USA: +1(669)289-8683 
Sign in
I have attached everything to this post. Instructions are inside the word documents.
1. For each of the following, explain whether it shifts the short-run aggregate supply curve, the long-run aggregate supply curve, or the aggregate demand curve (or more than one of these).
a. Households decide to save a smaller share of their disposable income.
b. There is an 8-week strike in the steel industry.
c. A drought in the Midwest causes poor wheat harvest.
d. The labor force participation rate increases.
2. Suppose MPC is 0.8 initially. Households then change their behavior so that the MPC falls to 0.75. What happens to aggregate expenditures? Why?
3. Explain what would cause the government purchases function to increase. Will a change in social security spending affect government purchases?
4. What is a consumption function? Describe the graph of a consumption function and explain its shape. If total spending is consumption plus investment spending, how does an increase in the interest rate affect total spending?
5. How is an aggregate demand curve derived? What would cause the aggregate demand curve to shift to the right?
6. Addition question. Does not have to be a certain amount of words. Just answered:
The AS curve does not describe the same kind of relationship between price and quantity as a microeconomic supply curve, why?
Optional: It has been said that U.S. citizens do not have much propensity to save, and the low interest on savings accounts may be a reason. What would happen to the economy if, all else remaining the same, savings interest increased enough that we would have greater propensity to save? What aspects of the economy would be affected?
Instructions: I need each question (5 questions) answered in 75 words or greater. The additional question (6) doesn’t have a word limit but it does not need to be long. There are also 2 case study questions attached as a PDF file to the homework (not in this word document) that need to be answered that also need to be at least 75 words. There are a total of 8 questions being asked. I need the book that is being used to be referenced in APA format. The book being used is ECON MACRO 3 by William A. McEachern. I need these back Saturday (3/23) by 9:00pm so that I have time to read over and submit them. 9:00 EST.
Case StudiesCase Studies
AGGREGATE EXPENDITURE
Case Study 9.1: The Life-Cycle Hypothesis
Do people with high incomes save a larger fraction of their incomes than those with low income? Both theory and
evidence suggest they do. The easier it is to make ends meet, the more income is left over for saving. Does it
follow from this that richer economies save more than poorer ones—that economies save a larger fraction of total
disposable income as they grow? In his famous book, The General Theory of Employment, Interest, and Money,
published in 1936, John Maynard Keynes drew
that conclusion. But as later economists studied
the data—such as that presented in the exhibit below—it became clear that
Keynes was wrong. The fraction of disposable income saved in an economy
seems to stay constant as the economy grows.
So how can it be that richer people save more than poorer people, yet
richer countries do not necessarily save more than poorer ones? Several
answers have been proposed. One of the most important is the life-cycle
model of consumption and saving. According to this model, young people
tend to borrow to fi nance education and home purchases. In middle age,
people pay off debts and save more. In old age, they draw down their savings,
or dissave. Some still have substantial wealth at death, because they are not
sure when death will occur and because some parents want to bequeath
wealth to their children. And some people die in debt. But on average net
savings over a person’s lifetime tend to be small. The life-cycle hypothesis
suggests that the saving rate for an economy as a whole depends on, among
other things, the relative number of savers and dissavers in the population.
A problem with the life-cycle hypothesis is that the elderly do not seem to draw down their
assets as much as the theory predicts. One reason, already mentioned, is that some want to leave
bequests to children. Another reason is that the elderly seem particularly concerned about covering
unpredictable expenses such as from divorce, health problems, or living much longer than the
average life span. Because of such uncertainty, many elderly spend less and save more than the
life-cycle theory predicts. Researchers have found that those elderly who have not experienced a
divorce or health problems build their net wealth well into old age.
Still, the life-cycle hypothesis offers a useful theory of consumption patterns over a lifetime.
SOURCES: Martin Browning and Thomas Crossley, “The Life-Cycle Model of Consumption and Saving,” Journal of Economic
Perspective 15 (Summer 2001): 3–22; OECD Economic Outlook 87 (May 2010); and James Poterba, Steven Venti, and David
Wise, “Family Status Transitions, Latent Health, and the Post Retirement Evolution of Assets,” NBER Working Paper 15789, (February 2010).
QUESTION
1. According to the life-cycle hypothesis, what is the typical pattern of saving for an individual over his or her lifetime? What impact does
this behavior have on an individual’s lifetime consumption pattern? What impact does the behavior have on the saving rate in the overall
economy?
