Project #36562 - Macro Economics Research Paper

Read Attached Syllabus about the Research Paper. Also Email from professor explaining more about this project below: 

 

Class:
 
I want to discuss the term paper with you.  We are at the point in the course where we need to do this.  So here we go.
 
It is important for you to review the Appendix to Chapter 12.  Starting on page 254.  The reason it is important is because it pulls together the relationship between the Aggregate Expenditure Model (AE) and the AS/AD Model (Aggregate Supply/ Aggregate Demand Model).  If you closely study the derivation of the AD model from the AE model on page 254 you come to the clear and distinct conclusion that Aggregate Demand (AD) is composed of the 4 elements of the AE model, namely C, I , G and X.  In fact we say that AD = C + I + G + X.  This makes the AS/AD model very powerful in understanding and illustrating proposed policy changes (Fiscal policy changes from CH 13 or Monetary Policy changes from CH 16).
 
What I would like to see in your term paper, more specifically than what is listed on the Syllabus, is the following.  Use this AS/AD model, figure 12.7 on page 245 in your text and show the effect of a proposed macro policy change.  An example I have used in the past is the Obama administration raising payroll taxes in January of 2013.  It was a 2% across the board increase in payroll taxes paid by all working Americans.  This results in a decrease in C (consumers cannot consume as much as before).  A decrease in C (leads to) a shift left of the AD curve.  When the AD curve shifts left, the equilibrium between AD and AS moves leftward along the horizontal axis and clearly shows a lower level of RGDP in the US which also means lower employment, fewer jobs, higher unemployment, lower income, etc.  This increased payroll tax came at a time when the economy was not doing well and actually needed stimulus not constrictions. 
 
An increase in taxes, while the economy is struggling to recover leads to reduced consumption, lack of significant job creation and a sluggish economy.  This type of contractionary Fiscal Policy would appear to be the wrong kind of fiscal policy for our economy at this point in time.  Alternatively what might be more appropriate is an expansionary Fiscal Policy.  This is illustrated in Figure 12.9 in your text on page 246; the picture is illustrated to show a recession, you can use this graph for the scenario I discussed above.
 
I googled “payroll tax increase” the following link is the first search result:
 
http://abcnews.go.com/blogs/business/2013/02/payroll-tax-increase-weighs-on-consumer-spending/
 
If you choose to use a monetary policy approach, which is perfectly fine, let’s look at what the fed has done recently.  The Federal Reserve, the US Central Bank has been practicing an easy money policy.  Easy money implies increasing the money supply, subsequently lowering interest rates, lowering the cost of borrowing, lowering the opportunity cost of spending, encouraging spending, encouraging borrowing and etc.  You use the same AS/AD model.  Since the Fed is lowering interest rates, this leads to an increase in C which leads to a rightward shift in AD.  With AS remaining stationary a rightward shift in AD will move the equilibrium rightward along the horizontal axis resulting in an increase in RGDP which means an increase in income, an increase in employment, an increase in job creation, a reduction in unemployment, etc.  This is illustrated in Figure 12.8 (as demand pull inflation).  Your illustration is the same graph but the reason for the rightward shift in AD is like I just described above.
 
I want you to analyze some current or past macroeconomic event including the AS/AD model in your paper. 

 
Your paper should be 3-4 pages including the graph.  This does not include the title page and the references page.  You need at least three references for your research paper.  One is your text, the model on page 246 or similar.  You then just need to find a couple of news stories like from CNBC.com, WSJ.com or Bloomberg.com or some legitimate news source that references your view.
 
Don’t make this harder than it has to be.  Read the instruction in the Syllabus.  Include your purpose statement like the following “The purpose of this research project is to show that increasing the payroll tax will lead to a lower level of RGDP, job creation and income and slow US economic expansion.”  Include the graph in your paper; include a references page, list your text and other sources and you should be good to go.  You can use either of the 2 examples I illustrated above or any variation that you choose. 

Subject Business
Due By (Pacific Time) 07/31/2014 01:00 pm
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