Principles of Macroeconomics (12th Edition)
12th Edition
ISBN: 9780134078809
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 5, Problem 3.3P
To determine
To explain
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Explain how each of the following events or policies will affect unemployment in a neoclassical model:
tax cut for consumers
a rise in business confidence that increases investment
a fall in export sales to a major trading partner
a rise in income levels for consumers throughout the economy
cheaper imported products
a fall in government spending
What is the Neoclassical Economics view of labor markets. How do they function? Does the economy produce full employment? How? If not, why?
Analyse how a Neoclassical version of the labour market would indicate that, in equilibrium, all unemployment is voluntary, and how, assuming imperfect competition instead, would account for the existence of some involuntary unemployment.
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Principles of Macroeconomics (12th Edition)
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- Which of the following policies would Keynesian economists recommend to help lower the rate of unemployment? a) Increase government spending b) Increase business taxes c) All of the choices are correct d) Increase taxes on businesses with revenues over $1 million per year. e) Increase taxes on householdsarrow_forwardAccording to Classical Point of view A) Cyclical Unemployment might occur temporarily B) All goods supplied will be demanded at an unchanged price. C) Unemployment will never happenarrow_forwardDuring the severe economic downturn during the great recession the federal government provided an additional $600 per month to those who claimed unemployment. Based on what you know so far, explain how this aligns with Keynesian economic theory.arrow_forward
- Which of the following policies would Keynesian economists recommend to help lower the rate of unemployment? a) Increase government spending b) Increase business taxes c) Increase taxes on businesses with revenues over $1 million per year. d) Increase taxes on householdsarrow_forwardDiscuss classical theory of unemploymentarrow_forwardExplain how each of the following events or policies will affect unemployment in a neoclassical model: a rise in income levels for consumers throughout the economy cheaper imported products a fall in government spendingarrow_forward
- In the simple Keynesian framework, the price level ___ in the short run. A.is fixed B.is indeterminate C.varies directly with unemployment D.varies inversely with wagesarrow_forwardSelect all that apply to the classical view of economics: A. Assumes flexible price and wages B. Savings depends on interest rates C. Investment depends on interest rates D. Investment depends on profit expectations E. Wait for Long Runarrow_forwardThe Great Depression undermined the credibility of the classical view. Correspondingly, the high rates of inflation and unemployment during the 1970s undermined the Keynesian view. Can you explain why both of these phenomena occurred?arrow_forward
- Compare how the Keynesian School and the Classical School answer the questions on why do fluctuations in the unemployment rate exist, if perfectly competitive labour markets should naturally adjust with changes in capital investments?arrow_forwardDuring the severe economic downturn during the great recession the federal government provided an additional $600 per month to those who claimed unemployment. Based on what you know, explain how this aligns with Keynesian economic theory.arrow_forwardWhat are the assumptions of the classical theory of employment in the economyarrow_forward
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