Only uses the material I attach below, no other outside source.

5-6 pages double-spaced text, not counting citations, graphs and tables. You can draw graph if you want. Grammar and spelling are counts. When you use something from the material I provide below, cite it as an Economics paper.

I do not expect you to use or cite any material beyond the readings I attach below. When you use something from the class notes, you need not provide any kind of citation. When you use a reading from the course pack or something you find for yourself, you must cite it properly.

The essay question is below:

II) Back in 2008, two Federal Reserve economists published an article (in your course pack) titled “What is the Optimal Inflation Rate?” In it, they discussed what level the Fed should choose for an inflation target. They said that a “standard” model suggested a target inflation rate of 0.7-1.4% (in the PCE index) would be good, and that a target of 2% would also be good; 2% would “place only limited constraints on monetary policy in stabilizing the economy.” In fact, back in 2008, nearly all economists believed 2% was a good inflation target.

Nowadays, in 2017, many economists argue that the Fed’s inflation target should be higher than 2%. For example, Olivier Blanchard, formerly the chief economist at the International Monetary Fund, recommends an inflation target of 4%.

Why are economists recommending an inflation target of 4% now, if they recommended an inflation target of2% back in 2008? Did something, or some things, happen in the meantime that changed economists’ minds? In your paper, make sure to cover all of the reasons economists give for adopting a higher inflation target.

Writing rule:

The introductory paragraph must state your conclusions, e.g. your answers to the specific

questions I posed with respect to the topic you chose. The concluding paragraph should

restate your conclusions but not in exactly the same words.

Avoid fancy, big, odd words

Always ask: is there a shorter word that means the same thing?

As much as possible, avoid using words you don’t use in ordinary conversation.

Know the difference between “its” and “it’s,” between “who’s” and “whose,” between

“effect” and “affect.”

Look up the difference between “compare with” and “compare to.” If you mess this up I

will HATE YOU.

“Relate to,” “correlate with.” NOT “relate with,” “correlate to.”

“Reason for” NOT “reason of.”

“Research on” or “research about.” NOT “research of.”

There is no such word as “researches.”

Avoid the passive voice.

NO I was bitten by the dog.

YES The dog bit me.

NO Models have been designed

YES Economists have designed models

Avoid unnecessary adjectives and adverbs.

NO little universal consensus has been achieved

YES little consensus has been achieved

oh, wait…that’s passive. Better:

economists have not come to a consensus

NO it is very likely

YES it is likely

NO of utmost interest

YES of interest

oh, wait…even better:


When you quote, you must give page number as well as author and year:

“Dogs bite” (Aaron 1996, 12)



a) Estimate how much more or less private sector workers in the US on average earn when
their wages are set by collective bargaining, holding their characteristics constant. Interpret
the findings.       [75%]
b) Extend part a) by adding an interaction for union and female. Include all three
variables (union, female and union*female) into the model and interpret the results


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