5.5. If the NFL increased its schedule from 16 games to 36, what would the new bench-mark ideal standard deviation be (assuming equal playing strength)?

5.6. Why do many economists believe that free agency has not affected competitive balance?

6.1. Why is the multiplier effect for the Los Angeles Lakers likely to be greater than the multiplier effect for the Sacramento Kings even though they are both teams in the NBA?

6.5. If the marginal propensity to consume in a municipality is 0.8, what is the value of the simple multiplier? If a new stadium that adds $30 million in new consumption expenditures is built, what is the impact on the economy based on this multiplier? Suppose the marginal propensity to import is 0.3, what happens to the multiplier and to the impact on the economy?

Below are some basic comments on the third homework. Please do not hesitate to contact me if you would like additional clarification.

1. Ideal within season standard deviation is equal to .5/(sqrt(games). In this case .5/sqrt(36)=.5/6=.083

2. Free agency would theoretically not impact competitive balance by the invariance principle. Developed by Ronald Coase, this principle states that the allocation of property rights does not dictate the distribution of resource. Property rights simply dictate the beneficiary of transactions. If a player is more valuable in another city, he will end up there regardless. Either the team will sell the contract that they own, or the free agent will sell their own contract. Either way, the resource (in this case, player talent) will gravitate toward wherever it is most highly valued.

3. The multiplier effect is larger in Los Angeles because Los Angeles is a larger city. Individual are less likely to import from other economies because most of what you need can be found within city limits. They may even be a net exporter, bringing money in. If you are not sending your money away to import from other economies, then your money will ripple through your own economy more. This is unrelated to the fact that the people of Los Angeles have higher incomes. In fact, higher incomes are often correlated with more savings and a lower MPC, which reduces the multiplier. However, since LA is so large and the MPI is so small, we would expect the overall multiplier to be larger than Sacramento’s.

4. Simple multiplier = 1/(1-MPC)=1/(1-.8)=1/.2=5. An increase of $30M will be multiplied by 5 to get $150M. Local multiplier=1/(1-MPC+MPI)=1/(1-.8+.3)=1/.5=2. The local multiplier, dampened by the marginal propensity to import, is reduce to 2. An increase in spending of $30M will be multipled by 2 for an ultimate increase of $60M.