Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Chapter 1, Problem 6QAP
a.
To determine
The
b.
To determine
To explain: The recession that has the largest increase in the rate of unemployment.
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Which of the below did NOT happen during the Great Recession of Dec. 2007 - June 2009?
Group of answer choices
Christina Romer, the then chair of President Obama's Council of Economic Advisers estimated that household wealth increased by 5% between December 2007 and December 2008.
Banks had made subprime mortgage loans to overly leaveraged American families who could not make their mortgage payments.
The American Recovery and Reinvestment Act (ARRA), or President Obama's Stimulus Bill was enacted in 2009.
The investment bank, Lehman Brothers, declared bankruptcy leaving all of its creditors high and dry.
In detail, explain how high inflation can lead to a recession in several ways.
Assuming all else equal, the following happens in the economy.
“Wages have grown more slowly than the economy in the wake of the 2008 crisis, and faster growth in recent months has been offset by rising inflation. The most recent available data, average hourly wages increased by 2.9 percent, but after adjusting for inflation, the increase was just 0.2 percent according to Department of Labor. … The Fed noted the turn toward nonwage compensation. The survey said that companies seeking workers, rather than baiting their hooks with wage increases, “were increasingly using benefits — such as vacation time, flexible schedules and bonuses — to attract and retain workers, as well as putting more resources into training. For the median worker, benefit compensation has increase 5 percent. With this change, labor costs in net increased compared to last year level.”
What would happen in SR and LR equilibrium? Explain using aggregate demand and aggregate supply model.
Chapter 1 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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- Explain in details how high inflation can lead to a recession in several ways.arrow_forwardWhich of the following is the most correct statement about the relationship between inflation and unemployment? Group of answer choices In the short run, falling inflation is associated with rising unemployment. In the long run, falling inflation is associated with rising unemployment. In the long run, falling inflation is associated with falling unemployment. In the short run, falling inflation is associated with falling unemployment. Nextarrow_forwardWhat are the two biggest recessions in terms of length and magnitude from the graph, the shaded areas show recession and 2020 is not included? How does the unemployment rate react during the two main recessions you have identified? What was the level of the unemployment rate during the first and the last quarter of negative growth for those two recessions? What do you conclude about the link between recession and the variation in unemployment?arrow_forward
- In the basic New Keynesian model, if anticipated future inflation decreases and the central bank does not change its interest rate target in response, then A. output rises and inflation rises. B. output stays the same and inflation falls. C. output falls and inflation falls. D. output and inflation stay the same. E. output rises and inflation falls.arrow_forwardSuppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy. This monetary policy action ________(Decreases, Increases) demand for goods and services in the economy, leading to ________(Higher, Lower) prices for products. In the short run, the change in prices induces firms to produce ________(Fewer, morer) goods and services. This, in turn, leads to a ___________(Higher, Lower) unemployment level. Based on this analysis, the economy faces the following trade-off between inflation and unemployment: Higher inflation leads to _________(Higher, Lower) unemployment.arrow_forwardDuring the 2008-2011 financial crisis, two members of Congress proposed reinstituting the military draft as a solution to high unemployment, citing the experience of World War II. Would this have been a viable policy option? Discuss.arrow_forward
- What sort of event could lead to a simultaneous decrease in both inflation rate and the unemployment ratearrow_forwardIn order to manipulate the inflation rate in the United States, the Federal Reserve lowers the federal funds rate. What will occur as a result? Select all that apply.arrow_forwardIn the New Keynesian model, how should the central bank change its target interest rate in response to each of the following shocks? Use diagrams and explain your results. There is a shift in money demand. Total factor productivity is expected to decrease in the future. Total factor productivity decreases in the present.arrow_forward
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