ECON 103 Lecture Notes - Lecture 2: Classical Economics, Fiscal Policy, Money Supply

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burgundybee439

18 Apr 2016

School

University of Illinois

Department

Economics

Course

ECON 103

Professor

Petry Joseph

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Document Summary

Business cycles are short-run fluctuations of an economy. During a recession, output falls and unemployment increases. Deflation is a decrease in the overall price level. In the diagram of a supply and labor demand curve, we measure units of labor (x-axis) and the wage rate (y-axis) Labor demand curve chows the number of workers that the firms want to hire at each wage rate. Labor supply curve shows the number of workers that want to work at each wage rate. Government can borrow by selling treasury bills to the public (to fund its budget deficit) Circular flow diagram shows income received and payments made by each sector of the economy: firms, households, government, and rest of the world. Fiscal policy- government policies that deal with taxes and spending, monetary policy- policies dealing with the control of the nation"s money supply. Stagflation describes an economy dealing with inflation (overall price level increase rapidly) and economic stagnation (unemployment)

Related Questions

Suppose that the government gives a fixed subsidy of T per firm in one sector of the economy to encourage firms to hire more workers. What is the effect on the equilibrium wage, total employment, and employment in the covered and uncovered sectors if we assume to start that each of the two sectors - I and II - employs workers who are equally skilled, with each sector having a labor demand curve given by w = 12 - 0.1L (where L = the number of hours of labor) and with each sector initially facing a labor supply curve given by w = 0.1L? This will allow you to specify the initial equilibrium wage rates in each of the two sectors. Then assume that a government subsidy is given in the covered sector I of $2 per hour (while the other sector II gets no subsidy).

emeraldox281

1. What is the relationship between the labor demand curve under monopoly and perfect competition? Use the necessary formulas and explain.

2.What is the equilibrium condition for finding the optimal number of workers a perfectly competitive firm will hire? a. In the short-run. b. In the long-run.

3.A firm faces a perfectly elastic demand for its output for $6 per unit of output and each hour of labor produces five units of output. For L number of workers hired each hour and w hourly wage rate, the firm faces an upward-sloped labor supply curve of L = 20w - 120 and the firms face an upward-sloped marginal cost of labor curve is given as MC = 6 + 0.1L. How many workers should the firm hire each hour to maximize profits? What wage will the firm pay?

greenhornet700

On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?

A. Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.

B. Low-income workers will be better able to survive the recession at the new, higher wage rate.

C. More people will be hired at a higher wage rate offsetting the effects of the recession.

D. The higher wage will increase the supply of labor offsetting the effects of the recession.

amberminnow732

ECON 103 Lecture Notes - Lecture 2: Classical Economics, Fiscal Policy, Money Supply

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