Gross domestic product

Can you reply to the discussions (1 thru 5) and answer the questions (6-10).
I request Abhatnagar to answer questions.
1. In theory, minimum wage should have the four affects on the U.S. market:
1. Reduce Poverty. The minimum wage Increases the wages of the lowest paid.
These workers will have an increase in income and this will reduce poverty.
2. Increase productivity. The efficient wage theory states that higher wages can
increase the incentive for people to work harder and thus higher wages may
increase labor productivity.
1. Increase the incentives for the unemployed to accept a job. There will be a
bigger difference between the level of benefits and the income from employment.
A minimum wage could increase the participation rate as the benefits of work
become greater.
1. Increased Investment. Firms will have an increase incentive to invest and
increase labor productivity because labor is more costly
(http://www.economicshelp.org/labour-markets/disadvantages-minimum-wages/).
It is my opinion that the above statements are exactly as I stated- theory. The idea of minimum
wage, in my opinion, will protect employees from being paid a wage that is not fair from a
market perspective, however, to increase the minimum wage to the $15-$20/hour range that
some people are proposing would have an adverse affect on the market because this would cause
cost push inflation. This is because employers face an increase in costs which are likely to be
passed on to consumers. This is even more likely if wage differentials are maintained.
Minimum wage can discourage employers from hiring new employees. The guaranteed
minimum wage can represent an expense that a small business may not be able to afford. If that
is the case, small businesses will attempt to get more production from existing staff rather than
paying minimum wage to new employees.
http://smallbusiness.chron.com/minimum-wage-pros-cons-2765.html
2. Who Earns the Minimum Wage?
Those who support a higher minimum wage often do so in the belief that they will be helping a
struggling parent achieve an income level high enough to support a family. However, according
to the Employment Policies Institute, 41% of those who receive the minimum wage live with a
parent or guardian. Another 21% are members of two-income families, and 23% more are single
or married with no children. This leaves only 15% of all minimum wage earners actually
supporting a child on that income alone. I know there might some disparities in these statistics
based on the source, all sources seem to suggest that only a relatively small percentage of
workers actually earn the minimum wage. Speaking purely as an economist, the minimum wage
in an inefficient means of taking care of the last group mentioned above.
Since the passage of the Fair Labor Standards Act in 1938, the United States has had a Federal
minimum wage. The lowest wage that employers may legally pay for an hour of work.. That
wage has ranged between 30 and 50 percent of the average wage paid to manufacturing workers
and was most recently raised to $7.25 in July 2009. Numerous states, however, have minimum
wages that are higher than the Federal minimum wage. Some of these state minimum wages are
considerably higher. For example, in 2010 the minimum wage in the state of Washington was
$8.55 an hour. The purpose of the minimum wage is to provide a “wage floor” that will help lessskilled workers earn enough income to escape poverty. Critics contend that an above-equilibrium
minimum wage will simply cause employers to hire fewer workers. Down-sloping labor demand

curves are a reality. The higher labor costs may even force some firms out of business. Then
some of the poor, low-wage workers whom the minimum wage was designed to help will find
themselves out of work. Critics point out that a worker who is unemployed and desperate to find
a job at a minimum wage of $7.25 per hour is clearly worse off than he or she would be if
employed at a market wage rate of, say, $6.50 per hour. A second criticism of the minimum wage
is that it is “poorly targeted” to reduce household poverty. Critics point out that much of the
benefit of the minimum wage accrues to workers, including many teenagers, who do not live in
impoverished households.
3. The role of the minimum wage here in the U.S. is both a weakness and strength. It is designed
to ensure workers are being compensated fairly. The largest benefit is the requirements of
minimum wage make it so corporations are taking care of the working class which reduces the
burden of the federal government to take care of those in poverty. The positive effects of
minimum wage generally outweigh the negatives due to the effects it has had on our society and
economic progress.
Although an open market may be the most efficient and profitable, unregulated business
environments have and may lead to negative societal impacts. For example, child labor or slave
labor may have been profitable in the past but definitely not a labor standard that we want to
exhibit in our Society. Protections for wage laborers are a reflection of the government. Although
there may be some benefits to open wages in large corporations, regulation is necessary to ensure
workers are being compensating fairly.
A living wage is another way of government regulation that ensures an earning standard exists.
While it is not the most economically efficient options for corporations and businesses, and may
raise prices of goods and services, it protects workers from exploitation and ensures some
standard of living wage exists.
The effects of the current minimum wage are they provide the lowest paid workers a fighting
chance. The do not necessarily promote the most competitive labor market but it should be
something that is maintained to ensure workers can resist poverty.
4. A minimum wage acts as a price floor for the labor market. According to our text book, a
minimum wage should increase the quantity of labor supplied, reduce the quantity demanded,
and create a market surplus.
One argument against a minimum wage is that low wages increase ambition and encourage
advancement in the labor market. A higher minimum wage will increase the comfort of minimum
wage earners. This increase in comfort will likely decrease the desire for advancement. This
decrease in advancement will become an increase in minimum wage earners.
A higher minimum wage increases cost for companies. In order to maintain profits, the
businesses will reduce the number of employees. With an increase in minimum wage earners and
businesses hiring fewer workers, the market will experience a surplus in minimum wage earners.
This surplus can result in a higher unemployment rate.
However, the counter argument to this theory is that the increase in wages will increase revenue
for businesses. Low wage earners spend the highest percentage of their income. If low wage
earners make more money, then they will spend more money. The businesses hiring minimum
income earners will earn more revenue from increased spending. This increased revenue will
cover the increased costs.