9
life-cycle model of
consumption and
saving
young people borrow,
middle-agers pay off
debts and save, and
older people draw down
their savings; on average,
net savings over a lifetime
is usually little or nothing
U.S. Consumption Depends on Disposable Income
C
o
n
s
u
m
e
r
s
p
e
n
d
in
g
(t
ri
ll
io
n
s
o
f
2
0
0
5
d
o
ll
a
rs
)
0.0 1.0 2.0 3.0
4.0
5.1
4.5
Disposable income
(trillions of 2005 dollars)
5.0 6.0 7.0 8.0 9.0 10.0 1
1.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1995
1985
1975
2005
2010
10.0
11.0
SOURCE: Based on estimates from the Bureau of Economic Analysis, U.S.
Department of Commerce. For the latest data, go to http://bea.gov/.
26692_CS_01-42.indd 1826692_CS_01-42.indd 18 11/11/11 6:07 PM11/11/11 6:07 PM
Case Study 9.2: Investment Varies Much More than
Consumption
Consumption averaged 70 percent of GDP during the most recent decade, and investment varied from year to year and averaged 16 percent
of GDP during the most recent decade. Now let’s compare the year-to-year variability of consumption and investment. The exhibit below shows
the annual percentage changes in GDP, consumption, and investment, all measured in real terms. Two points are obvious. First, investment
fl uctuates much more than either consumption or GDP. For example, in the recession year of 1982, GDP declined 1.9 percent but investment
dropped 14.0 percent; consumption actually increased 1.4 percent. In 1984, GDP rose 7.2 percent, consumption increased 5.3 percent, but
investment soared 29.5 percent. Second, fl uctuations in consumption and in GDP appear to be entwined, although consumption varies a bit
less than GDP. Consumption varies less than GDP because consumption depends on disposable income, which varies less than GDP.
During the six years of falling GDP over the last half century, the average decline in GDP was only 0.9 percent, but investment dropped
an average of 13.6 percent. Consumption actually increased by an average of 0.3 percent. So while consumption is the largest spending
component, investment varies much more than consumption and accounts for nearly all the year-to-year variability in real GDP. Note that GDP
does not always fall during years in which a recession occurs. That’s because the economy is not necessarily in recession for the entire year.
For example, because the recession of 2001 lasted only eight months, GDP managed a small gain for the year of 1.1 percent and consumption
grew 2.7 percent. It was the 7.0 percent fall in investment that caused the recession. That’s why economic forecasters pay special attention to
business expectations and investment plans.
SOURCES: Economic Report of the President, February 2010, Survey of Current Business 90, various months for 2010; and OECD Economic Outlook 87 (May 2010). For data and
articles about economic aggregates, go to the Bureau of Economic Analysis site at http://bea.gov/.
QUESTION
1. Why do economic forecasters pay special attention to investment plans? Take a look at the Conference Board’s index of leading economic
indictors at http://www.conference-board.org/. Which of those indicators might affect investment?
Annual Percentage Change in U.S. Real GDP, Consumption, and
Investment
A
n
n
u
a
l
p
e
rc
e
n
ta
g
e
c
h
a
n
g
e
1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999
Investment
2003 2007 2011
30.0
GDP
Consumption
25.0
20.0
15.0
10.0
5.0
0.0
–5.0
–10.0
–15.0
–20.0
–25.0
SOURCE: Bureau of Economic Analysis, U.S. Department of Commerce. Figures for 2011 are projections based on annualized rates from the fi rst half of the year. For the latest
data, go to http://bea.gov/.
26692_CS_01-42.indd 1926692_CS_01-42.indd 19 11/11/11 6:07 PM11/11/11 6:07 PM
1. If work provides disutility, why do people ever engage in either market work or nonmarket work?
2. What does it mean to say that the demand for a resource is a derived demand? Why does the supply curve of a resource slope upward?
3. Why does the division of resource earnings into economic rent and opportunity costs depend on the resource owner’s elasticity of supply?
4. What is the price of an hour of leisure? An hour of nonmarket work? What does it mean to say that leisure is a normal good? Why doesn’t the market supply curve for labor bend backward?
5. Distinguish between mediation and arbitration. Explain how industrial unions tend to raise wages and why unemployed workers do not offer to work for less money.
6. Addition question. Does not have to be a certain amount of words. Just answered:
Many individuals feel that they have little influence over the wage rate they receive, and that employers decide unilaterally what wage they will pay. How do you square this fact with the model of wage determination presented in this chapter?
Optional: What are the pros and cons of sending jobs overseas? What, and who, makes this such a “hot” topic in the news media?
