02 Jun Question 1. In this first homework assignment, we are getting our ‘h
Question
1. In this first homework assignment, we are getting our ‘hands dirty’ to get familiar with some of the major macroeconomic variables that we will be using and working with throughout the semester. Our first chapter with ‘something to sink our teeth into’ is chapter 3 and it is all about the factors of production, the labor market, and of course, the production function. Major variables in this part ofthe macroeconomy (i.e., the supply side of the economy) include, but certainly are not limited to, employment (denoted N), real wages (denoted w = W /P where W = nominal wage and Pis the price index-typically the CPI) and real GDP (denoted Y). When we move to chapter 4 we encounter many more major macroeconomic variables includingconsumption (C), investment (1), and the real interest rate (denoted r), among others. We are going to use FRED as our source of data (many professional economists use this site, nice clean data!)
I provide you with the links to the data that is needed throughout this assignment. For an interesting look at the %~ W vs. the %~P, click Here.As we move forward through the class, we are going to learn about some “business cycle facts.” See page 290 in text, Chapter 8. In this first question, among other things, we are going to investigate the behavior of the real wage over the most recent business cycle. . In particular, we are going to calculate the percent change in the real wage during the most recent recession (12/07-6/09) and compare it to the percent change during the most recent recovery, 7/09 to the present.Use the following two links to answer the following questions:For Nominal Wages \W)Price index CPI (P) Calculate the real wage (W/P) the first month of the recession 12/07 and compare it to the last month of the recession 6/09. What is the percent change in the real wage during this most recent recession?
b) Using the expression above, re-calculate the percent change in the real wage during the most recent recession (12/07-6/09) and compare to your answer in part 1a). Does the expression above serve as a good approximation (i.e., is your answer similar to your answer in part a)? Please show all work.
c) Now calculate the real wage during the first month of the recovery, 7/09 and compare it to the real wage according to the most recent data. What is the percent change in the real wage during this recovery thus far?
d) According to the business cycle facts, the real wage is ‘pro-cyclical’ suggesting that the real wage moves directly (shares a positive relationship) with the state of the economy (GDP) growth. Another element of the business cycle fact(s) of economic time series is its timing: i.e., whether the economic variable is leading, coincident, or lagging (click Here for help with these terms and/or read pages 284-285 in text). According to your results above, how would you characterize the behavior of the real wage during this business cycle in terms of: I) it’s cyclicality and 2) it’s timing. Please consider all three of the possible timings (since we are are not sure) and then determine its cyclicality, based on the timing. There are three cases to consider.
e) 1he last four years of the Clinton Administration were arguably the absolute best in ~rw ‘i ~ ~1-u-1)terms of the recent performance of the US economy (1/97-12/00). When we get to +w ~ec.re..e.J(.Chapter 3, we will discuss this period in much more detail and we refer to this period as tAft-v ~the “new economy.” Of course one metric ofthe health of any economy is the behavior eof the real wage. In this part, we repeat the analysis above but use the final four years of \1\c….l’f\-lw’v\lW the Clinton Administration. In particular, calculate the real wage (W/P) the first month of ~ ~ ,~ jClinton’s second term (1197) and compare it to the last month of Clinton’s second rc.t~~r~·~ .o..term( 12/00). Did real wages rise or fall during this period? Please show 1 work.
f) In Florida, I used to fish on a party boat and tip the captain and mate every time I went fishing. Given that this was back in June of2003 and that the tip was $20, how much would the tip have to be now to equal the same purchasing power that $20 had back in June of2003? Use the CPI (the same price index that you have been using thus far) for your calculations. Please show all work.
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