Write a short essay explaining how the sectional conflict over slavery reflected a tension between states rights and the authority of the federal government. What was the result of this tension?

For pedagogic purposes Hanushek and Jackson estimate the following model:

$$C_t=\beta_1+\beta_2 \mathrm{GNP}_t+\beta_3 D_t+u_i$$

where $C_t=$ aggregate private consumption expenditure in year $t, \mathrm{GNP}_t=$ gross national product in year $t$, and $D=$ national defense expenditures in year $t$, the objective of the analysis being to study the effect of defense expenditures on other expenditures in the economy.

Postulating that $\sigma_t^2=\sigma^2\left(\mathrm{GNP}_t\right)^2$, they transform (1) and estimate

$$C_t / \mathrm{GNP}_t=\beta_1\left(1 / \mathrm{GNP}_t\right)+\beta_2+\beta_3\left(D_t / \mathrm{GNP}_t\right)+u_t / \mathrm{GNP}_t$$

The empirical results based on the data for 1946-1975 were as follows (standard errors in the parentheses): ${ }^*$

$$\begin{aligned} &\hat{C}_t=26.19 \quad+0.6248 \mathrm{GNP}_t-0.4398 D_t \\ &\text { (2.73) (0.0060) (0.0736) } \quad R^2=0.999 \\ &\widehat{C_t / \mathrm{GNP}_t}=25.92\left(1 / \mathrm{GNP}_t\right)+0.6246 \quad-0.4315\left(D_t / \mathrm{GNP}_t\right) \\ & \end{aligned}$$

$$(0.0068) \quad(0.0597)$$

$$R^2=0.875$$

a. What assumption is made by the authors about the nature of heteroscedasticity? Can you justify it?

b. Compare the results of the two regressions. Has the transformation of the original model improved the results, that is, reduced the estimated standard errors? Why or why not?

c. Can you compare the two $R^2$ values? Why or why not? (Hint: Examine the dependent variables.)

Suppose the market for gourmet chocolate is in longrun equilibrium and an economic downturn has reduced consumer discretionary incomes. Assume chocolate is a normal good and the chocolate producers have identical cost structures.

a. What will happen to demand-shift right, shift left, no shift?

Facts: A county government and a legally separate organization—the Sports Stadium Authority—entered into an agreement under which the authority issued revenue bonds to construct a new stadium. Although the intent is for the authority to make debt service payments on the bonds from a surcharge on ticket sales, the county agreed to annually advance the Sports Stadium Authority the required amounts to make up any debt service shortfalls and has done so for several years. Accordingly, the county has recorded a receivable from the authority and the authority has recorded a liability to the county for all advances made under the agreement.

Ticket surcharge revenues that exceed $1,500,000 are to be paid to the county and to be applied first toward interest and then toward principal repayment of advances. Both parties acknowledge, however, that annual ticket surcharge revenues may never exceed$1,500,000 because reaching that level would require an annual paid attendance of 3,000,000. Considering that season ticket holders and luxury suite renters are not included in the attendance count, it is quite uncertain if the required trigger level will ever be reached.

The authority has twice proposed to raise the ticket surcharge amount, but the county in both cases vetoed the proposal. Thus, the lender in this transaction (the county) has imposed limits that appear to make it infeasible for the borrower (the authority) to repay the advances. Consequently, the authority’s legal counsel has taken the position that the authority is essentially a pass-through agency with respect to the advances in that the authority merely receives the advances and passes them on to a fiscal agent for debt service payments. Moreover, they note that the bonds could never have been issued without the county’s irrevocable guarantee of repayment because all parties knew from the beginning that the authority likely would not have the resources to make full debt service payments.

Based on the foregoing considerations, the authority’s legal counsel has rendered an opinion that the liability for the advances can be removed from the authority’s accounts. The county tacitly agrees that the loans (advances) are worthless because it records an allowance for doubtful loans equal to the total amount of the advances. Still, the county board of commissioners refuses to remove the receivable from its accounts because of its ongoing rights under the original agreement for repayment.

Required

Assume you are the independent auditor for the authority, and provide a written analysis of the facts of this case, indicating whether or not you concur with the authority’s decision to no longer report the liability to the county for debt service advances.

Darla sells roses in a competitive market where the price of a rose is $\$ 5$. Use this information to fill out the revenue columns in Table 13P-1.

TABLE 13P-1

What was John Brown's raid, and how did it signal that peaceful compromise was no longer possible?

Use the document to answer the following questions. In 1850 many Southern politicians, such as Senator John C. Calhoun of South Carolina, were opposed to limits on slavery and also were opposed to limits on states' rights. PRIMARY SOURCE : "[T]he equilibrium between [the North and the South] ... as it stood when the constitution was ratified and the Government put into action, has been destroyed.... [0]ne section has the exclusive power of controlling the Government, which leaves the other without any adequate means of protecting itself against its encroachment and oppression." -John C.Calhoun, from a speech in the Senate, March 4, 1850 If a Southerner in 1850 had agreed with Calhoun's message in this speech, what do you think that person would have said about secession?

Use the document to answer the following questions. In 1850 many Southern politicians, such as Senator John C. Calhoun of South Carolina, were opposed to limits on slavery and also were opposed to limits on states' rights. PRIMARY SOURCE : "[T]he equilibrium between [the North and the South] ... as it stood when the constitution was ratified and the Government put into action, has been destroyed.... [0]ne section has the exclusive power of controlling the Government, which leaves the other without any adequate means of protecting itself against its encroachment and oppression." -John C.Calhoun, from a speech in the Senate, March 4, 1850 What is the "equilibrium" to which Calhoun refers?

Use your notes to write a short paragraph about the events that led to the Civil War.

Create a time line showing the events that led to the Civil War and identify how the events affected the divide between the North and the South. Then write a paragraph explaining whether or not the Civil War could have been avoided.

Persuasive Writing Imagine you are an adviser to President Lincoln, and you have just heard about the firing on Fort Sumter. Write a brief report for the president, advising him on what steps to take next.

Suppose that you are an adviser to President Lincoln and you have just heard about the attack on Fort Sumter in South Carolina. Write a brief report for the president, advising him on what steps to take next.

Contrast how Southerners and Northerners felt about John Brown's raid on Harpers Ferry.

What does gross national product measure? Create a line graph of the nation's Gross National Product over the last five years.