T HE P ENNSYLVANIA S TATE U NIVERSITY E CONOMICS A SSOCIATION P RESENTS :

T HE O PTIMAL B UNDLE
S PRING 2014:
WEEK OF

F EBRUARY 13 TH

E DITOR : C OLE LENNON P RINT EDUCATION COORDINATOR C ONTRIBUTORS : L EAH G ALAMBA , J OE K EARNS , C OLE L ENNON , R YAN S OSNADER , E LEANOR T SAI

Upcoming Events: General Body Meeting: 2/13

Fed Semi-Annual Testimony: 2/13

Psuea.org EA Homepage Psuea.org/blog Education Blog

INFLATION EXPECTATIONS AND JAPAN

Expectations of inflation are what firms and workers think inflation will be in the future, and these predictions greatly affect business investment and consumer consumption. Central banks help set inflationary expectations, often announcing a goal of 2% inflation through quantitative easing. Quantitative easing, or QE, is monetary policy involving a combination of bond-buying, lowering interest rates, and setting inflationary expectations. If inflationary expectations exceed inflation through QE, expected inflation will increase, firms will adjust their payrolls, and consumers will spend more to compensate for additional inflation later. Economists Steve Williamson and Iza Kaminska claim that QE is deflationary due to falling liquidity premiums on government debt. Japan's first QE program is cited as proof; it failed to reach an inflation target of 2%. This claim misses the importance of expectations. Japan's current QE is guiding inflation by changing inflationary expectations, showing that raising expectations is a good policy that raises inflation to a 2% target. Japan's first QE program failed to increase inflation because expectations were that the Bank of Japan would stop the quantitative easing program before reaching 2% inflation. Japan has had harmful deflation or low inflation for decades, but the BOJs newest round of QE is changing that. Japan's current third QE program is producing mild inflation, and inflationary expectations are greatly exceeding historical averages from the past decade. This change in expectations makes this round of QE a success, as rising inflationary expectations successfully raised inflation in Japan. No central bank should ever discount the importance of expectations.CL

You can take those expectations right to the bank.

Hearing the rumblings of inflation.

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O LYMPIC AND E CONOMIC P ERFOMANCE

The Winter Olympics not only put each countries athletes to the test, but also their economies. Studies show that the number of medals a country takes home from the Winter Olympics correlates with GDP growth, meaning athletes rarely win until their country has undergone certain economic development. A case-in-point: Japan earned its first medal in 1956, during its post-World War II economic recovery. Its medal count increased with consumption in the 1980s, and now the powerhouse exhibits consistent performance at the Winter Olympics. Keep watching this years Games; the results may as much about economics as sports.ET
Check out the article: read.bi/1kwmfcy

U-S-A, U-S-A.

W AGES ON THE H OMEFRONT

A new study found that approximately 21 million Americans are now relying on low-wage jobs as their sole source of income. The study is different than previous ones conducted on this matter, as it excludes teenagers and spouses who work low-wage jobs to supplement their parents or partners income. Over the past 30 years the amount of people living in low-wage households has increased 94% and now makes up around 14% of all workers in the country. The majority of these people are single individuals living alone or with adult relatives, showing that workers are struggling to leave one house and afford one of their own. LG
Check out the Article: cnnmon.ie/1eSq4VJ

Low-wage income isnt exactly what theyd hoped for.

T HE U PS AND D OWNS OF R ECENT O IL P RICES

The price of crude oil increased by more than $2 last Friday, a result of the sharp increase in demand due to cold weather across the U.S. Natural gas has become increasingly expensive, so utilities are opting for fuel oil to generate electricity. Another contributor to this price increase is the limited supply of oil in international markets. Britains biggest oilfield, Buzzard, is undergoing nine weeks of maintenance. Other European oil refiners are cutting capacity to maximize profits. Additionally, the negotiations between the IAEA and Iran have influenced the market. Ongoing sanctions have cut Iranian oil supply in half over two years, putting more upward pressure on oil prices worldwide.JK
Getting down to business.

Check out the Article: bit.ly/1eiNWNK