NBA PLAYOFFS AND HOW IT AFFECTS THE ECONOMY

It’s NBA Playoff season. I will be rooting for the LA Lakers, but all this basketball hype had me thinking a little about economics (hallelujah!). The NBA is all about business, so in turn, I thought how I posed the question how exactly it would affect the economy. I did a little research, and turns out, Playoff season has a huge impact on the economy, especially amidst the crisis we all are so sick of at this point in time.

I found an article about the Oklahoma City Thunders (a weak sauce team admittedly, but a team still worthy of the Playoffs). Their admittance into this tournament has an impact both on the local and national level. First off, the fact that the team is even in the NBA, let alone in the Playoffs, increases the image and reputation of Oklahoma City. Now that they are in the Playoffs, however, much planning and effort needs to be accommodated for. The Playoffs requires a lot of manpower, so it will in turn create a lot of jobs to support such an event. Employment levels will rise. However, the Playoffs season is also a season for creative jobs. The article states that “economists long have recognized that a city’s image has a profound effect on its economic development efforts. Innovative and creative workers are essential to any modern, vibrant economy. These workers though, are not equally disbursed throughout the country. Not surprisingly, creative people are attracted to communities that offer a creativity-friendly climate — a climate that supports world-class art, culture, education, and yes, even sports. In short, these creative people are attracted to those places that are (for lack of a better word) cool.” Tourism will also increase in effect, and will increase the demand to visit Oklahoma City. Now multiply this effect by 16, as there are 16 NBA playoff teams. The NBA Playoffs will create a ripple effect of job creation, innovation, and development/technology. Demand for Oklahoma City (OKC) can be depicted in Figure 1:

Demand shifts from D1 to D2, as Prices rise from P1 to P2 and quantity moves from Q1 to Q2. This overall creates an increase in the equilibrium point from E1 to E2.

As there is also an increase in demand, demand defficiency will not be as much a problem, and thus unemployment levels will see a decrease, shifting Aggregate demand from AD to AD2. More jobs will be created as a consequence of the OKC’s playoff run:

Aid

There are many ways to aid economically developing nations. Over the last few years, “aid has added around one percentage point to the annual growth rate of the bottom billion.” One percentage point has made the difference between “stagnation and severe cumulative decline.” Aid can make progress towards reducing poverty worldwide. I think the most effective way a country can develop, though it is controversial, is through private sectors– that is through the emergence of private firms in a developing country, even though there is a chance of exploitation. Not only does it create jobs, but individuals actually get paid, despite how low it may sound to us. The exchange of ideas and technology these new firms bring will also innovate the local area and will leave room for growth and technological advancements. Finally, if there is an abounding, flourishing ecosystem, more companies will enter the scene, allowing the country in the long run to economically develop. It will also diversify the different sectors of a nation, shifting the focus from an economy focused on one sector. Of course, there are also other ways of aid, like from NGO’s and ministries, but I think the entrance of private firms is the most effective way; there is also minimum room for government corruption. Aid is without criticism however: it is looked down upon as sometimes it is questioned where the money actually goes, especially in corrupt countries with irresponsible governments. Here are some tips by the Overseas Development Institute to combat corruption, should there be a case:

  1. Resist the pressure to spend aid rapidly.
  2. Continue to invest in audit capacity, beyond simple paper trails;
  3. Establish and verify the effectiveness of complaints mechanisms, paying close attention to local power structures, security and cultural factors hindering complaints;
  4. Clearly explain the processes during the targeting and registration stages, highlighting points such as the fact that people should not make payments to be included, photocopy and read aloud any lists prepared by leaders or committees.

 

Final Reflection

So much has happened in just the past year, many which are worthy to note and reflect upon. For one, I think that I need to brush up on my overall review of the sections, especially studying past paper assignments. I did poorly on my exam– I underachieved my full potential. Part of the reason I think is because I only memorized definitions and diagrams, instead of actually applying my knowledge through data responses and real life situations. I can definitely do better on my exam, and I hope to prove this come real exam time.

I am confident with sections 1, 2, and 3, though I have to improve on section 4 and some key diagrams from section 3 and 2, like the Phillips Curve. Definitions are also a weakness for me– while I know most of them by heart, a lot are unclear for me, like accelerator and multiplier. That being said, I am confident and am really excited about the exam! ._.

Blog Test Reflection Section 4

First, thanks Ms. Q for your time for taking a look at our responses.

Second, after reflection, I definitely need to re-take this quiz. I was unprepared for the questions and if I took a little more time studying. I learned that I have to be careful with my word choice and that I have to be more precise when explaining concepts like free trade. Also, when drawing diagrams, I have to incorporate the concept more with my explanation. My evaluation was sufficient, but again, greater detail and precision would allow me to score higher.

L-I-B-E-R-I-A

Liberia is indeed a very poor country. It has a very low GDP per capita– just $500 for the average person. Liberia also has a very high population growth: 2.782%. Unemployment is a staggering 85%, and finally, it has a large dependence on its agriculture sector (76.9%). Liberia clearly has some work to do.

Evaluate a government decision to adopt a floating exchange rate as opposed to a fixed exchange rate system.