The White House presents the argument that a higher minimum wage will decrease turnover and
hiring expenses. From the government’s perspective, a higher minimum wage will reduce
government spending through programs like the Earned Income Tax Credit the Supplemental
Nutrition Assistance Program. However, the recent executive order requiring government
contracted businesses to pay a minimum wage of $10.10 will only increase government
spending. Companies will add the additional cost of higher wages to their bids, passing this cost
to the government.
The only proven argument is that higher prices reduce demand. When the minimum wage is
implemented unemployment will likely increase. However, I believe that America, from an
ethical standpoint, should strive for an increasing minimum standard of living. I believe that this
could be best accomplished through legislation encouraging businesses to adopt a higher
minimum wage rather than a national standard. Through tax incentives, the government could
encourage businesses to maintain ethical wages.
Sources:
www.forbes.com/sites/jamesdorn/2013/05/07/the-minimum-wage-delusion-and-the-death-ofcommon-sense/
http://www.whitehouse.gov/blog/2014/02/12/economic-case-raising-minimum-wage
5. I believe that the minimum wage was intended for teenagers to go out and get experience in
the workforce. Adults and family are not able to sustain a living on $15K a year without using
another form of government assistant. The teenager’s unemployment rate has continued to
increase as adults are going after these jobs. The increase on the minimum wage would cause
compliance making it hard for companies to reward the skillful reliant employees, reduce the
number of jobs and ultimately additional cost to the consumer. Companies like Momentum
Machines – a San Francisco-based robotics company are creating robots to replace the workforce
in order to keep prices from increasing. If higher prices reduce sales, companies will have to
reduce cost through job efficiencies which mean fewer employees for the same amount or work
or another option like a machines.
http://blog.heritage.org/2013/03/04/minimum-wage-benefits-suburban-teenagers-not-singleparents/
http://www.forbes.com/sites/williamdunkelberg/2014/03/11/minimum-wage-myths/
6. Forty years ago, the price of a new Volkswagen was $5,000. (Actual price adjusted to simplify
the calculation). The price of a new Volkswagen is $25,000 today. Basing your answer solely on
the aforementioned prices, by what percent have prices increased over the past forty years?
(Show your work). What average annual inflation rate would have resulted in this answer? (Extra
credit--show your work).
7. The example in problem 4 highlights one of the problems in computing inflation rates
discussed in the text. What is it?
8. Visit: http://www.nber.org/cycles/cyclesmain.html

Go to the National Bureau of Economic Research website, "Business Cycle Expansions and
Contractions." From the data given in the table, 1) describe the business cycles for the period of
March 1991 to the most recent month, and 2) what conclusions can you draw about this period
by comparing this cycle to previous business cycles? You may want to check the links to
previous Announcement Dates for further information.

9. Visit: www.census.gov/main/www/a2z/I
Go to this site and click on "Income Data." Report the change in Household Income for the last
year-to-year period listed. Also view the data to see how this has been allocated by race. What do
you learn from these demographics?
10. Visit: www.bea.gov
The Bureau of Economic Analysis is the National Income Accounting arm of the Department of
Commerce. It has the responsibility to calculate the national income accounts (including Gross
Domestic Product) and to provide this information. To go directly to the data I want visit:
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1
This NIPA Tables page will provide you with all the data needed to complete the following
assignment. Click on Section 1 – Domestic Product and Income, scroll down and click on Table
1.1.5. Gross Domestic Product. Next, click the Options icon and select 2001 for the first year
and 2012 for the last year; then select the Annual button and click Update. For the years 2001
and 2012, I want you to provide the following data:
• Gross domestic product (GDP)
• Personal consumption expenditures
• Gross private domestic investment
• Net exports of goods and services
• Government consumption expenditures and gross investment
Calculate and show the percentage change between the first and last years for each of the above.
What trends do you see?