Name last 4 PSU ID Section 001 MWF 11 15 am 12 05 pm 10 Sparks Building Section 007 MWF 9 05 9 55 am 112 Kern Building Spring 2012 Chuderewicz YOU MUST USE THIS AS A TEMPLATE THAT IS MAKE SPACE FOR YOUR ANSWERS BY HITTING ENTER you certainly don t need to type this assignment LEAVE THE QUESTIONS AS THEY ARE AND PLEASE STAPLE ALSO PLEASE PUT THE FIRST TWO LETTERS OF YOUR LAST NAME IN THE TOP RIGHT HAND CORNER OF THIS PAGE SO THAT WE CAN ALPHABETIZE THESE EASILY THANKS IN ADVANCE Economics 304 Homework 1 A ride into reality Due Wednesday 1 25 at the beginning of class you must hand in homework in the section you are registered in no late papers accepted Instructions Please show all work or points will be taken off Good luck 1 80 points total 10 points each part 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 of the 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 P is the price index typically the CPI and real GDP denoted Y When we move to chapter 4 we encounter many more major macroeconomic variables including consumption C investment I 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 1 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 Click Here for the NBER site look at right hand side of page for the official dates of the most previous 4 recessions 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 1 FRED stands for Federal Reserve Economic Data click Here for the FRED website Use the following two links to answer the following questions For Nominal Wages W Price index CPI P 2 Click Here Click Here a 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 In class we argued that a good approximation of the percent change of the real wage can be obtained with the following expression W P W P 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 a 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 1 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 The last four years of the Clinton Administration were arguably the absolute best in terms of the recent performance of the US economy 1 97 12 00 When we get to Chapter 3 we will discuss this period in much more detail and we refer to this period as the new economy Of course one metric of the health of any economy is the behavior of the real wage In this part we repeat the analysis above but use the final four years of the Clinton Administration In particular calculate the real wage W P the first month of Clinton s second term 1 97 and compare it to the last month of Clinton s second term 12 00 Did real wages rise or fall during this period Please show all work 2 Hint when deflating using a price index we typically move the decimal two place to the left For example in 12 09 W 18 80 and the price index was 217 541 The real wage is thus 18 80 divided by 2 17541 2 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 of 2003 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 of 2003 Use the CPI the same price index that you have been using thus far for your calculations Please show all work g Calculate the real wage when you were born and compare it to the real wage as of the present make sure you write down the month and year you were born so we can verify your answer Which real wage is higher and why To answer compare the percent change in W to the percent change in P over this time horizon To answer h you need to use the following link Employment N Click Here h Draw a graph with the real wage w W P on the vertical axis and employment N on the horizontal axis Locate the initial conditions when you were born as point A and the conditions as of the present as point B Use actual numbers and label your points accordingly You graph should have two points and no lines How many more people are working now relative to when you were born hint the answer is in millions …