Lectures in Macroeconomics- Charles W. Upton Some Simple Applications

Labor Supply and Demand D S SR S LR H* w*

Some Simple Applications Summary

Some Simple Applications A Recession D’ S SR S LR D H’H* w* w’

Some Simple Applications A Recession D’ S SR S LR D H’H* w* w’ People know there is a temporary decline in GDP.

Some Simple Applications A Recession D’ S SR S LR 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’ S SR S LR D H* H’ w* w’

Some Simple Applications A War D’ S SR S LR D H* H’ w* w’ People know the increase in military spending will not last forever

Some Simple Applications A War D’ S SR S LR 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’ S SR S LR D H’H* w* w’

Some Simple Applications A Drought D’ S SR S LR D H’H* w* w’ People know there is a temporary decline in GDP.

Some Simple Applications A Drought D’ S SR S LR D H’H* w* w’ Wage rate down, hours down.

Some Simple Applications New Technology D’ S SR S LR D H*H’ w* w’ A permanent increase

Some Simple Applications New Technology D’ S SR S LR D H*H’ w* w’ A permanent increase People work fewer hours, but get a higher wage rate

Some Simple Applications New Technology D’ S SR S LR 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’ S SR S LR 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 S SR S LR H* w*

Some Simple Applications A Permanent Increase in Government Spending D S SR S LR H* w* No net effect

Some Simple Applications End ©2004 Charles W. Upton. All rights reserved