Instructions: I need each question (5 questions) answered in 75 words or greater. The additional question (6) doesn’t have a word limit and it does not need to be long. There are also 2 case study questions attached as a PDF file to the homework (not in this word document) that need to be answered that also need to be at least 75 words. There are a total of 8 questions being asked. I need the book that is being used to be referenced in APA format. The book being used is ECON MICRO 3 by William A. McEachern. I need these back Saturday (3/23) by 9:00pm so that I have time to read over and submit them. 9:00 EST.
Case StudiesCase Studies
LABOR MARKETS AND LABOR UNIONS
Case Study 12.1: Winner-Take-All Labor Markets
Each year Forbes magazine lists the multimillion-dollar earnings of top entertainers and professional athletes.
Oprah Winfrey has made that list each year for more than two decades. Her annual income adds up. With wealth
now in the billions, she ranks among the world’s richest people. Entertainment and pro sports have come to
be called winner-take-all labor markets because a few key individuals critical to the overall success of an
enterprise are richly rewarded. For example, the credits at the end of a movie list a hundred or more people directly
involved in the production. Hundreds, sometimes thousands, more work behind the scenes. Despite a huge cast
and crew, the difference between a movie’s fi nancial success and failure depends primarily on the performance of just a few critical people—
the screenwriter, the director, and the lead actors. The same happens in sports. In professional golf tournaments, attendance and TV ratings are
signifi cantly higher with Tiger Woods in the mix. In professional basketball, LeBron James has been credited with fi lling once-empty seats and
boosting the value of his team by $160 million. Thus, top performers generate a high marginal revenue product.
But high productivity alone is not enough. To be paid anywhere near their marginal revenue product, there must be an open competition
for top performers. This bids up pay, such as the $20 million per movie garnered by top stars—about 2,000 times the average annual acting
earnings of Screen Actors Guild members. Simon Cowell reportedly earned $36 million judging American Idol in his fi nal contract year; he was
expected to leave that show to develop a new one that could earn him twice as much. In professional sports, before the free-agency rule was
introduced (which allows players to seek the highest bidder), top players couldn’t move on their own from team to team. They were stuck with
the team that drafted them, earning only a fraction of their marginal revenue product.
Relatively high pay in entertainment and sports is not new. What is new is the spread of winner-take-all to other U.S. markets. The “star”
treatment now extends to such fi elds as management, law, banking, fi nance, even academia. Consider, for example, corporate pay. In 1980,
the chief executive offi cers (CEOs) of the 200 largest U.S. corporations earned about about 42 times more than the average production worker.
Now, this multiple tops 200. Comparable multiples are much lower in Germany and Japan. Why the big U.S. jump?
First, the U.S. economy has grown sharply in recent decades and is by far the largest in the world—with output equaling that of the next
three economies combined. So U.S. businesses serve a wider market, making the CEO potentially more productive and more valuable. Second,
breakthroughs in communications, production, and transportation mean that a well-run U.S. company can now usually sell a valued product
around the world. Third, wider competition for the top people has increased their pay. For example, in the 1970s, U.S. businesses usually hired
CEOs from company ranks, promoting mainly from within (a practice still common today in Germany and Japan). Because other fi rms were not
trying to bid away the most talented executives, companies were able to retain them for just a fraction of the
pay that now prevails in a more competitive market. Today top executives are often drawn from outside the
fi rm—even outside the industry and the country. Fourth, although CEO pay has increased more than sixfold
on average since 1980, so has the stock market value of the corporations they run. Fifth, a study of 732
fi rms in the United States, France, Germany, and the United Kingdom found that U.S. fi rms on average are
more effi cient than those in the other countries. One fi nal reason why top CEO pay has increased in America
is that high salaries are more socially acceptable here than they once were. High pay is still frowned on in
some countries, such as Japan and Germany.
Some top executives are no doubt paid more than they are worth, but nobody claims the market for
resources works perfectly. The claim is that an open competition for resources will tend to offer the most to
those resources contributing the most. And in those cases where marginal productivity is huge, so is the pay.
SOURCES: Nicholas Bloom and John Van Reenan, “Measuring and Explaining Management Practices Across Firms and Countries,” Quarterly Journal of Economics, 122 (November
2007): 1351–1408. Bill Livingston, “LeBron,” Cleveland Plain Dealer, 6 May 2007; “Paula Abdul Stays Focussed on Her Craft,” The Los Angeles Times, 5 May 2009. Urs Fischbacher
and Christian Thoni, “Winner Take All Markets Are Ineffi cient,” Journal of Economic Behavior and Organization,” 67 (July 2008): 150–163; Xavier Gabaix and Augustin Landier, “Why
Has CEO Pay Increased So Much,” Quarterly Journal of Economics, 123 (February 2008): 49–100. Economic Report of the President, February 2010, at http://www.gpoaccess.
gov/eop/.
