Kent Patton

ECON 2020
Professor Davis
December 8, 2015
Macroeconomics Concepts Reflection
Introduction:
The article I chose to for my Macroeconomics reflection is titled Private
payrolls up 217K in November vs 190K est: ADP and was written by Jeff Cox
from CNBC News on December 2, 2015. This article relates to a growing
economy and how the government intercedes in order to control any
deflation that may occur. As individuals in a growing economy gain more
wealth, the government must jumps in to control the value of the dollar.
There is also a connected article linked to the aforementioned titled Private
Evans Favors later Fed hike, sees 2.5percent 2016 growth written by Jacob
Pramuk also from CNBC News on December 1, 2015 which discusses
Chicago Federal Reserve President Charles Evens' thoughts on the interest
increases in the growing economy.

Article Summary:
I found this article very intriguing and relates directly to several chapters in the Pearson
text. Private sector jobs in the month of November 2015 increased by 217,000 which is nearly

30,000 more than expected by Wall Street. The amount of jobs created in November was one of
the fourth highest in the past 12 months. Service producing jobs accounted for 204,000 of the
jobs included and goods producing accounted for the additional 13,000 jobs. There are parts of
the economy that have not been quite as strong such as the manufacturing industry which is
currently at its lowest level since the recession in 2009 and continues to have quarterly declines.
Despite what is showing for the manufacturing industry, the Federal Reserve is prepared
to raise the interest rates for the first time since 2006 due to the jobs and cash flow increase. The
majority of these jobs created were in small businesses with less than 50 people. The Federal
Reserve is prepared to raise the interests rates in as early as two weeks, December 15 or 16. As
mentioned in the introduction, the second article by Jacob Pramuk discusses the thoughts of
Charles Evans on the upcoming interest increases. Evans believes that the economy will grow
2.5 percent in the upcoming year and that an interest increase is necessary in order to control
inflation.

Interpretation:
As we have learned over the past semester, the Federal Reserve attempts to control
inflation and deflation. As the people within the economy begin to gain more money, the Federal
Reserve steps in to make sure that the access to wealth is controlled. The Federal Reserve uses a
forecasted "Gross Domestic Product" (GDP) amount so they are able to determine whether
money needs to be pumped into the economy or drained from the economy. It is important to
note that the Federal Reserve is a separate entity from the government although they control the
monetary system in the United States.

In the case of the article referenced, the Federal Reserve has determined (or will
determine shortly) that the growth of the economy has finally increased enough that the interest
rates must now increase in order to control (decrease) inflation. When there are higher interest
rates in effect, there is less money for the citizens in the economy to access which will control
spending within that economy. Spending within the economy has been increasing with the
astounding number of job creations especially in the month of November this year. This means
that it appears that the economy will exceed the estimated GDP and must be capped. The article
states that the Federal Reserve estimates and attempts to reach a 2 percent inflation per year,
therefore, if the GDP is dramatically over-reached, the economy would not reach that 2 percent
inflation which is why it would be completely necessary to decrease the amount of spending in
the economy.
For the opposite effect, If the economy is struggling and the GDP does not look like it
will be reached, government will increase tax breaks or make access to wealth easier so people
will spend more in order to reach the projected GDP. When there is access to wealth, businesses
can more easily expand and new business can be created. As a result, more jobs, more money,
more wealth, etc. When the people have access to the wealth for a long enough amount of time,
inflation begins to increase again and the government will remove these aids to wealth and in this
case, increase the interests rates.
Local banks and lenders usually will not increase rates on their own until the Federal
Reserve makes the first move. Once interest rates increase, it causes a decrease in
complementary products. For example: If interest rates increase on housing loans, less people
will be interested in home loans, causing a price decrease in materials and supplies. While

deflation is occurring in the economy in general, during these periods of time, the value of the
dollar can be stronger in small areas like building supplies in my example.
John Keyens believed it to be completely necessary for government intervention. His
idea was that the economy must be controlled. Much like I have mentioned earlier, his belief
was that if there is not enough spending, the government must use their resources, in this case the
Federal Reserve, to must make adjustments to help the public spend as well as the opposite if the
public is spending too much. They Keynesian model is how the government works in today's
society which vastly differs from the "Invisible hand" theory of Adam Smith. Smith Believed
that the economy will regulate itself. When a business fails to produce or compete, it will die and
a new business will replace it. As prices go down, people will spend, causing prices to slowly
rise again. Once prices get to a certain level, spending will slow down and prices will again
begin to decrease. Government, as demonstrated by bailout and so forth, are very afraid to
consider a true free market an option.

Application and Conclusion:

Interestingly enough, this article relates directly to my situation. I have been considering
buying a home over the past several month. I have not yet found a home that I am interested in
closing on, but if the interest rates do increase, I may not be buying a home at all. Even very
small increases in an interest rate over a 30 year loan can be very expensive and I am sure will
detract many people from purchasing homes in the near future. With this in mind, eventually
supplies and building materials will decrease since less homes will be built and will turn back

around an possibly be able to build a better home at a reduced price. Fluctuation like this will
continue forever as long as the government continues to intervene.
As mentioned in the article, the Federal Reserve aims for a 2 percent inflation per year.
That means that if my employer does not increase my pay by 2 percent or more each year, my
real wage would continue to be less and less. Real wage refers to wages adjusted for inflation.
Personally, I work for a company that does give at minimum 2 percent increases per year if we
have average-or-better reviews. I think for the most part, we as citizens do not especially realize
inflation. I know that in my personally life, I notice it very minimally. I remember just a year
and a half ago, I would buy cans of tuna for 69 cents each. They have since increase to 72 cents
in the same store. This means that cans of tuna have inflated by over 4 percent over the past year
and a half. On the other hand, I can remember buying chicken breast for about $1.99 per pound
over the past several years. So I guess with these two items alone, the inflation rate would be at
about 2 percent. These are only a couple of items I can think of, but I inflation happens all over
the place. Some items will continue to increase, while other stay stagnant, which will always
average to about 2 percent inflation.
I would personally be interested in seeing the results of an actual free market with no
government intervention. It would be interesting to see what happens to the economy if we let
big business fail instead of offering bailouts. I believe that the invisible hand theory is very
prominent in today's economy even with government intervention and it keep companies
competitive and prices fairly stable. Between bailouts and stimulus packages, the government
continues to get deeper in debt. If we did not use the Keyensian model, the government possibly
may be in a better economic position with substantially less debt.