A fixed exchange system is “an exchange rate system where one currency is fixed in value against another. It involves the government working to keep the parity via intervention on the currency markets. These give certainty but can cost vast sums of foreign exchange from national reserves.” Contrarily, a floating exchange rate system “is an exchange rate which accepts that market forces will determine rates based on how they view a country’s trade performance and its economic and political stability. These systems cost less to maintain but can result in vast swings and changes in currency values. This can seriously affect trade performance and confidence.”

Fixed exchange rates

A fixed exchange rate system is one where the value of the exchange rate is fixed to another currency. This means that the government have to intervene in the foreign exchange market to maintain the fixed rate. The equilibrium exchange rate may be either above or below the fixed rate. In Figure 1 below, the equilibrium is above the fixed rate. There is a shortage of the national currency at the fixed rate. This would normally force the equilibrium exchange rate upwards, but the rate is fixed and so cannot be allowed to move. To keep the exchange rate at the fixed rate the government will need to intervene. They will need to sell their own currency from their foreign exchange reserves and buy overseas currencies instead. This has the effect of shifting the supply curve to S2 and as a result, their foreign currency holdings will rise.

Figure 1 Fixed exchange rate – equilibrium above the fixed rate

In Figure 2, the opposite is true – the equilibrium rate is below the fixed rate. This means that there is a surplus of the national currency. The government will need to buy this surplus if they are to prevent the currency from falling – in other words keep it at the fixed rate. When they buy the currency they will be selling from their foreign currency reserves and so these will fall, but the demand for domestic currency will rise.

Floating exchange rates

Where the exchange rate is floating (as are all major currencies in the world), it will be determined by market forces – that is supply and demand. As in any other market, the rate will change constantly to reflect how much of the currency is being traded. However, what determines the supply and demand for the currency? Let’s take the Baht (the Thai currency) as an example and look at the factors that affect supply and demand and therefore the equilibrium exchange rate.

Demand for baht

The people who demand baht are those who have bought goods and services from Thailand and need to pay in baht. To do this they need to sell (supply) their currency and buy (demand) baht in exchange. So, the demand for baht is partly determined by the level of exports – the higher the level of exports, the higher the demand for baht. However, people may also demand baht simply because they want to invest in Thailand or because they are speculating to make a profit, as they believe that exchange rates will change. So the demand for sterling arises from:

  • Exports
  • Inflows of funds into Thailand
  • Speculation

Supply of baht

The supply of baht comes from people who are selling baht to buy other currencies. We all do that when we travel overseas – we sell baht and buy Euros, $, Yen or whatever. However, we, as tourists, are only a very small part of overall supply of baht. Much of it will come from firms who buy goods and services from overseas (imports), but there may also be outflows of funds and perhaps speculative flows as well. So, the supply of baht arises from:

  • Imports
  • Outflows of funds from Thailand
  • Speculation

Equilibrium in the market for baht will therefore look as in Figure 1 below.

Figure 1 Equilibrium in the foreign exchange market

If exports were to rise significantly, then this would cause an increase in demand for baht and would shift the demand curve to the right as shown in Figure 2. The exchange rate has appreciated from $0.25 to the baht to $0.35 to the baht. This could also be caused by an increase in Thai interest rates attracting higher demand for baht.

Figure 2 Appreciation in the exchange rate

If imports rose, this would shift the supply curve for baht as more baht would be sold to enable the importers to buy the required foreign exchange. This would shift the supply curve to the right as shown in Figure 3 below. This could also be caused by an outflow of funds due perhaps to a loss of confidence in baht.

Figure 3 A depreciation in the exchange rate

Governments can use exchange rates to affect economic performance. A rising exchange rate, which is often linked to an increase in base interest rates, leads to exports becoming more expensive but imports falling in price. This would reduce part of the inflationary pressure within an economy. A fall in the exchange rate would lead to the reverse and might help domestic businesses export more.

In evaluation, a floating exchange rate is a riskier, more open form of exchange system. It has more potential for growth and loss. On the other side, a fixed exchange rate is a more stable way to manage exchange rates, but there will never be room for growth (or loss). Advantages of the floating exchange system include:

1.Reduced need for currency reserves as reserve banks do not have to intervene in the currency markets to keep a fixed exchange rate.
2.Useful instrument of macroeconomic adjustment
3.Partial automatic correction for a trade deficit
4.Reduced risk of currency speculation on a currency that does not match fundamentals
5.Freedom (autonomy) for domestic monetary policy

The con, as mentioned before, is that because it is so open, there is no safety net, that at any moment the exchange rate can go crashing down. The fixed exchange rate is more stable, but I do not think it is the best system to work with, especially if a country needs to grow and develop.

Showcase

This is my showcase blog post. It was a summative test and I got a 95%. I am proud of my work because I sucessfully completed everything that the crieteria required– like a clear understanding of the demands of the questions, clearly explained relevant theories, defined terms, no errors, and diagrams. My evaluation was in-depth and was really detailed, covering all the parts.

 

My evaluation showcase was form my data response. The grade was even better but I thought the evaluation was even more in-depth. I am proud of my work.