1. This question studies how labor income has evolved over the past 50 years relative to GDP.
a. Using FRED, acquire the following data series: Gross Domestic Product (FRED Code “GDP”)
and Compensation of employees (FRED Code “W209RC1Q027SBEA”) (Note, I will call this
Labor Compensation). For convenience, work only with annual frequencies.
Construct a similar table as that displayed below, by computing the growth rates by decade of
GDP and Labor Compensation.
1970–1980 1980–1990 1990–2000 2000–2015 1970–2015
Growth Rate of GDP
Growth Rate of Labor Compensation
Are these data consistent with the idea from Class # 4 (2/03/16) that the marginal product of
labor should grow at a similar rate as output per worker? If at all, why or why not?
b. Using FRED, download some additional data: Proprietors’ income with inventory valuation and
capital consumption adjustments: Nonfarm (FRED Code “A045RC1A027NBEA”) and Propri-
etors’ income with inventory valuation and capital consumption adjustments: Farm (FRED code
“B042RC1A027NBEA” )
Assuming that Labor Compensation and these two measures of Proprietors Income account for
the amount of income attributed to labor, construct a graph of “Labor’s Share of Income” (that
is labor income divided by GDP) showing the its evolution between 1970 and 2015.
In your report, please address several questions about this graph. . .
• Is there any connection between the findings in Part a and this graph?
• What does this graph imply about the amount of income attributed to capital?
• Do you think it is correct to attribute all of Proprietor’s income as a payment to labor?
• Do these findings have any implications for income inequality?
Revised: February 3, 2016
Economics of Global Business Problem Set #1
2. This question studies how inflation has varied across time and space in the United States.
a. Using FRED, acquire the following data series: Consumer Price Index for All Urban Consumers:
All Items (FRED Code “CPIAUCSL”), Consumer Price Index for All Urban Consumers: All items
in New York-Northern New Jersey-Long Island, NY-NJ-CT-PA (FRED Code “CUUSA101SA0”),
Consumer Price Index for All Urban Consumers: Commodities in Detroit-Ann Arbor-Flint, MI
(FRED Code “CUUSA208SAC”).
With all these data series, focus on on the data from 1984 and on, at an annual frequency.
b. Graph the all three CPI’s (the level, not the growth rate) on a well-labeled figure.
Construct a similar table as that displayed below, by computing the growth rates of the CPI by
location and over 10 year horizons.
1984–1995 1995–2005 2005–2015 1985–2015
Growth Rate of CPI: All Items
Growth Rate of CPI: NY Area
Growth Rate of CPI: Detroit Area
c. Speculate as why the cost of living has grown deferentially in the New York Metropolitan area
relative to the Detroit Metropolitan area. Hint: In FRED you can find CPI’s by location for
housing. And in FRED you can find CPI’s by location less shelter (i.e. not including housing or
rent).
d. You are the owner of firm located in the New York Metropolitan area. Your firm uses local labor
in the New York area and sells goods nationally. Assume that real labor costs in 1984 were the
same in the Detroit and New York Metropolitan area.
Should you relocate your firm to the Detroit area? Why or why not? Please provide an argument
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