Analyzing the 2008 Financial Crisis , a.k.a. The Great Recession

Reflect within the context of the class (i.e. macroeconomics). In other words, using your "macroeconomic lens" describe what you observe about the 2008 Financial Crisis and its impact on the economy.

Expected Word Count:

• 250 initial post

Which of the following is most likely to shift the demand curve for electricity to the left?

Sugar and honey are viewed as substitutes for each other in many cooking applications. If the price of sugar rises, we would expect the:

The long-run equilibrium condition for perfect competition is:

ou have learned that earnings functions are one of the most investigated relationships in economics. These typically relate the logarithm of earnings to a series of explanatory variables such as education, work experience, gender, race, etc. (a) Why do you think that researchers have preferred a log-linear specification over a linear specification? (b) To establish age-earnings profiles, you regress ln(Earn) on Age, where Earn is weekly earnings in dollars, and Age is in years. Plotting the residuals of the regression against age for 1,744 individuals looks as shown in the figure: Do you sense a problem? (c) You decide, given your knowledge of age-earning profiles, to allow the regression line to differ for the below and above 40 years age category. Accordingly you create a binary variable, Dage, that takes the value one for age 39 and below, and is zero otherwise. Estimating the earnings equation results in the following output (using heteroskedasticity-robust standard errors): = 6.92 – 3.13 × Dage – 0.019 × Age + 0.085 × (Dage × Age), R2 = 0.20, SER = 0.721. (38.33) (0.22) (0.004) (0.005) Sketch both regression lines: one for the age category 39 years and under, and one for 40 and above. Does it make sense to have a negative sign on the Age coefficient? Predict the ln(earnings) for a 30 year old and a 50 year old. What is the percentage difference between these two? (d) The F-statistic for the hypothesis that both slopes and intercepts are the same is 124.43. Can you reject the null hypothesis? (e) What other functional forms should you consider?

a.) Evaluate the costs and benefits arising from the creation of NAFTA to the Mexican economy?

b.) Does NAFTA strengthen or weaken the world trading system?

1. Consider two countries: Victoria and Senza. Suppose that each country makes only two goods: lingerie and mathematics textbooks. In a single year, Victoria can use all of its resources to produce either 1,000 tons of lingerie or 2,000 tons of textbooks. In the same period, Senza can use its resources to produce either 500 tons of lingerie or 1,500 tons of textbooks. Use this information to respond to the following questions. In each case, explain your answer.

a) Which country has comparative advantage in textbooks? In lingerie? (15%)
b) Suppose that, prior to trade, Victoria makes 500 tons of lingerie and 1,000 tons of textbooks, while Senza makes 250 tons of lingerie and 750 tons of textbooks.
If they trade, and Senza gives Victoria 300 tons of textbooks in exchange for 125 tons of lingerie, then would this constitute an improvement (i.e. could each country consume beyond its Production Possibilities Frontier)?

4. Taxes paid for a given income level

Charles is getting ready to do his taxes. He is single and lives in San Diego. Charles earned $300,000 in 2011. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011.

Based on the IRS table, Charles calculates that his marginal tax rate is ______ when his annual income is $300,000.

Charles calculates that he owes ______ in income taxes for 2011.

Charles then calculates that his average tax rate is ______  , based on the annual income level and the amount of taxes he owes for 2011.

After figuring out what he owes in taxes in 2011, Charles decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $2,000 of taxable income from the federal government.

The maximum amount that Charles is willing to pay to learn this strategy and reduce his taxable income by $2,000 is ____ . (Hint: Sheltering some income means finding a legal way to avoid being charged income tax on that income. For example, someone who has $50,000 in income and shelters $10,000 pays income tax on only $40,000.)

The local bank pays 5% interest on savings deposits. In a nearby town, the bank pays 1.25% per quarter. A man who has $4000 to deposit wonders whether the higher interest paid in the nearby town justifies driving there. If all money is left in the account for 3 years, how much interest would he obtain from the out-of-town bank?

After reading Chapters 7 and 8, conduct research on GATT, WTO, and NAFTA. First, explain what GATT and WTO do for countries around the world. Then go onto elaborate on NAFTA, the countries involved, and what proposed changes Trump has suggested be made to the agreement. Be sure to provide the history of these agreements and why they came to be. Finally, provide details as to who are the true winners and losers in the NAFTA agreement even though its initial intention was to ensure the equality of all countries involved.

