Using the table attached which describes the condition of the economy in a recession? Open withOutputUnemploymentAY>Y*uu*Y=Y*u=u*DY=Y*u>u*

Answered: Output Unemployment A Y>Y* Uu* Y=Y*…

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Economics

Output Unemployment A Y>Y* Uu* Y=Y* u=u*

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 7E

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Question

Using the table attached which describes the condition of the economy in a recession?

Open with
Output
Unemployment
A
Y>Y*
u<u*
Y<Y*
u>u*
Y=Y*
u=u*
D
Y=Y*
u>u*

Expert Solution

Step 1

u=unemployment rate

u*=natural rate of unemployment

Y=output

Y*=full employment output

Step 2

The recession takes place when the actual unemployment rate is greater than the natural rate of unemployment and the actual output is lesser than the natural rate of output. This can be stated as :

$Y < Y * u > u *$

This shows that actual unemployment is more than expected unemployment. Also, the economy is not able to produce at full employment level. This implies the economy is in a state of recession.

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