**Transcription for Educational Website**---**Figure 2: Real Personal Consumption Expenditure (annualized growth): 2016-2020**The graph titled "Real Personal Consumption Expenditure" shows the annualized growth rate from 2016 to 2020. The x-axis represents quarters ranging from Q1 2016 to Q3 2020, while the y-axis shows the percent change from the previous year, ranging from -10% to 5%. - The graph illustrates a nearly stable consumer expenditure growth from 2016 to 2019, fluctuating slightly around the 0% change mark.- A significant decline is observed in 2020, with the growth rate sharply dropping below -30% by Q2 2020, indicating a substantial decrease in consumer spending.*Source: U.S. Bureau of Economic Analysis*---**Tasks:**1. **Determine the effect of the subsidy on the consumer’s budget constraint.**2. **Graph the original and the new budget constraints.**3. **Find the new optimization point and determine the effects of the subsidy $m$ on $C, l$ and $N^s$. Identify the substitution and income effects.**4. **Graph the substitution and income effects.**--- This content is designed to help students analyze data trends and understand the impact of economic subsidies on consumption behavior, using visual tools and conceptual inquiries. # Post-election programFigure 2 exhibits real personal consumption expenditure annualized growth. Consumption growth consistently declined during the 2016-2020 period, in spite of the 'Great Recession' having ended more than 10 years ago and in spite of claims of the current administration that consumers are better off, even prior to the beginning of the pandemic.Based on this evidence, assume Democrats and Republicans lose the 2020 election to reformist Elizabeth H., who becomes the new president of the U.S. Suppose that, in an attempt to make consumers better off, she decides to partially subsidize agents' consumption, based on the amount of hours they work. That is, the government subsidizes a fraction $ m > 0 $ of the consumer's wage income.---*1 The ‘hysteresis’ effect refers to the loss of skills or ‘appeal’ to firms due to long periods without formal employment, thus resulting in increasingly higher probabilities of remaining unemployed.*

Budget constraints recreate the different combinations of goods that a consumer can purchase.…

1. Determine the effect of the subsidy on the consumer's budget constraint 2. Graph the original and the new budget constraints 3. Find the new optimization point and determine the effects of the subsidy m on C, l and N*. Identify the substitution and income effects

1. Determine the effect of the subsidy on the consumer's budget constraint 2. Graph the original and the new budget constraints 3. Find the new optimization point and determine the effects of the subsidy m on C, l and N*. Identify the substitution and income effects

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Normal and Inferior Goods

Understanding a normal good and an inferior good is important because it tells us what will happen to demand different products during booms and recessions.

Question

**Transcription for Educational Website**

---

**Figure 2: Real Personal Consumption Expenditure (annualized growth): 2016-2020**

The graph titled "Real Personal Consumption Expenditure" shows the annualized growth rate from 2016 to 2020. The x-axis represents quarters ranging from Q1 2016 to Q3 2020, while the y-axis shows the percent change from the previous year, ranging from -10% to 5%.

- The graph illustrates a nearly stable consumer expenditure growth from 2016 to 2019, fluctuating slightly around the 0% change mark.
- A significant decline is observed in 2020, with the growth rate sharply dropping below -30% by Q2 2020, indicating a substantial decrease in consumer spending.

*Source: U.S. Bureau of Economic Analysis*

---

**Tasks:**

1. **Determine the effect of the subsidy on the consumer’s budget constraint.**

2. **Graph the original and the new budget constraints.**

3. **Find the new optimization point and determine the effects of the subsidy $m$ on $C, l$ and $N^s$. Identify the substitution and income effects.**

4. **Graph the substitution and income effects.**

---

This content is designed to help students analyze data trends and understand the impact of economic subsidies on consumption behavior, using visual tools and conceptual inquiries.

# Post-election program

Figure 2 exhibits real personal consumption expenditure annualized growth. Consumption growth consistently declined during the 2016-2020 period, in spite of the 'Great Recession' having ended more than 10 years ago and in spite of claims of the current administration that consumers are better off, even prior to the beginning of the pandemic.

Based on this evidence, assume Democrats and Republicans lose the 2020 election to reformist Elizabeth H., who becomes the new president of the U.S. Suppose that, in an attempt to make consumers better off, she decides to partially subsidize agents' consumption, based on the amount of hours they work. That is, the government subsidizes a fraction $ m > 0 $ of the consumer's wage income.

---

*1 The ‘hysteresis’ effect refers to the loss of skills or ‘appeal’ to firms due to long periods without formal employment, thus resulting in increasingly higher probabilities of remaining unemployed.*

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