Next, do a bit of research and highlight why China has taken such an interest in investing in Africa. Is it because of the resources Africa has, the potential relationships that can be formed, or something else? Your text states that resources and even proximity play roles in why some countries participate in FDI with other countries. Why is there hesitation and criticism for China heavily investing in Africa? What type of impact do some think will occur for those countries in Africa that are receiving the FDI? Do they think it will be positive or negative? Why?

3. The economic student association at the University X is hiring students to make banners “I love economics” for the coming conference. Complete the following table and plot the production function and the cost function for producing banners. (Marks 10)
Number of
Students
Hired Output Marginal
Product of
Labour Cost of
Equipment Cost of
Students
Hired Total Cost
0 0 100 0
1 100 100 20
2 80 100 140
3 240 100 60
4 40 100 180
5 300 100 100

Bear Brewery, based in Langley, British Columbia, specializes in craft beer. The brewery produces two ales: Amber and Dubbel. Bear Brewery aligns its ale prices with competitors. The brewery sells its Amber for $14.95 per case and its Dubbel for $15.65 per case. The per case variable costs for Amber include $3.50 in raw materials, $0.75 in packaging, $1.20 in manufacturing overhead and $0.55 in shipping. Dubbel’s per case variable costs are $3.85 in raw materials, $0.75 in packaging, $1.95 in manufacturing overhead and $0.75 in shipping. Fixed costs include office lease of $25,000, office supplies of $4,500 and marketing expenses of $6,000. Create a spreadsheet that provides the income position of the brewery for the upcoming year. The brewery projects demand to be 10,000 cases for Amber, and 8,000 cases for Dubbel. Assuming a unit to unit sale, what is a more profitable beer for Bear Brewery? Determine the break-even for each beer, assuming that fixed expenses are allocated as follows: 45% for Amber and 55% for Dubbel. Provide a chart showing the break-even point for each beer.

Analysis and Recommendation

Who should be included? How can you get the information to everyone? How can data visualization of data help, what type? Would the 5 step Business process apply here, which one? And why.

Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis. What are their respective implications for inequality in the income distribution?

I answered: Let’s begin by understanding the difference between the life cycle hypothesis and permanent income, we have to understand the life cycle and the permanent income hypothesis.The life-cycle hypothesis (LCH) is an economic theory that describes the spending and saving habits of people throughout a lifetime. The concept was developed by Franco Modigliani and his student Richard Brumberg in the early 1950s.The theory is that individuals seek to smooth consumption throughout their lifetime by borrowing when their income is low and saving when their income is high.The LCH assumes that individuals plan their spending over their lifetimes, taking into account their future income. Accordingly, they take on debt when they are young, assuming future income will enable them to pay it off.They then save during middle age in order to maintain their level of consumption when they retire. A graph of an individual's spending overtime thus shows a hump-shaped pattern in which wealth accumulation is low during youth and old age and high during middle age.The permanent income hypothesis is a theory of consumer spending, stating that people will spend money at a level consistent with their expected long-term average income.The level of expected long-term income then becomes thought of as the level of "permanent" income that can be safely spent. A worker will save only if his or her current income is higher than the anticipated level of permanent income, in order to guard against future declines in income.The permanent income hypothesis was formulated by the Nobel Prize-winning economist Milton Friedman in 1957. The hypothesis implies that changes in consumption behavior are not predictable because they are based on individual expectations.Even if economic policies are successful in increasing income in the economy, the policies may not kick off a multiplier effect from increased consumer spending.Instead, the theory predicts there will not be an uptick in consumer spending until workers reform expectations about their future incomes.It is now clear from the above the difference between the two, so we can conclude that if there is some similarity between the two, then there are some inequalities which we can see as follows:Would it be correct to say that the Permanent Income Hypothesis (PIH) stipulates that current consumption decisions are made based on future income projections/expectations, while the Life-Cycle Hypothesis (LCH) claims that consumption is constant over the average person's lifetime, and this is made possible, despite changes in income level throughout his/her lifetime, through borrowing when younger and savings during the elderly years?This contribution aims to discuss carefully the implications of income inequality and the economic policies to tackle it, especially so because of inequality being one of the leading causes of the 2008 international financial crisis and the "great recession" that subsequently emerged.Wealth inequality is also essential in this respect, but the focus is on income inequality.Ever since the financial crisis and the subsequent "great recession," inequality of income and wealth, has increased and the demand for economic policy initiatives to produce an equal distribution of income and wealth has become more urgent.Reduction would help to increase the level of economic activity as has been demonstrated again more recently. Several economic policy initiatives for this purpose will be the focus of this contribution.

Any edits and corrections?