Question

1，Average wages and salaries for most Americans have not kept pace with inflation. What impact does this have on aggregate demand? Average wages have been hit by technological change (think robots) and international trade (cheaper wages abroad). What policies or changes would help boost average wages?

2.Discuss some of the devastating effects that Hurricane Katrina had on the Gulf States, and the U.S. economy in general.

Answer 1

1.When the wage rate does not keep pace with the inflation rate,the purchasing power of the people falls.People can afford fewer goods because price has risen but wage rate hasn't.So average demand will fall.

Policymakers can help to grow wages by raising the minimum wage; updating overtime rules; strengthening rights to collective bargaining; regularizing undocumented workers; ending forced arbitration; securing workers’ access to sick leave and paid family leave; closing race and gender inequities; awarding government contracts only to firms that adhere to wage, health, and safety laws; and tackling workplace abuses such as misclassification and wage theft.

2.Devastating effects of hurricane:

Hurricane Katrina cost $108 billion. Insurance covered $80 billion of the losses. Flooding in New Orleans caused half the damage. It destroyed or rendered uninhabitable 300,000 homes. It left in its wake 118 million cubic yards of debris. That made clean up efforts a mind-boggling attempt.

Katrina damaged 19 percent of U.S. oil production. It destroyed 113 offshore oil and gas platforms when combined with Hurricane Rita which followed soon afterward. They damaged 457 oil and gas pipelines and spilled almost as much oil as the Exxon Valdez disaster. That caused oil prices to increase by $3 a barrel. Gas prices almost reached $5 a gallon. In response, the U.S. government released oil from the Strategic Petroleum Reserves.

The U.S. economy grew 3.8 percent in the quarter before Katrina hit. Afterward, it plummeted to 1.3 percent in the fourth quarter (October-December.) That's when production losses, such as gas pipe disruptions, showed up. The economy was healthy enough to shake it off. By the first quarter in 2006, it returned to a robust 4.8 percent growth rate in gross domestic product.