you’ll be short a post or two.

      • Opening post in Unit 1 during the first week
      • Two final postings in Unit 15 at the end of the course.
      • That’s 3 posts, one at the start and two at the end.  That leaves at least four others. Spread them out.  I have reminders in the suggested schedule and content areas, but you can post anytime.

You are welcome and encouraged to post more often than these 7 replies to the original post. This is just the expected minimum.

What to Say

I’m looking for you to reflect on your own learning and your own relationship to the ideas in macroeconomics. It’s what the education and pedagogy gurus call “meta-cognition”.

Opening Post

So in the opening Unit 1 post, I want you to think about what topics or information or ideas you expect will be explored in macroeconomics. Then identify one or a few ideas that you feel are important to you or might be important to you in your future.  I realize you don’t that much about macro yet. You’re just starting. Think about why something(s) in this course might be personally important to you. Tell us about that to the degree you feel comfortable.

For example, suppose you’re hoping to buy your first house in few years. You might be interested in how interest rates get determined.  Or you might have reasons to be particularly interested in employment or unemployment trends. Or maybe you’re concerned about tariffs. Or maybe you’ve heard a recession is coming and you’re not sure what that means.  Maybe there’s an economic term or measure you’ve heard used in the news or by your boss and you’re not sure what it really means. Whatever. We’re not judging here.  You can list or speculate on multiple things.

The point of the exercise is help you identify a reason why the course is important and valuable to you. That helps you learn and structure the information as you learn it. Lots of good learning things happen from this kind of “meta-cognition”.   I’ve always found that some students start macro (even more than micro) with a sense of “it’s just a box to check, it’s meaningless to my life, I’ll never be an economic policy advisor or an economist”.  But the reality is that understanding how the macroeconomy works is a very valuable life skill. It’s helpful no matter what profession you enter. Truth is, you’re in the economy and it affects you, your family, and your career whether you pay attention or not. It’s better to be aware of how it works. It also helps you sort out all kinds of nonsense political claims and nonsense in the news.

The Replies throughout the Course

The replies are simply times for you to reflect on what you’re currently learning in the course and relate it to what you’ve said already in your thread. It might be that you learn something specific to answer what you posted about (yay! if/when that happens). It might be you come to discover some other thing that’s important to your life/insight and you hadn’t realized that before.  It might also be an insight into how you’re learning or what you’re struggling with.  You might discover a news article/story and relate it to what we’re studying.  I don’t care what you reflect and say, only that you think about it and say something.

The Final Two Posts (Unit 15)

One of those should be about what you’ve learned since the previous post. The other should be a broader reflection on the whole course, including, if you wish, feedback on course design and possible improvements.  Or, you could post a final reflection in the form of “advice you’d give to next semester’s incoming students”.

When you get to the end of the course, I’m interested in a kind of summary reflection about what you learned. Did you figure out what you wanted to?  What else did you learn? What was most intriguing/memorable/important to you?  What helped you learn it?  Do you have any conclusions?  Again, doing it is what’s important. I’m not judging what you say. I’m recording that you said it.

 

Unit 11 Closer Look- alternate

In-class Slides (Powerpoint):  Unit11.f2fslides.2013

Tutorials on Money and Banking:

NOTE:  There is a typo on slide 22 of the Money and Banking Tutorial.  The headline on slide 22 says “Reserves increase but M1 stays unchanged”.  It should read “both reserves and M1 stay unchanged”.

Finding Your Way Around a Bank Balance Sheet – the Basics:

A balance sheet is an accounting statement that businesses (or individuals) use to show their financial status at a particular point in time.  Balance sheets represent what economists call “stock” data: information about what the firm owns and owes. We are going to look at what a bank owns and owes. We typically represent simple balance sheets using a “T-account” format that looks something like this:

Example Balance Sheet
Assets Liabilities
 Reserves  Deposits
 Securities Owned  Securities Issued
 Loans  Net Capital
 Other & Fixed Assets

The reason we use this two-column “T-account” format is because of the first rule of balance sheets. The two sides must “balance” or equal each other. On the left side we list everything the bank owns and owes.  What the bank owns are called assets. On the right side, we list what the bank owes to other people or entities. The difference between total assets and total liabilities tells us the amount by which the bank owns more than it owes. This is referred to as the bank’s net worth or net capital.  Net capital is the value that the shareholders of the bank would get if the bank were totally liquidated, assets sold and debts paid today.  Net capital reflects the current investment the shareholders have in the bank.  Total assets (total of left side) must always equal total right side (total liabilities and net capital).

In the balance sheet above, we have listed four types of assets, two liabilities, and net capital. We have listed these types of accounts on each side in decreasing order of liquidity. In other words, the items at the top of the list, Reserves and Deposits, are highly liquid, meaning they can be easily converted into cash payments.  Looking only at assets, we see that the least liquid assets are “fixed assets”, things like buildings, furniture, and computers.  Things that are very difficult to sell or convert into cash on short notice.

That leaves two types of assets in the middle of the list: securities owned and loans.  In a sense, both of these items are a form of “loan” where the bank has loaned money to somebody else, is entitled to repayment at some point, and expects to get paid interest on top of the repayment.  For a bank, though, the critical difference is profits vs. liquidity.  Generally, loans will have a much higher interest rate earning the bank more profits. But loans are things like home mortgages, car loans, business loans, construction loans, student loans, and credit cards. But loans tend to be riskier and definitely less liquid.  That’s why banks also hold securities.  This is a term that refers to buying and owning government bonds, bonds issued by other banks or corporations, derivatives, and short-term loan agreements with other banks (called re-po’s). Securities are considered safer than loans but pay less in interest.  However, securities are more liquid.  They aren’t as liquid as having cash sitting in your vault or on deposit at The Fed, but securities are generally traded in a wide-spread public market meaning they can be sold anytime the bank wants and converted into cash.

Securities also show up on the liabilities side of the balance sheet, but these securities are bonds this bank has issued, re-po’s, or borrowings from The Fed.  Securities on the liability side represent money this bank has borrowed from others.  Securities on the liability side do represent money that the bank has borrowed and usually on short-terms, meaning the bank must pay it back in a short period of time.  The typical large bank borrows significantly using securities and then pays them off by re-issuing new securities, a process called rolling-over the debt.

In September 2008 when most large Wall Street banks ran into difficulties, it was because fear about which banks were healthy and which ones weren’t caused banks and investors to demand repayment of these bank-issued securities without re-investing in new securities. This caused a drain on bank reserves and threatened to topple most banks.

Understanding Reserves

Bank reserves are the monies available to pay a depositor when a depositor wants to withdraw money from their account.  Think of a bank as having “total reserves” – the money available instantly to pay for a withdrawal or to pay for a check when presented to the bank.  We can divide these “total reserves” into two categories according to where the funds are physically being held:

  • Cash – also called vault cash or cash-on-hand, means the money physically present in the bank, in the vault or in the cashiers’ drawers, or in the ATM’s.
  • Deposits at The Fed – all banks are required to hold deposit accounts at The Federal Reserve Bank.  This is money the bank puts on deposit at The Fed.  Think of The Fed as the bank’s banker.  When cash is too much to safely or conveniently hold in the vault, the bank makes a deposit at The Fed. The Fed uses these accounts to clear checks between banks and the money is instantly available electronically.
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