QUESTION
1. What characterizes a winner-take-all labor market? Offer some reasons why corporate heads now earn much more than they did in the
1970s.
winner-take-all
labor markets
markets in which a few
key employees critical
to the overall success
of an enterprise are
richly rewarded
12
22212_CS_01-43.indd 2422212_CS_01-43.indd 24 11/11/11 8:02 PM11/11/11 8:02 PM
Case Study 12.2: Federal Bailout of GM, Chrysler, and the UAW
In the 1970s, the United Auto Workers (UAW) negotiated what have been called “gold-plated benefi ts” for their workers and retirees. General
Motors, Ford, and Chrysler, the so-called Big Three, believed that because they dominated the U.S. auto market and because they all faced the
same labor costs, any higher costs could simply be passed along to car buyers. What could go wrong? Well, what went wrong was an onslaught
of fi erce competition from foreign automakers who would develop a reputation for high quality at competitive prices. These foreign automakers
also began building plants in the United States operated by mostly nonunion workers. Pay and benefi ts for these nonunion workers, while still
attractive, amounted to about three quarters of what UAW workers were getting (and UAW pay was double what average Americans earned).
Not only were UAW wages higher, but union work rules—some 5,000 pages detailing what each worker could and could not be asked to
do—imposed expensive ineffi ciencies on production. If work rules were violated, a union representative could shut down the assembly line.
General Motors, Ford, and Chrysler, were making costly vehicles that not enough people wanted to buy, and the companies were losing money
by the truckload. GM, for example, lost over $60 billion between 2005 and 2008. Hard hit by fallout from the global fi nancial crisis of 2008 and
facing bankruptcy, the Big Three turned to the federal government for help. After some UAW pressure and political wrangling, federal offi cials
agreed on a bailout of about $85 billion, with most of that going to GM (Ford ultimately decided not to accept federal aid).
The agreement called for GM and Chrysler to fi le for bankruptcy. By doing so, both companies were able to walk away from huge debt
burdens built up from years of making costly products that didn’t sell well enough. Those who had owned the companies, the stockholders, got
wiped out in the bankruptcy—they got nothing. Bondholders and other creditors also took a beating—they would get back less than a third
of what they had lent the automakers. Some suppliers were also left hanging and many dealerships were shut down. The group that benefi ted
most from the bailout was UAW workers. They ended up owning 10 percent of the
new GM and a majority of the new Chrysler. In years leading up to the bailout, many
workers had taken buyouts, meaning that the company paid them a chunk of money
to leave their jobs. The union also made some concessions, but mostly on the pay
and benefi ts of workers hired in the future. Existing workers gave up little in the
bailout agreement—certainly little compared to the drubbing suffered by company
stockholders, creditors, suppliers, and car dealers.
The new GM emerged from bankruptcy with the federal government owning 61
percent in return for its $43 billion “investment.” Much of the federal bailout money
would be used to buy out existing workers and shore up the health care fund for
union retirees. The Big Three are hoping to hire new workers at lower wages, but
recently-laid-off workers still have fi rst claim on any job openings, and they must be
rehired at their previous high wages, not the lower wages to be paid new workers.
The Congressional Budget Offi ce estimated that the government bailout would ultimately cost taxpayers $34 billion. That translates into
$300 per U.S. household to support the pay and benefi ts of those making twice what average American workers earn. We can’t necessarily
blame the UAW for the demise of the American auto industry. Demanding higher pay, better benefi ts, and more restrictive work rules sounds
like the job description of union representatives. But we can blame the managements for going along with these demands. Top auto executives
lost their jobs in the bankruptcy. UAW workers gave up little in the bankruptcy.
In today’s competitive marketplace, only an effi cient, fl exible work force will thrive. Technology advances too rapidly to drag along wages
that exceed the market rate and featherbedding work rules that slow down production.
SOURCES: David Leonhardt, “$73 an Hour: Adding It Up,” New York Times, 10 December 2008; Jonathan Welsh, “General Motors Says It Repaid Bailout. Not True, Says Watchdog
Group,” Wall Street Journal, 4 May 2010; Nick Bunkley, “Progress for Automakers After Losses,” New York Times, 21 April 2010; and Bill Koenig, “Unions Resist Yielding More as
GM, Ford, Chrysler Seek Aid,” Bloomberg, 12 November 2009.
QUESTION
1. How would the UAW benefi t for increased demand for GM and Chrysler vehicles?
22212_CS_01-43.indd 2522212_CS_01-43.indd 25 11/11/11 8:02 PM11/11/11 8:02 PM
