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Some Simple Applications SLR SSR w* w’ D D’ H’ H* Lectures in Macroeconomics- Charles W. Upton Labor Supply and Demand SLR SSR w* D H* Some Simple Applications Summary Demand for Labor Permanent Increase in Demand for Labor Temporary Increase in Demand for Labor Permanent Decrease in Demand for Labor Temporary Decrease in Demand for Labor Wage Rate Hours of Work w+ Hw+ H+ w- H+ w- H- Some Simple Applications A Recession SLR SSR w* w’ D D’ H’ H* Some Simple Applications A Recession SLR w* w’ People know there is a temporary decline in GDP. SSR D D’ H’ H* Some Simple Applications A Recession SLR w* w’ Wage rate down, hours down. SSR D D’ H’ H* 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 SLR SSR w’ w* D H* H’ Some Simple Applications D’ A War SLR w’ w* People know the increase in military spending will not last forever SSR D H* H’ Some Simple Applications D’ A War SLR SSR w’ w* D Wages up, hours of work up H* H’ Some Simple Applications D’ A Drought • This drought will not last forever, but there is a reduction in the demand for laborers. Some Simple Applications A Drought SLR SSR w* w’ D D’ H’ H* Some Simple Applications A Drought SLR w* w’ People know there is a temporary decline in GDP. SSR D D’ H’ H* Some Simple Applications A Drought SLR w* w’ Wage rate down, hours down. SSR D D’ H’ H* Some Simple Applications New Technology w’ SLR SSR w* D A permanent increase H’ H* Some Simple Applications D’ New Technology w’ SLR SSR w* D’ A permanent increase D People work fewer hours, but get a higher wage rate H’ H* Some Simple Applications People make more, New Technology and work harder SLR w’ SSR w* D A temporary increase H’ H* Some Simple Applications D’ 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 SLR SSR w’ w* D H* H’ Some Simple Applications D’ 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 SLR SSR w* D H* Some Simple Applications A Permanent Increase in Government Spending SLR w* No net effect SSR D H* Some Simple Applications End ©2004 Charles W. Upton. All rights reserved Some Simple Applications
