lectures in macroeconomics- charles w. upton some simple applications
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Lectures in Macroeconomics- Charles W. Upton
Some Simple Applications
D’
SSRSLR
D
H’ H*
w*
w’
Some Simple Applications
Labor Supply and Demand
D
SSRSLR
H*
w*
Some Simple Applications
SummaryDemand for Labor Wage
Rate Hours of
Work Permanent Increase in Demand for Labor w+ H- Temporary Increase in Demand for Labor w+ H+ Permanent Decrease in Demand for Labor w- H+ Temporary Decrease in Demand for Labor w- H-
Some Simple Applications
A Recession
D’
SSRSLR
D
H’ H*
w*
w’
Some Simple Applications
A Recession
D’
SSRSLR
D
H’ H*
w*
w’People know there
is a temporary decline in GDP.
Some Simple Applications
A Recession
D’
SSRSLR
D
H’ H*
w*
w’Wage rate down,
hours down.
Some Simple Applications
A War
• There is a sharp, temporary increase in defense spending, paid for by additional taxes.
Some Simple Applications
A War
• There is a sharp, temporary increase in defense spending, paid for by additional taxes.
• Consumers know the taxes will not last forever. Consumption goes down but only by a fraction of the tax increase.
Some Simple Applications
A War
• There is a sharp, temporary increase in defense spending, paid for by additional taxes.
• Consumers know the taxes will not last forever. Consumption goes down but only by a fraction of the tax increase.
• Demand for workers goes up.
Some Simple Applications
A War
D’
SSRSLR
D
H* H’
w*w’
Some Simple Applications
A War
D’
SSRSLR
D
H* H’
w*w’
People know the increase in military
spending will not last forever
Some Simple Applications
A War
D’
SSRSLR
D
H* H’
w*w’
Wages up, hours of work up
Some Simple Applications
A Drought
• This drought will not last forever, but there is a reduction in the demand for laborers.
Some Simple Applications
A Drought
D’
SSRSLR
D
H’ H*
w*
w’
Some Simple Applications
A Drought
D’
SSRSLR
D
H’ H*
w*
w’People know there
is a temporary decline in GDP.
Some Simple Applications
A Drought
D’
SSRSLR
D
H’ H*
w*
w’Wage rate down,
hours down.
Some Simple Applications
New Technology
D’
SSRSLR
D
H*H’
w*
w’
A permanent increase
Some Simple Applications
New Technology
D’
SSRSLR
D
H*H’
w*
w’
A permanent increase
People work fewer hours, but get a higher wage rate
Some Simple Applications
New Technology
D’
SSRSLR
D
H*H’
w*
w’
A temporary increase
People make more, and work harder
Some Simple Applications
Any Temporary Increase in Government Spending
• We want to spend money to get us out of a recession.
Some Simple Applications
Any Temporary Increase in Government Spending
• We want to spend money to get us out of a recession.
• The government pays for the additional spending by borrowing.
Some Simple Applications
Any Temporary Increase in Government Spending
• We want to spend money to get us out of a recession.
• The government pays for the additional spending by borrowing.
• Lets ignore the impact the borrowing has on consumption.
Some Simple Applications
A Temporary Increase in Government Spending
D’
SSRSLR
D
H* H’
w*w’
Some Simple Applications
A Permanent Increase in Government Spending
• The government decides to spend on a new program, which will continue for a long time.
• It raises taxes to cover the cost.
• The reduction in consumption demand will offset the increase in government spending.
Some Simple Applications
A Permanent Increase in Government Spending
D
SSRSLR
H*
w*
Some Simple Applications
A Permanent Increase in Government Spending
D
SSRSLR
H*
w*No net effect
Some Simple Applications
End
©2004 Charles W. Upton. All rights reserved